Financial Planner: Definition, Roles, Types and FAQs
A financial planner is an advisor that works with clients to help them manage their finances and reach their long-term financial and retirement goals. A financial planner will take inventory of your finances and creates a plan that outlines recommendations on how to best reach your goals. An expert financial planner needs advanced knowledge of personal finance, budgeting, taxes, and investing to provide advice and planning for an individual or family. These professionals may specialize in multiple disciplines or prefer to excel in one specified department. Such areas include tax planning, risk management, retirement planning, asset allocation, and estate planning. Some financial planners also specialize in a particular customer demographic and draw their clients from a specific population, such as young working workplace retirement plans or older retirees.
Financial planners assist and advise clients on various financial matters, including investment portfolios, saving for retirement, planning for college expenses, or new business savings while preserving individual or familial wealth.
The Responsibilities of a Financial Planner?
A financial planner’s responsibility is to help clients manage their current financial needs and reach their life’s financial and retirement goals. That means assessing your financial situation and understanding what you want your finances to accomplish for you, helping create a financial plan for you and your family to achieve those goals. Financial planners can assist in reducing spending costs, the repayment of debt, and saving and investing for the future. On account of such financial goals may be extremely broad or narrow, different financial planners could be specialized in helping specific individuals and families to achieve their financial objectives. Some financial planners help clients with many aspects of their financial lives, such as early cash flow planning, investment strategies, aligning retirement saving, and ensuring proper estate planning. Other finance planners have a narrow focus, like solely focusing on retirement or estate planning.
In even more particular instances, financial planners could sell investments, insurance, and other financial products and plans while others help their clients create the specified investing plan and leave them to make the specific decisions.
Helping you achieve your evolving financial objectives
How Much Does a Financial Planner Charge?
A 2021 AdvisoryHQ study found that hourly rates for financial advisors typically range from $120 to $300. The per-project cost varies from $275 to $4,500 or more, depending on the job’s complexity and the client’s overall net worth. For example, college planning packages average from $275 to $1,500. Comprehensive financial planning for individuals or families costs around $2,000 to $4,500.
Financial planners typically fall into one of two categories: fee-based and commission-based.
Commission-based financial planners can earn money when their clients buy financial products that the advisory firm recommends. Fee-only financial planners normally don’t receive a commission for products sold, but instead charge by the project, by the hour, or by assets under management (AUM) on an annual percentage basis.
Fee-based financial planners charge a flat rate by hour, project, or the AUM. Their primary income comes from fees paid by their clients. Fee-based financial planners may also earn income through commissions for selling certain financial products recommended by the firm. On the other hand, fee-only advisors earn income through fees paid by their clients.
What Qualities or Certifications should a Financial Planner have?
While some financial planners specialize in one area of finance, many other financial planners offer a holistic approach that considers the client’s overall financial situation and picture. This means that financial planners need different and specified qualifications or certifications to adequately address the financial implications of family, education, career, and physical health.
Financial planners are considered fiduciaries and are legally bound to act in a client’s best interests, and can’t accept payments from any third party companies or firms when recommending specific financial products to their clients.
An effective financial planner must have sufficient training, education, and experience to recommend specific financial products to their clients. As evidence of these qualifications, a practitioner may earn and carry one or more professional designations, such as the certified financial planner certification.
The most commonly held professional designation is called the Certified Financial Planner (CFP®), issued by the CFP Board, the nonprofit certifying and standards-setting organization that administers the CFP exam.
A certified financial planner is the primary formal credential of expertise and experience in the areas of financial planning, taxes, estate planning, insurance, and retirement. This formal designation is awarded to financial professionals who complete the CFP® Board’s exams and engage in ongoing annual financial education programs to maintain their skills and certification.
A CFP® finance professional may do much more than simply advise clients on available investments. They may assist their clients with budgeting, insurance coverage, retirement planning, education savings, and tax optimization strategies.
Types of Financial Planners
A Robo-advisor is perfect for low-net-worth individuals or families with non-complex financial structures. Automation has enabled traditional financial firms like Fidelity and Vanguard, as well as online-only companies like Wealthfront and Betterment, to lower the price of portfolio management substantially. These companies are ideal for individuals needing investment and portfolio management but not holistic financial planning.
Robo-advisors can build and manage a portfolio of low-cost investments suited for your financial goals. Many Robo-advisors charge 0.25% or less of your account balance. The investment mix and portfolio is determined by a computer algorithm and is automatically adjusted when your financial outlook changes. At the basic account level, one can start investing with $500 or less.
Traditional, in-person financial planners
For those with more complicated or ongoing planning needs, a traditional, in-person financial planner may be a better fit for those with complicated or ongoing planning needs. A CFP designation can provide holistic, one-on-one advice for these complex financial situations. The official CFP designation indicates that a financial planner has undergone rigorous formal training and testing. A finance professional such as a wealth manager or investment advisor can also act as a specialized financial planner, particularly working for high net worth clients or mainly with investments.
Several online services combine computer-driven portfolio management with access to traditional financial planners. In many cases, you will get a dedicated financial planner and a comprehensive financial plan, but you’ll meet with that advisor via video conference or phone rather than in person.
Online planning services like this typically charge more than a Robo-advisor but less than a traditional financial planner. Examples of companies in this space include Personal Capital and Facet Wealth.
Criteria for Choosing a Proper Financial Planner
The more complex the financial situation, the more likely you will benefit from a financial planner. Financial planners can bring expertise to decisions about how you should invest your money, provide an objective perspective on your finances, what your financial priorities should be, and what sort of insurance coverage and other protections you need. A financial planner can be especially useful when facing a life change like marriage, a divorce, or an inheritance.
Interviewing at least three financial planners before selecting one for your financial needs is essential to determine which financial planner is the best choice for you. Be sure to ask and get answers to the following questions:
- What are your credentials?
- Can you provide references?
- What (and how) do you charge?
- What is your area of expertise?
- Will you act as my fiduciary?
- What services can I expect?
- How will we settle disputes?
To check the status of a CFP®, visit the CFP Board website.
Financial advisors and financial planners are often terms used interchangeably. Both types of professionals offer financial planning services that help clients reach their financial goals.
A financial planner assists clients (individuals, families, and businesses) in creating programs and plans to help reach long-term financial goals. Financial planners may offer broad financial advice or specialize in an area such as investments, retirement, taxes, or estate planning. A financial planner is a type of financial advisor who specializes in offering holistic financial guidance in addition to services like investment management. Financial planners limit themselves to a more targeted service.
On the other hand, a financial advisor is a broader term that refers to any professional who advises individuals on their finances, including certified financial planners. They may help manage their client’s money, manage investments, buy and sell stocks and funds on their behalf, and help with estate and tax planning.
- Certified Financial Planner Board of Standards. “Guide to Careers in Financial Planning.”. Accessible From: https://www.cfp.net/-/media/files/cfp-board/knowledge/reports-and-research/guide-to-careers-in-financial-planning/guide-to-careers-in-financial-planning.pdf?la=en&hash=4188AAC685C39C6D2124EA12BC2DA9E5
- Financial Industry Regulatory Authority. “Investment Advisers.”. Accessible From: https://www.finra.org/investors/learn-to-invest/choosing-investment-professional/investment-advisers
- Certified Financial Planner Board of Standards. “Why Get Certified?”. Accessible From: https://www.cfp.net/why-cfp-certification/why-get-certified
- Financial Industry Regulatory Authority. “Financial Planners.”. Accessible From: https://www.finra.org/investors/learn-to-invest/choosing-investment-professional/financial-planners
- AdvisoryHQ. “What Are the Average Financial Advisor Fees & Investment Fees Being Charged in 2021?”. Accessible From: https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/
- ASIC. “Professional Standards for Financial Advisors.” Australian Securities and Investments Commission. Accessible From: https://asic.gov.au/for-finance-professionals/afs-licensees/professional-standards-for-financial-advisers/qualification-exam-and-professional-development/#:~:text=Existing%20financial%20advisers%20must%20bring,AQF8%20level)%20comprising%20eight%20subjects.
- “History of the Registered Financial Planner designation.” Institute of Advanced Financial Planners. Accessible From: https://www.iafp.ca/rfp-history
- “Introduction of Financial Advisers.” Bank Negara Malaysia. Accessible From: https://web.archive.org/web/20060426234724/https:/www.bnm.gov.my/index.php?ch=8&pg=14&ac=1118
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