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Financial Planner vs. Financial Advisor: An Overview
When seeking help managing your money, you’ll likely come upon both financial advisors and planners. While most everyday people use these terms interchangeably, there are important differences between them.
“With all the designations and acronyms in the financial services industry, it’s not surprising” there’s confusion about “these similar-sounding terms,” said Scott Bishop, CPA, PFS, and CFP at Avidian Wealth Solutions in Houston, Texas. “CFPs mainly give advice to individuals, but some advise small business owners as well…. Meanwhile, CFAs give advice to various institutions, such as banks, mutual funds, pension funds, insurance companies, and securities firms.” That said, he noted, “CFAs also put together portfolio allocations for individuals.”
Thus, every financial planner is a type of financial advisor, but not every financial advisor is considered a financial planner. Understanding their differences can help you choose the right professional for your specific needs.
Key Takeaways
- Financial planners specialize in helping clients develop all-around strategies to meet their long-term financial goals, including retirement, paying for their children’s education, and estate planning.
- The term “financial advisor” is for a broader range of professionals, including brokers, money managers, insurance agents, and bankers.
- Financial advisors who work with the public must pass the Series 65 licensing exam, while financial planners may hold various certifications like certified financial planner (CFP), chartered financial analyst (CFA), or chartered financial consultant (ChFC) among other designations.
- When choosing a financial professional, it’s essential to verify their credentials, understand their fees, and ensure their services align with your financial needs.
What Is a Financial Planner?
A financial planner is a professional who helps individuals and organizations create strategies to meet their long-term financial goals. A financial planner will typically help map out a plan for budgeting, saving, investing, and retirement planning. Many financial planners assist individual clients through their own practices but they might also work for banks, wealth management firms, or nonprofit organizations.
Qualifications and Credentials
The term “financial planner” isn’t regulated by a single governing body, which means almost anyone can use the title. However, the financial planners you would want to use typically hold one or more professional certifications:
- CFP: The most widely recognized, gold-standard credential, requiring extensive education, examination, and continuing education
- CFA: Focused on investment management and analysis
- ChFC: Specializing in insurance and estate planning
Regulation and Standards
Financial planners are regulated based on the services they provide rather than the title they hold. For example, those who offer investment advice must register with the U.S. Securities and Exchange Commission (SEC) or state securities regulators.
The better CFPs work as fiduciaries, legally binding them to act in their clients’ best interests.
What Is a Financial Advisor?
While financial planners focus on long-term planning, financial advisors are found in different parts of the financial services world.
Core Services
Financial advisors typically offer one or more of these services:
- Investment management
- securities trading
- Insurance and risk assessment
- Banking and lending services
- Tax planning
- Real estate guidance
- General money management
Licensing and Requirements
Unlike the more flexible financial planner title, financial advisors who work with the public must meet specific regulations. The most fundamental is passing the Series 65 licensing exam administered by the Financial Industry Regulatory Authority. Other licenses and registrations may be required depending on the services offered:
- Securities licenses for investment advisors
- Insurance licenses for those selling insurance products
- Registration with state or federal regulators
Types of Financial Advisors
The term is often used as a catchall for the following professionals:
- Investment advisors
- Stockbrokers
- Insurance agents
- Money managers
- Estate planners
- Bankers
- Tax professionals
Understanding how a financial advisor is compensated and what specific services they will provide is crucial before you start working with them. Some work on commission, others charge fees based on assets under management, and some use a combination of both models.
Advisor vs. Adviser
There are two common spellings for this financial term. U.S. laws and regulations spell out the rules for financial “advisers.” Many investment firms and media default to the more familiar “advisor.” However, Investopedia, like many in the industry, uses “adviser” specifically for professionals who are registered with the U.S. Securities and Exchange Commission, while “advisor” is for the broader, more informal category.
Key Differences
These two terms often overlap, but a financial planner can be viewed as a type of financial advisor.
A financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. These can include planning for retirement, a child’s college education, or a down payment for a home. A financial planner relies on strategic portfolio allocation for investments with relatively long-term horizons, ensuring that expected returns fit your tolerance for risk.
The term financial advisor is broader. It defines someone who may be involved in planning and other facets of money management or financial products. They might provide life insurance, real estate, accounting, trading, and banking services.
Tip
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Choosing the Right Financial Professional
Most needing financial guidance would do well by starting with a financial planner, particularly if they need help developing a broad financial strategy. However, it’s not just a matter of contacting the first internet search result. Here’s what you’ll want to do:
Verify Credentials and Experience
- Research their professional background and certifications
- Check their disciplinary record through FINRA or the SEC
- Ask about their years of experience and areas of expertise
- Request and contact references
Know What You’re Paying and What It’s For
- Ask for a clear explanation of all fees and charges
- Determine if they earn commissions on selling you products
- Understand what services are included with their fees and
- Clarify how often you’ll be charged for plan updates or investment changes
Find Someone Who Meets Your Needs and Serves Clients Like You
- Confirm their investment philosophy matches your goals
- Verify their approach to risk aligns with your comfort level
- Discuss their communication style and frequency—this often turns out to be far more important people expect
- In most cases, you’ll want someone bound by a fiduciary duty to put your interests first (see the table above)
Before meeting with a prospective planner, have in hand a list of questions ready.
Are All Financial Planners Also Financial Advisors?
All financial planners are financial advisors but not every financial advisor is a financial planner. Financial advisors may also work for brokers, bankers, or in other areas of the financial industry.
How Can I Find a Trustworthy Financial Planner or Advisor?
Start by asking close friends, family members, or colleagues for recommendations. Find out if your company has a firm that manages a retirement plan. They may also be somebody to ask. You can also search the database offered by The National Association of Personal Financial Advisors.
Check their reputations on FINRA’s BrokerCheck after you have the names of potential planners and advisors. Meet or talk with them before hiring them
How Can I Become a Financial Advisor or Planner?
The path to becoming a financial advisor or planner typically involves obtaining a bachelor’s degree—normally in finance, economics, business, or a related field. To be a financial advisor, you must pass the Series 65 licensing exam administered by FINRA to work with the public.
To be a financial planner, the CFP designation is particularly valuable and requires completing coursework, passing a comprehensive exam (it’s notoriously difficult), and gaining three years of qualifying work experience. Other respected designations include ChFC for insurance and estate planning.
The Bottom Line
Financial planners specialize in creating comprehensive, long-term strategies for reaching specific financial goals, while financial advisors represent a broader category of professionals who may focus on particular aspects of financial management, from investment advice to insurance products.
When seeking financial guidance, start by identifying your specific needs. If you’re looking for comprehensive long-term planning for retirement, education funding, or estate management, a financial planner might be your best choice. If you need help with specific financial products or services, such as insurance or active investment management, a financial advisor specializing in those areas might be better.
