It’s quite common to use the terms financial advisor and financial planner interchangeably, but did you know that there are differences between the two? Both can guide you on your financial journey, but there are some key differences between them.
First, let’s look at what a financial advisor is.
A financial advisor usually helps clients with one-off investment planning and other financial matters. They evaluate your current financial situation, discuss where you want to be in the future, and give advice to help you build wealth.
Financial advisors are required to have passed licensure and certification exams to give advice. Financial advisors typically charge an annual fee for their services which can range from 0.5% to 1% of your assets that they manage. Some financial advisors may also charge commissions on products they sell, like mutual funds or annuities and these commissions can be as high as 6%.
On the other hand, a financial planner typically creates a holistic plan that will help you and your finances in the future. They take everything into account, from savings and investments to retirement and estate planning.
Financial planners are usually certified, the most prevalent being Certified Financial Planner (CFP). Many financial advisory firms have certified financial planners on staff. If a financial planner is giving investment advice, they need to register with the Securities and Exchange Commission first.
Financial planners charge fees for their services; depending on the services, the fees can be monthly, quarterly, annually, or project-based. Like financial advisors, financial planners can also get commissions on the products they sell.
So how can you decide if a financial advisor or a financial planner would work best for you?
Both can help you with your finances, but it all depends on your circumstances and what you want to do with your finances.
A financial advisor is great for short-term projects and investments. If you are already comfortable in your financial situation and are just looking for extra guidance, a financial advisor is the way to go.
A financial planner is great for developing a long-term, comprehensive plan for your future. If you are going through any major life changes such as college, purchasing a house, getting married, having a baby, or retiring, it might be a good idea to talk with a financial planner.
Before you pick the financial advisor or financial planner that will help you with your finances, there are a few things you should look for and consider.
- Check credentials and licenses
- Ask about their experience with finance
- Understand the services provided and the costs that will occur
- Make sure you align with them and feel comfortable
- And don’t be afraid to ask for some references
If you don’t feel comfortable with what they have to say, it’s okay to choose someone else as your financial advisor or financial planner– this is your financial future, after all!
If you’re looking for more information, do some research to see if there are free, local events that you can attend in person or even virtual events that are open to the public.
