Self-managing your finances is a weighty responsibility, and you eventually need expert help managing your investments and planning your financial goals.
My financial advisor vs. financial planner comparison reviews the similarities, differences, and costs.
Financial Advisor
A financial advisor is a licensed professional typically specializing in near-term financial decisions such as investments, insurance, and tax planning.
There are many different roles and an advisor’s area of expertise tends to be more general.
You can develop a long-term relationship with an advisor to monitor your ongoing situation and make corresponding adjustments.
How advisors make money depends on the services and products they provide:
- Fee-only financial advisors charge a percentage of assets under management or a fixed or hourly rate. They are more likely to practice the fiduciary standard representing your best interest instead of products with higher profit margins.
- Fee-based advisors earn commissions when you make a purchase. While your best interest may be the center point, these professionals may only be required to follow the suitability standard with products matching your interests without excessive fees.
Their precise role and available products depend on which licenses they obtain.
Financial advisors complete at least one of the following Financial Industry Regulatory Authority (FINRA) exams:
| FINRA Exam License | Allowable Products for Sale |
|---|---|
| Series 6 | Mutual funds, annuities, insurance, and municipal fund securities |
| Series 7 | Individual stocks, bonds, futures, and options |
| Series 63 | State-level securities laws and regulations for Series 6 and 7 licenses |
| Series 65 | For fee-only advisors and planners |
Financial advisors and planners need the above licenses and more, depending on which securities they sell.
They may also have certifications from various accreditation boards to signify advanced qualifications with specific financial planning and investing topics.
For example, I have worked with fee-based investment advisors managing my stock portfolio in the past.
However, they didn’t provide non-investing insights as a fee-only advisor capable of performing holistic financial planning.
Types of Financial Advisors
Advisors can obtain many professional designations and certifications to demonstrate their areas of expertise.
Your potential advisor may have one or more designations following their name.
Some of the most common financial advisor certifications include:
- Accredited Investment Fiduciary (AIF): Investment advisors completing the Fi360 exam regarding ethics and compliance to uphold the fiduciary standard.
- Registered Investment Advisor (RIA): Also known as a wealth manager, they may provide personal advice, make recommendations, and analyze securities in addition to buying or selling securities on your behalf with a fiduciary standard.
- Broker-dealer: Usually a commission-based advisor with fewer hands-on insights than an investment advisor but potentially more investment options. These professionals may only be bound to the suitability standard in most situations.
- Financial coach: An entry-level advisor who focuses more on near-term money management goals such as getting out of debt, budgeting, and saving strategies. Accredited Financial Coach (AFC) is one of several certification designations.
You can ask an advisor which licenses and professional certifications they have to determine which securities and services they offer.
Financial Planner
Financial planners usually focus on long-term money management goals and complex situations, while implementing near-term changes.
These professionals typically have overlapping licenses as financial advisors, but typically have more education and expertise.
The certification exam covers the following topics:
- Code of Ethics
- Estate planning
- Financial therapy and psychology
- General financial planning principles
- Insurance planning
- Investment planning
- Retirement planning
- Risk management
- Tax planning
This versatility can be a better fit for an ongoing relationship throughout your career.
You can be a good fit if you have a high net worth, a steady income, or want a full-service financial review regarding your savings, investing, tax, and retirement needs.
The certification requirements are more rigorous than those of a traditional financial advisor.
However, your situation may not require working with a professional with the extra credentials. Still, the licensing can provide peace of mind with so many advisors to choose from.
ChFC vs. CFP
There are two standard financial planner certifications:
- Certified Financial Planner (CFP): The most recognizable designation and one of the most challenging accreditations to achieve. Approximately 30% of advisors have a CFP certification.
- Chartered Financial Consultant (ChFC): These requirements are similar to those of the CFP program but with two additional personal finance prerequisites. Over 50,000 advisors hold this designation in comparison to approximately 80,000 CFPs.
It’s possible to simultaneously be a CFP and a ChFC and both uphold the fiduciary standard.
From a customer’s perspective, you can expect similar insights from either and I would be comfortable with either if the planner aligns with my needs.
Related reading: CFA vs. CFP: What’s the difference?
Cost
How much a financial planner costs depends on the project, its complexity, and your geographic area.
There are several possible billing methods:
- Hourly: Pay by the hour for simple tasks and follow-up consultations. Hourly rates are usually between $100 and $300.
- Fixed-rate: A flat fee for in-depth personalized plans, typically from $1,000 to $3,000 per request.
- Percentage: A percentage of assets under management (AUM), usually around 1% of your portfolio balance. So, a 1% fee correlates to $100 per $10,000 under management.
- Retainer: You pay an annual, quarterly, or monthly fee to maintain an ongoing relationship.
These costs are competitive with financial advisors, although advisors can be more affordable for basic financial planning tasks.
For instance, you may only need a financial coach to draft a debt repayment plan at a fraction of the cost of a full-fledged financial planner.
Financial Advisor vs. Financial Planner: Key Differences
Either expert can help improve your financial future as there are many overlapping qualifications, but a particular background can be a better fit.
| Financial Advisor Tasks | Financial Planner Tasks |
|---|---|
| Efficiently provides near-term solutions and general financial guidance | Crafts long-term financial plans addressing many needs |
| More likely to specialize in a specific sector such as insurance, investments, or taxes | Offers holistic “whole life” projections but potentially fewer products |
| Provides advice and services for specific one-time situations | Navigates significant life events such as births, college, marriage, and death |
| Can adopt fiduciary or suitability standard | Fiduciary standard applies |
| May obtain service-specific certifications for investing, insurance, tax prep, risk management, etc. | Requires advanced professional designations, such as CFP or ChFC |
| Can hire for a one-time or ongoing relationship | Can hire for a one-time or ongoing relationship |
| Can be fee-only or fee-based | Usually fee-only |
When should I get a financial advisor or planner?
Here are several scenarios when it’s worth hiring a financial specialist to provide an extra set of eyes over your assets and ambitions.
When it’s best to choose a financial advisor:
- Need help making a one-time financial decision
- Only need short-term financial advice
- Seeking guidance with a specific financial need such as buying stocks and funds, purchasing insurance, funding retirement plans, or preparing personal or business taxes.
You can work with the same advisor for multiple years or decades with periodic checkups to stay financially protected.
It’s better to hire a financial planner in these situations:
- Want a personalized lifetime financial plan with ongoing updates
- Prefer a strategic analysis encompassing your entire financial picture
- Possess significant wealth and want an in-depth estate plan
- Desire an advisor with prestigious professional certifications
- Are more likely to work with a fee-only fiduciary
A financial planner can have more experience navigating complex situations and can draw from their interactions with previous clients to spot preparation gaps and recommend effective adjustments.
Robo-advisor vs. financial advisor
Simple situations don’t necessarily require working with a human advisor.
In today’s digital world, many advisors utilize software to manage your investments and make future net worth projections.
While you can’t bounce ideas off another person, you can receive similar personalized insights for many situations with a reasonable degree of accuracy.
For instance, robo-advisors can manage your portfolio with a similar passive index fund investment strategy with an annual fee of 0.50% or less versus 1% for hands-on help.
For example, one advisor I spoke with used Betterment, which is already open to individuals.
Additionally, wealth management apps such as Empower can track your cash flow and investments, along with making basic retirement projections to see if you’re on the correct trajectory.
I actively use these platforms to minimize ongoing advisory costs.
Automating your finances is worth it when you’re comfortable self-managing your finances.
You can purchase one-time advice packages when you need human assistance. Further, you can easily share your portfolios with an advisor or planner when it’s time to hire a professional.
How to find a financial advisor or planner
This checklist helps you find the best planner or advisor and where to look.
- Evaluate your goals: An advisor is suitable if you’re just starting your financial journey or you’re comfortable working with a specific brokerage or insurance agency. Planners are more effective when you already have some wealth or want a long-term vision.
- Compare advisor listings: Chances are, your city has multiple independent advisors and firms to choose from. Look for their professional designations and areas of expertise. The XY Planning Network is an excellent resource for fee-only advisors.
- Research certifications: You can verify an advisor’s credentials on FINRA’s BrokerCheck or the Securities and Exchange Commission’s (SEC) Investment Advisor Public Disclosure (IAPD).
- Interview the advisor: Trusting your advisor or planner is critical. Have a conversation to describe your goals and see if their recommendations and limitations help or hinder your potential progress. Don’t be afraid to contact several to find the best match.
- Review fees and services: Be sure the advisor provides the products and services you need now and those you anticipate needing later on at a competitive cost.
Is a financial planner better than a financial advisor?
You are now better prepared to choose the best financial expert to help guide your financial decisions and know which questions to ask.
There isn’t a one-size-fits-all answer to financial advisor vs. financial planner comparison as we all have unique circumstances.
An excellent starting point is deciding if you want a fee-only or fee-based advisor to determine your potential costs and available services.
From there, you can express your expectations and make an informed choice as the conversation progresses to build trust.
FAQs
Should a financial advisor become a CFP?
A CFP designation is widely recognized and is an easy way to establish trust with prospective clients.
However, only one-third of advisors have this certification and it’s unnecessary if you specialize in a specific sector like investments, where another designation is more relevant.
What is the salary difference between a financial advisor and planner?
The U.S. Bureau of Labor Statistics states the 2023 median salary is $99,850 for personal financial advisors.
Financial advisors usually make money through fee-based commissions and flat fees while financial planners are more likely to charge percentages or flat and hourly fees.
Are all financial planners also financial advisors?
Yes, a financial planner is a financial advisor with a CFP or ChFC designation in most situations.
While it may seem like the terms are interchangeable, not every financial advisor is a financial planner.
