Every financial milestone and major money decision is unique, yet they all have one thing in common — things go better with professional guidance.
Financial advisors and financial planners can provide much of that guidance, and it’s common to hear those titles used interchangeably. However, while there is often overlap, the two provide different services to different types of clients.
It’s important for anyone pursuing professional financial help to understand those differences to ensure they choose the one best suited to serve their needs.
What Is a Financial Advisor?
A financial advisor is a professional who helps clients make decisions and craft strategies according to their money-related goals, lifestyles and circumstances.
Definition and Role
A financial advisor can be a generalist or have a specialty, such as estate planning, taxes, investments or retirement. Depending on the client’s needs, they can help with things like creating financial plans for milestones like buying a home or paying for college, recommending investments or insurance policies, or crafting debt-reduction strategies.
Types of Financial Advisors
Some financial advisers are jacks-of-all-trades — sometimes called financial coaches — who can help people plan for life changes like the birth of a child or changes in income. They sometimes use titles like “financial coach” and teach financial literacy, covering basics like spending within your means and the dangers of debt.
Many, however, are specialists who concentrate on one area of financial expertise like insurance, tax services, estate planning, debt or divorce.
Licensing and Certifications
Just about anyone can call themselves a financial advisor, which is why it’s so important to work with one who has earned a recognized professional credential. The Financial Industry Regulatory Authority (FINRA) recognizes more than a hundred professional designations. Here are some of the most common.
- Registered investment advisor (RIAs)
- Chartered financial consultant (ChFC)
- Certified public accountant (CFPs)
- Certified funds specialist (CFS)
- Certified tax planner (CTP)
- Chartered Investment Counselor (CIC)
What Is a Financial Planner?
Financial planners focus on big-picture, holistic strategizing, goal-setting, and problem-solving, often for their clients’ entire lives.
Definition and Role
A client might first meet with a financial planner to craft a budget, then later to choose investments and plan for taxes. Subsequent visits might include estate planning and retirement planning. The same client might later return to the same financial planner for help with opening a business.
Types of Financial Planners
Financial planners must demonstrate a mastery of a broad range of subjects, concepts and strategies. Therefore, the field doesn’t have as many specialized subgroups and is dominated by certified financial planners. However, personal financial specialists (PFSs) — essentially CPAs with broader expertise in overall financial planning and wealth management — can be an excellent alternative.
In either case, it’s crucial to choose a fee-only planner and not one whose livelihood depends on earning commissions by selling you financial products that might not be right for you.
Licensing and Certifications
The title of certified financial planner (CFP) is the industry gold standard of certifications. They’re regulated by the CFP Board of Standards, which holds them to strict ethical and professional standards and requires them to engage in lifelong ongoing education.
Key Differences Between a Financial Advisor and a Financial Planner
The primary difference is that financial advisors excel at addressing immediate and singular concerns like investments, changing tax strategies ahead of tax season, or preparing a will. Financial planners, on the other hand, take a long-term, big-picture, holistic view of their client’s overall financial picture and serve as their lifelong partners in creating and guarding wealth.
When to Choose a Financial Advisor
You might benefit from the services of a financial advisor if you need help with an immediate and individual financial need, including:
- Choosing or managing investments
- Drawing a will
- Rolling over a workplace retirement plan
- Reducing debt
- Saving for retirement
- Launching a business
When to Choose a Financial Planner
Choose a financial planner when you want a long-term partner to regularly check in with as your financial needs and goals evolve over time.
- You’re working to build an overarching, comprehensive financial plan.
- If you are developing fluid and evolving plans for retirement, the distribution of your estate, or mitigating your long-term tax burden.
- If you need guidance with budgeting, debt management, or goal-setting.
- If you prefer a long-term financial roadmap rather than immediate investment-focused advice.