What Are the Differences Between a Financial Planner and a Financial Advisor?

Before you can choose the best professional for your needs and goals, you must first understand the duties of a financial advisor and financial planner. From there, you will learn the slight, but important, differences between these professionals and how to choose the right one to guide you on your financial path.?

By Helen Harris

Sometimes you might wonder if you could do more in the way of financial planning, budgeting, saving or investing. You may have the tools in place and just need a little guidance, or you may be completely overwhelmed at the thought of even starting.?

Do you seek out the help of a financial planner or a financial advisor, and how do you know which one to choose??

While these professionals have several characteristics in common, there are slight differences to consider when selecting the right one for your needs.?

But before you can understand the differences between these financial professionals — and how to choose the best candidate — you must understand the unique duties and responsibilities of a financial planner and a financial advisor.?

Understand the Duties of a Financial Planner and Financial Advisor

According to Forbes, a financial advisor is a professional that has passed the licensure and certification exams needed to provide guidance on investments and financial matters. These professionals can help clients with a variety of monetary decisions, including saving for retirement, buying a home, investing in a business and even arranging insurance coverage for clients to help strategize on estate planning.?

Forbes adds that while there are many types of financial advisors, most have passed certain licensing exams. This exam is typically the Financial Industry Regulatory Authority (FINRA) Series 7 Exam or the Series 65 Exam that is required for registered investment advisors.

You should also be aware that financial advisors typically charge an annual fee for their services and some charge commissions on the products they sell. These products include things such as mutual funds and annuities.?

The fees and commission can vary greatly, so you must understand your financial advisor’s rate beforehand and be okay with it.?

Where it can get tricky for someone seeking out a financial advisor or financial planner is the fact that some financial advisors are also financial planners (though not all achieve this designation).

Forbes explains that a financial planner is a special type of financial professional who leverages advanced knowledge and tools to create personalized financial plans for clients.?

These plans include everything from saving for retirement to arranging for late-life planning to strategizing on asset transfers.

Similar to financial advisors, financial planners often charge fees for their services — and you should be aware of them before you agree to work with them. The fees may be collected monthly, quarterly, annually or can even be project-based depending on the specific services being provided. You may work with a planner who just earns commissions on the products they sell. These are usually the same as for financial advisors, and hourly fees can range from $50 to $150 per hour (or at minimum $1,000 for a project basis).

How Financial Planners and Advisors Vary

Although the duties of these two financial-services careers may seem similar, according to U.S. News and World Report, there are some common differences.?The major differences include the following:

• Financial advisors usually focus on investment management, and planners take a more holistic approach.
• Financial advisors often have a narrower view when offering financial guidance than financial planners do.
• Typically, financial planners form longer relationships with investors than those of financial advisors.
• Investors tend to view planners as more approachable than advisors.

Forbes reports that another key difference is financial advisors may earn commissions on some of the products they sell, while financial planners typically charge hourly or flat fees for their services. It lastly states that while financial advisors and planners often have many of the same licenses, they typically have different certifications — including the CFP designation.

"A financial advisor is probably going to be someone more interested in the markets and securities," said John Diehl, senior vice president of applied insights for Hartford Funds, in U.S. News and World Report. “[A financial planner would] be more interested in the entire process from gathering personal information to implementing and monitoring a plan."

You may be wondering why these differences exist between these two professionals. U.S. News reports that it's in part due to the lack of federal regulation over the titles advisors can use.

For instance, unlike the medical or legal industry, financial practitioners have leeway about how they can refer to themselves (with the exception of industry certifications). Just a couple of the common certifications you may be familiar with include certified financial planner (CFP) and chartered financial analyst (CFA).?

But that doesn’t mean that financial advisors can — or should — go around calling themselves anything they want. In fact, they should be as accurate as possible about the services and products they offer.?

To elaborate on this, Diehl says that any financial professional should want to make sure that their title accurately projects the services they’re providing to their clients. This is because when expectations are mismatched, potential misunderstandings and trouble are likely to follow.

"How you market yourself depends on who you want to serve and how you want to serve them," said Ric Edelman, founder of Edelman Financial Engines, in U.S. News.?

For instance, Jane Barratt, Chief Advocacy Officer of MX and LinkedIn Learning Instructor, states in her online course that if you have super complex assets and accounts, you may need to go back to the Certified Financial Planner. Not only are they good at helping you stabilize your finances, they're also good at untangling complex financial issues.?

Now that you know what financial advisors and planners do and some of their key differences, it’s time to explore how you might choose the right professional for your needs.??

How To Choose a Good Financial Planner or Advisor?

Where you are in life and your goals will influence which financial professional you should work with.?

For instance, Barratt says if you're struggling to make ends meet and not even close to thinking about how to save for retirement, it might be a good time to meet with a financial planner.?

“These professionals will review your finances and build you a plan that can get you on the road to financial stability, and for a fee-only planter you'll know exactly how much you're going to be paying,” said Barratt. “When you meet, they should bombard you with questions and they're going to want to see all of your spending records and income statements.”

Barratt also states that you should look for a financial planner that gives you a written plan that extends for more than a year. Additionally, she says if you’re looking to build a retirement portfolio, you may be in need of some investment advice and should look for someone who is a fiduciary, as these professionals must act in your best interest.

“These are registered investment advisors (RIA),” said Barratt. “An RIA will ask you a myriad of questions about your financial situation, your life stage, goals and risk tolerance. Only after they complete this assessment can they give you investment advice.”

Barratt furthers that some RIAs will give you advice that you can use on your own while others make trades for you. Either way, you need to make sure the person you work with has proper accreditation. Additionally, you should keep close track of what they do, ask for explicit confirmation from them before they take any action and understand their fees and how they get paid upfront (this goes for any financial professional you hire).?

Barrat offers a couple of additional tips for choosing the right financial professional for your needs:?

• If you have super complex assets and accounts: Seek out the guidance of a certified financial planner.?

“Not only are they good at helping you stabilize your finances, they're also good at untangling complex financial issues.”?

• If your taxes are too complicated to sort out alone: Look toward the guidance of good accountants or tax professionals.?

“These professionals can help you reduce your tax bill and give you good advice on how to handle taxable events.”

Winnie Sun also adds some key points in her LinkedIn Learning video to consider when looking for someone to help get your finances back on track, or for financial planning:

• Look for an advisor that has at least 10 years or more of experience so that they've experienced managing money during recessions.?

“You want to find a team that has depth of experience navigating clients through good financial markets and the challenging recessions and market drops.”

• Work with someone you feel comfortable reaching out to at any time, in any way, to have a partnership approach to building your wealth and managing your investments.?
• Check the background of your potential financial advisor for any potential complaints or regulatory concerns.?
• Look out for red flags such as advisors who want to dazzle you with fringe benefits like tickets to sporting events or concerts, fancy meals and more. Another huge red flag is if your advisor mentions other people's portfolios that they manage or disclosing someone else's finances.?

“Your financial advisor is there to help you get from point A to point B financially: Your financial advisor isn't your bookie, and regulatory agencies prohibit [them] from giving you large gifts. You want someone a little bit more seasoned, a little bit more in demand and a little bit more experienced. Think of this as a relationship that will grow for years and years.”

Top Takeaways?

What Are the Differences Between a Financial Planner and a Financial Advisor??

• A financial advisor is a professional that has passed the licensure and certification exams needed to provide guidance on investments and financial matters
• "A financial advisor is probably going to be someone more interested in the markets and securities."
• Some financial advisors are also financial planners (though not all achieve this designation).
• Forbes explains that a financial planner is a special type of financial professional who leverages advanced knowledge and tools to create personalized financial plans for clients.?
• Both financial advisors and planners have fees and may collect commissions, so it’s important that you understand those upfront before agreeing to work with them.?
• Where you are in life and your goals will influence which financial professional you might need to work with to help reach your financial goals.?
• “You want to find a team that has depth of experience navigating clients through good financial markets and the challenging recessions and market drops.”