One question I’m often asked is to explain the difference between a financial advisor vs financial planner?
It’s a fair question. These days there are multiple types of professionals selling financial products from multiple types of financial institutions.
An easy way to think about the financial securities industry is with this simple analogy. All licensed professionals are in fact advisors, but not all advisors are indeed financial planners.
To become licensed to sell or offer advice, a professional must pass one or more securities exams offered by a regulatory agency. A financial planner will take their training a step further by studying to become a CERTIFIED FINANCIAL PLANNER™. Besides receiving additional training, each CFP® will take an oath to act in their client’s best interest. Many financial planners also serve as a fiduciary as well. Fiduciary financial planners manage their clients’ investments in a way that always aligns with their client’s best interests.
More questions I receive from time to time:
Can you see a financial advisor for free?
Yes. I see new clients regularly without asking for a fee. A complimentary initial consultation provides an opportunity to meet and discuss important goals and challenges that are important. During this time, I have a chance to express how my experience may or may not match with the client. As a CFP®, gathering information is a key element to building effective financial plans. I have found an initial, no stress meeting is a great starting point to begin a productive relationship.
Do I need a financial advisor?
Yes. Most people could greatly benefit from meeting with a financial advisor. There are plenty of topics that can be handled DIY, but many areas within personal finance are complex. Tax, insurance, family estate planning, and investments to name a few. Overlooking one key element can be very costly. Hiring an experienced advisor can help you sleep at night knowing the advice they provide is tailored individually for you.
What should I look for in a financial advisor?
It's a good idea to know what to look for when hiring a financial advisor. The five items below will help identify important qualities a good financial advisor will possess.
Education - a financial advisor who has taken the time and effort necessary to learn the business is a must. Understanding financial markets and how they apply to the general public are complex areas. Financial advisors who possess the CFP® designation have taken the time necessary to pass a comprehensive exam covering the areas of taxes, investing, estate planning, and insurance. The CFP® designation is considered the gold standard of financial advisory designations.
Experience - while the amount of time a financial advisor has been in practice is important, it is equally as important to learn the areas of financial planning the financial advisor has worked. Some advisors may be CERTIFIED FINANCIAL PLANNERS™ while others serve as brokers. While both professionals are considered advisors; the areas of expertise for these professionals could vary greatly. Also, some advisors work solely with individuals already within retirement; while some focus on serving as a younger client, newlywed, or millennial advisor.
Fees - a very important area worthy of investigation. This can be complicated. Some financial advisors’ fees are very hard to calculate because fees can be embedded within products or mutual funds that they may offer. Some advisors offer transparency with their wealth management fees. A fee-only financial advisor will have a clearly defined fee structure. Also, fee- only financial advisors do not offer commissionable products, so clients are only charged for individually tailored advice.
Conflicts of Interest - Most of the time a conflict-of-interest stems from compensation. It is well worth the time to investigate how your financial advisor is compensated. Ideally the client is better off not receiving advice from an advisor who makes recommendations based solely on payable commissions rather than suitability. Most advisors will be upfront with their compensation structure and it’s best to have that conversation early.
Standard of Care - All financial advisors say they operate with their client’s best interest in mind, but one segment known as registered investment advisors are obligated to look out for their client's best interests all of the time. This is known as the fiduciary standard of care. It's a good idea to inquire if a prospective financial advisor is a fiduciary prior to beginning a formal relationship.
In short, a little homework may go a long way in deciding the right financial advisor for you.
What does a financial advisor do?
A financial advisor provides support in the areas of retirement and financial planning. Financial advisors can help identify the proper risk profile and suitability for their clients. Advisors can also construct investment portfolios that are geared to meet each client’s financial goals. Some advisors may also hold a CERTIFIED FINANCIAL PLANNER™ designation. A CFP® has received extensive training to better offer more holistic advice.
How much money do I need to hire a financial advisor?
There is no set dollar amount that qualifies an individual to seek the help of a financial advisor. Someone who might be considered wealthy needs the assistance of a financial advisor just as much as someone who is just beginning to build retirement savings. A true financial planner has the training and experience to help all types of individuals reach their retirement goals. Contact a CFP® to get started on your plan today.
When should I hire a financial advisor?
For most individuals the time to hire a financial advisor occurs around a life event. Moments like the birth of a child, getting married, or divorced, are classic life events that may require the assistance of a trained financial advisor. For some, retirement, or the death of a loved one, may trigger the ideal time to hire a CFP®. Selling a family business or legacy planning would also be a wise opportunity to seek help as well.
A good rule of thumb is to establish a working relationship with an experienced professional prior to an emergency or life event.
About William Bevins: William Bevins is a CERTIFIED FINANCIAL PLANNER™. His training includes the areas of tax, insurance, and estate planning. His planning is designed to help professionals achieve their financial goals through retirement planning, smart investing, reducing taxes, and maximizing their money.