Financial Planner or Financial Advisor: Which One Do You Need
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What Is a Financial Advisor?
In order to provide advice on investments and other financial concerns, a financial adviser must have completed the necessary licensing and certification tests. A financial adviser may assist customers with a range of financial choices, such as investing in a company, purchasing a property, or setting aside money for retirement. They may also aid with estate planning and set up insurance for their customers; however, you should still have an attorney create any wills or trusts.
Advisors come in a wide variety of forms, each with its own specialization and range of approaches and services. The majority have passed certain licensing tests. This is usually the Series 7 exam administered by the Financial Industry Regulatory Authority (FINRA) or the Series 65 exam (which is necessary for licensed investment advisers).
Typically, financial advisors charge a yearly fee for their financial services. A few advisors also levy fees on the services they market, such as annuities and mutual funds. Although yearly rates for these services may vary, they typically fall between 0.5% and 1% of assets under management (AUM), with charges reaching up to 6% of transaction amounts.
What Is a Financial Planner?
A financial planner is a unique type of financial advisor who uses cutting-edge information and resources to develop customized financial plans for individuals and families. These include preparing for late-life events, investing for retirement, and devising an asset-transfer strategy.
Helping you achieve your evolving financial objectives
One or more certified financial planners (CFPs) are on staff at many financial advisory businesses, where they collaborate with financial advisors and clients to create detailed financial plans for individuals and families. These financial plans are then used to carry out transactions and oversee the financial affairs of clients in combination with other instruments and approaches.
Financial planners often charge for their services, similar to financial advisors. These costs might be project-based, quarterly, yearly, or monthly, depending on the particular services being rendered.
Additionally, some financial planners get compensation for the financial services they market. Commissions are often the same as those paid to financial advisors, and hourly rates may be as high as $150 or as little as $50 (depending on the assignment).
Differences between Financial Advisor vs Financial Planner
While working with clients and offering beneficial advice, financial advisers and planners vary significantly in a few important ways. For instance, although many financial advisers work with individuals and families for an extended length of time, others merely assist them with specific assets, transactions, or investments.
On the other hand, financial planners often approach their clients’ finances from a more holistic perspective and create long-term plans that include every facet of their financial lives. These are often reviewed every few years, and when plans are revised, client investments or tactics are modified to fit changes in financial needs and goals.
Financial advisers and financial planners vary significantly in that the former often charge hourly or set fees for their services, while the latter may get commissions on certain items or services they offer.
Finally, while financial planners and advisers sometimes have many of the same licenses, they usually hold distinct qualifications, such as the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Certified Investment Management Analyst (CIM).
Special Considerations
Before hiring a financial advisor or financial planner it is important to do one’s homework and research into aspects such as their credentials, how long they have been licensed, and how many years they have been practicing. One should be sure to ask both the financial advisor and financial planner questions about their specific qualifications and training, such as whether they specialize in estate planning, investments, or tax.
Individuals and families should also understand how the financial planner is compensated for their work and what financial services or value the client would receive in return. For example, is the client paying a one-time fee for the financial review or service, or are there multiple fees every time an investment change or plan modification is made?
It is also important to ensure that the financial advice and guidance received from the financial advisor or financial planner mirrors one’s risk appetite and tolerance while also matching one’s long-term financial goals.
One should consider developing a list of questions to ask when vetting a potential financial advisor or financial planner. Finally, checking the disciplinary record and references for the financial advisor or financial planner is important to ensure that one is receiving the best quality financial guidance and service that is in line with fiduciary standards.
When to Get a Financial Advisor vs. a Financial Planner?
If one is looking for assistance with one’s finances, both a financial advisor and a financial planner may be able to help in different ways. The better option depends largely on one’s circumstances and financial needs. Different approaches and questions should be asked with hiring either financial professional.
For example, if an individual or family has short-term financial issues or needs assistance with specific investment or tax-related questions, a financial advisor would typically be the best option for that situation. However, if one is looking for support in developing a comprehensive long-term financial plan then one may be better off working with a financial planner instead.
A financial planner might be the best fit if one is looking for assistance with:
- Developing a long-term financial plan
- Comprehensive understanding of how one’s finances are likely to evolve over the course of a lifetime
- Adjusting to a major life change, such as marriage or children
- Adjusting finances when nearing retirement
- Managing debt, savings for college, or creating a financial budget
- Strategizing key asset transfers to heirs and other beneficiaries
Alternatively, a financial advisor may be more appropriate if one is looking for assistance with:
- Specific investment strategy or decision
- Gaining confidence in making financial decisions on one’s own
- Occasional financial guidance
- Using investments and other tools to execute one’s financial plan
FAQs
- https://www.bankrate.com/investing/financial-advisors/financial-advisor-vs-financial-planner/#how-to-find
- https://www.investopedia.com/articles/personal-finance/040215/financial-advisor-vs-financial-planner.asp
- https://www.nerdwallet.com/article/investing/what-is-a-financial-planner
- https://www.cnbc.com/select/financial-advisor-vs-financial-planner/
- https://www.marketwatch.com/picks/financial-adviser-vs-financial-planner-whats-the-difference-1c604876
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