Financial advisor and financial planner are two designations you may have encountered if you’re seeking professional help with your finances. But what’s the difference between the two?
Find out what services these professionals offer so you can choose the right one.
| Financial advisor | Financial planner | |
|---|---|---|
| Services offered | Human and automated investing advice, budgeting and savings advice, debt management advice, retirement advice, insurance advice, estate advice, tax advice | Financial plans, investment advice, budgeting and savings, debt management, retirement planning, insurance planning, estate planning, tax planning |
| Compensation | Hourly fee, flat fee, commission-based fee, retainer fee | Hourly fee, flat fee, retainer fee |
| Fiduciary requirements | Varies | Varies |
Generally speaking, financial advisor is the umbrella term for any financial professional who provides advice, and financial planner is a type of financial advisor. The differences lie in the services the professionals provide.
A financial advisor may provide advice on a range of financial products and services. A financial planner develops financial plans that may cover everything from budgeting to saving for retirement and then works with you toward achieving those financial goals.
“I know many folks titled as financial advisors that offer comprehensive financial planning services and hold their CFP designation,” Bruggink says.
A financial advisor is a broad term for any financial professional who provides advice, whether on investments, insurance, mortgages or taxes.
Financial advisors can take many forms and can include, but may not be limited to:
Despite the many potential titles, financial advisors generally come in two main types: fiduciaries and non-fiduciaries. A fiduciary advisor is legally and ethically obligated to place their client’s interests first and avoid conflicts of interest, providing financial advice that is always in the best interests of their clients.
Money managers, investment consultants and financial planners who advise on investments are regulated in the US as “investment advisors” by the US Securities and Exchange Commission (SEC) and are legally held to the fiduciary duty.(1) Some financial advisors, like those with professional designations such as the Accredited Investment Fiduciary (AIF) designation, may not be regulated by the SEC but take a voluntary oath to uphold fiduciary duties.
On the other hand, non-fiduciary advisors may not be required to avoid potential conflicts of interest and may guide you toward a financial product that earns them a commission. For instance, under the rules of the Financial Industry Regulatory Authority (FINRA), a financial advisor who works for a broker is required only to recommend a security or product that they have “a reasonable basis to believe” is suitable for you, but that product may have higher fees or come with a bigger commission for the advisor.(2) According to FINRA rules, the product recommendation “does not obligate a broker to recommend the ‘least expensive’ security or investment strategy.”
“If you’re looking for financial help, one of the most important things is to make sure the person you are working with is a true fiduciary,” says Brent N. Bruggink, CPFA, Director of Retirement Plan Services at CG Financial Services. “Unlike the general titles and terms, a fiduciary is legally bound to put their client’s best interests ahead of their own.”
A financial planner is a type of financial advisor. Financial planners take a holistic view of a person’s entire financial life and devise a plan to help them meet their short- and long-term financial goals. This plan may involve the following:
Financial planners evaluate their client’s financial situation, needs and goals before coming up with a detailed plan on how to meet those objectives. Many financial planners have official designations like certified financial planner (CFP), chartered financial analyst (CFA) and Enrolled Agent (EA).
However, no regulatory body governs the financial planning profession. Instead, professionals who design financial plans are regulated by the services they provide. For instance, a financial planner who provides investment advice would be regulated by the SEC.
Some financial planners are also fiduciaries. Financial planners who hold the CFP designation are required to act as fiduciaries.
If you need advice in certain areas of your finances, such as with taxes or investment advice, you might consider hiring a financial advisor who specializes in that particular area. For instance, you may hire an investment advisor if you want a managed portfolio and ongoing investment advice.
If you want someone to help you build a detailed plan or roadmap to achieving various short-term or long-term financial goals, incorporating your whole financial picture, you may consider a financial planner. A financial planner will consider all aspects of your finances to help you pay down debt, minimize taxes, save for your kid’s education, plan for retirement and other financial goals.
Here are some steps to find the right financial professional for you:
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A financial planner is a type of financial advisor who can help you build a full-picture plan to achieve your financial goals. If you need advice in specific areas of your finances, you might consider other types of specialized financial advisors. Just consider the credentials and reputability of the professional when looking at different places to find investment advice.
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