When it comes to careers that manage finances, you may have heard the terms “financial advisor” and “financial planner” used interchangeably. But did you know that there are some key differences between these two financial professionals?
In this article, we will explore the roles and responsibilities of both financial advisors and financial planners and help you determine which career path is a better fit for you based on your personal and professional goals, interests, and qualifications. Whether you’re just starting out in your financial career or looking to make a switch, this guide will give you a clear understanding of the options available to you and the steps you can take to pursue them.
Understanding Financial Advisors
A financial advisor helps create long-term plans for building wealth over time. They help manage their clients’ investment portfolios and plan their retirement savings. The term “financial advisor” is a broad term for all professionals that help people manage their money, but they may specialize in one area. A financial advisor may also be called an investment professional, wealth manager, or financial planner (which we will cover in the next section)
Generally, financial advisors are responsible for the following:
- Retirement planning: Financial advisors help their clients curate their retirement savings plans to meet their long-term goals. They will also advise when to start taking Social Security and pension benefits so their clients don’t face any fees.
- Investments: A financial advisor can help support their clients in the overwhelming world of investing. They can offer suitable investments for their clients’ profiles, and they can help their clients navigate the ups and downs of the market.
- Tax planning: A financial advisor can specialize in tax planning, which means their main goal is to save their clients money on their taxes. They can do this through the use of charitable donations, tax-efficient estate plans, or tax breaks and deductions.
- Estate planning: Financial advisors help their clients plan for the end of their life such as making a will and getting term life insurance to make sure their loved ones are financially secure when they are gone. It can be a depressing topic, but if their clients worked their whole lives to acquire wealth or cultivate their business, it is important to make sure estate planning is discussed so it doesn’t go to waste.
- Health and long-term care planning: While we all hope we will be healthy in our retirement, that can never be guaranteed. Long-term health care can be incredibly expensive, which is where a financial advisor comes in. They can help make sure their clients have enough money saved in the event that they need health-related financial assistance.
- Inheritance: If a client is given an inheritance, a financial advisor can help navigate tax implications and give advice on a suitable way to manage the inheritance.
- Debt management: A financial advisor can help their clients in debt make a plan to get themselves out of it. Additionally, they may find ways to consolidate their debt to make it easier to pay it off.
- Saving for college: A common long-term savings goal is saving up for college. Financial planners can assist their clients in ensuring that they are saving appropriately for college, as well as their other long-term goals.
The minimum education requirement to be a financial advisor typically is a Bachelor’s degree. They must also complete on-the-job training and pass licensing exams to be able to recommend or sell certain financial products to their clients. Financial advisors can earn additional degrees and certifications to specialize in different areas of financial advising.
Understanding Financial Planners
As previously mentioned, financial advisor is an umbrella term, so all financial planners are financial advisors, but not all financial advisors are financial planners. While financial advisors generally focus on investment management, financial planners take a holistic approach to managing money and are more likely to establish long-term relationships with their clients. Once this plan is established, the financial planner checks in with their client on a regular basis to make sure they are satisfied with their plan and make adjustments as needed.
So what does this holistic approach look like? Well, a financial planner will look at a client’s current financial status as well as what their long-term goals are. Financial planners can help their clients through big life events like buying a home, divorce, sudden job loss, critical illness, or other life-altering events. Rather than just focusing on what the client can afford or what the client has invested, a financial planner will look at the bigger financial picture.
Financial planners are also considered fiduciaries, which means they are legally obligated to act in the client’s best interest. They cannot accept third-party payments from vendors as an incentive to sell their clients certain products. This legal obligation can differentiate a financial planner from a financial advisor.
Becoming a financial planner is similar to becoming a financial advisor as far as education; however, in many instances, some financial planners may obtain further education. The most common is a certified financial planner (CFP) given by the CFP board. In order to have this certification, the financial planner must pass an exam and participate in continuing education to maintain their certification. According to Glassdoor, the median salary of a CFP in the US is about $90,424, but this number varies greatly depending on which state the CFP works in. Comparing Financial Advisors and Financial Planners
Both financial advisors and financial planners help their clients manage their money. However, there are differences between the two. First, a financial planner is more specific than a financial advisor. Financial planners help clients save money throughout their lifetime, whereas a financial advisor may help clients with investment or tax management. Financial planners create
a comprehensive plan while financial advisors may specialize in one specific area. A big pro of working as a financial planner is being able to make connections with your clients and help them throughout their lives. On the other hand, working as a financial advisor may allow you to specialize in other areas of interest. Some financial advisors may make commissions, but this is dependent on whether or not they are fiduciary. Without the commission, you may not earn as much of a bonus. However, the absence of commission creates less pressure on you to sell certain products and lets you focus on your client’s goals. It also creates a steady cash flow for you rather than relying on commission.
Determining the Right Career Path for You
So, which career path is right for you? First, it depends on your personal and professional goals. Where do you see yourself in 5-10 years? Additionally, your interests and qualifications play a huge part in deciding which career path is right for you. One area of financial advising may make more money than another, but will you be satisfied with your work?
Salary can be a deciding factor when it comes to choosing a career path. Luckily, both a financial planner and a financial advisor have competitive salaries and room for growth. Because the salaries can be similar, it is important to look into the projected growth of each role. For example, as predicted by Forbes, the projected growth of a financial analyst is about 9% while the projected growth of a financial advisor is 15%. You want to consider not only the money you will make right away but also the potential for financial growth in the future.
Consider what approach you want to take when working with clients. Do you want to take a more holistic approach like a financial planner or zero in on a particular interest? Think about what you want your day to look like and go from there.
Choosing a career path can be a difficult decision to make without research or experience. If you are still in school, talk with an advisor or professor who can give you more insight. If you are out of school, try networking with current financial advisors and planners to better understand their experience in their careers. If you don’t have anyone to reach out to, look for online sources like videos or blogs (like this one!) that teach you more about the day-to-day details of financial advising.
Overall, financial advisors and financial planners work with their clients aiming to ensure they reach their financial potential and meet their long-term goals. A financial planner takes a holistic approach and checks in regularly with their clients. A financial advisor is a broad term, so this includes financial professionals who specialize in specific areas of finance.
Either career path will satisfy someone looking to help others manage their money. The specificity of the job is the main difference between the two. Whether you choose to be a financial advisor or a financial planner, you’ll be pursuing a fulfilling career that helps others while also helping you reach your own financial goals. It’s a win-win!
For Educational Purposes Only – The opinions expressed and material provided are for general information only.