Table of Contents
What is a financial advisor?
What is a financial planner?
4 main differences between a financial advisor and financial planner
What are some things to keep in mind when choosing between a financial planner and financial advisor?
The bottom line
Jun 21, 2022
7 min read
Both are investment managers who can help to realize your financial goals, advisors are useful in finance, and planners are best at high-level strategy.
Long-term financial goals can be hard to achieve alone. Fortunately, there is no shortage of experts—financial advisors and financial planners—willing to help. Unfortunately, it isn’t always easy to determine which type of expert is the best match. While their names might seem interchangeable, there are important distinctions that can make a big difference.
A financial advisor, sometimes called a wealth advisor when working with high-net-worth individuals, is a specialist in one or more financial service areas—like investments, taxes, or insurance. Some financial advisors provide objective financial guidance about retirement planning, estate planning, debt repayment, and taxes. Other types of financial advisors, like investment advisors, can make investments on behalf of a client.
An investor thinking about working with a financial advisor may consider whether:
A financial planner is a type of financial advisor that develops a “big picture” strategic plan for achieving a client’s financial goals. The planner covers all areas of wealth management—investments, taxes, insurance, savings, debt repayment, retirement, and estate planning. The financial planner devises a step-by-step program for the client or someone else (like the planner) to follow. A financial planner can serve as “head coach,” directing a team of financial advisors licensed to do business for the client.
An investor may also want to consider when thinking about whether to work with a financial planner:
Both financial advisors and financial planners bring expert advice to clients. To distinguish between them, you can think of advisors as the tactical experts who lay the groundwork and planners as the strategists who chart a path towards the client’s goals.
Financial advisor is a catch-all term covering many specialized roles, from investment advising to retirement planning. A financial advisor is unlikely to provide each and every service across the financial spectrum. A financial planner, however, takes a high-level, more comprehensive approach to wealth management. The plans they develop touch all areas of your finances.
A financial advisor meets with clients, maybe, once or twice a year. By comparison, a financial planner tends to take a more “hands-on” approach, likely meeting with clients more frequently.
Some financial advisors follow the “suitability” standard in relationships with clients. Suitability means that the advisor recommends financial options in the client’s interest. However, they are not obligated to lay out all options. The financial advisor doesn’t have to tell the client whether another party is paying them a commission from the recommended financial products.
Typically, credentialed financial planners are held to a stricter fiduciary standard than financial advisors. Certified Financial Planners (CFP’s) have a fiduciary duty to work in the client’s best interest, rather than their own. This brings more transparency to the client relationship. (Note that some financial advisors—Registered Investment Advisors (RIAs)—have a fiduciary responsibility, too.)
Financial advisors are compensated in one of three ways: fee-only, fee-based, or on commission.
Financial planners are more likely to charge an hourly rate or flat rate, though some will be fee-based, too.
A financial advisor may hold one or more certifications in an area of specialization such as retirement planning, estate planning, tax advising, or investment portfolio management. If a financial advisor buys and sells securities for a client, they must pass the Financial Industry Regulatory Authority (FINRA) exams and register with FINRA, state regulators, and the Securities and Exchange Commission (SEC).
Many—but not all—financial advisors hold licenses that determine the kind of services they can offer. Among the most common licenses:
A financial advisor needs this to sell mutual funds, insurance, and variable annuities for a commission.
A financial advisor needs this to sell individual securities (stocks and bonds, not commodities and futures).
A financial advisor needs this to charge for investment advising services.
For financial planners, two important certifications that are relatively difficult to obtain:
This requires a bachelor’s degree and three years of full-time financial planning experience, plus rigorous coursework and an exam administered by the Certified Financial Planner Board of Standards.
This professional designation is granted by The American College of Financial Services after taking eight college-level courses across a span of planning topics—from insurance to retirement—plus, 30 hours of continuing education.
Investors considering a financial advisor or financial planner may want to consider their short- and long-term financial goals and the expertise they need. Generally speaking, investors might make the decision based on their need for specialized tactical advice versus strategic direction for their full financial picture.
Investors might also consider:
Keep in mind that the same person can hold the titles financial planner and financial advisor. What matters are the credentials, the types of financial services being offered, how they will be paid, and personal fit.
Both financial advisors and financial planners are investment management experts who can help to realize your financial goals. Advisors are useful when a specialist is needed in one or more areas of finance and when you want to make specific investments. Planners, on the other hand, are best at high-level strategy and managing all areas of your financial life holistically, including investment management. Investors can perform due diligence to help understand which specialist is the better match. This process can include reviewing the credentials and licenses, as well as how the advisor or planner is compensated.
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