Financial Planner vs. Financial Advisor: Is There a Difference?
Find the best person to help you with your money goals.
There will come a time when you may seek professional help with your finances. There are many qualified people out there equipped to assist you with retirement savings, investing, taxes, estate planning, and college financing.
In the world of money advice, you’ll likely hear the terms “financial planner” and “financial advisor” thrown around, often interchangeably. What do these people do? And is there a difference between the two? Here’s what you need to know about these professions so you can find the best person to help you.
Planning vs. Advising
Here’s a crucial thing to remember: a financial planner is a type of financial advisor, but a financial advisor is not necessarily a financial planner, at least not when using the phrase the way most in the industry do. It’s a gray area, to be sure, but here are some guidelines that will help you decipher the phrases in most cases.
A financial advisor is generally viewed as anyone who advises someone on money issues. It’s a fairly broad term that could include any number of people who might help you, including a broker or investment advisor, an insurance agent or an accountant. Duties may include:
- Offering advice on how much money to save
- Making investment suggestions
- Offering tax advice
- Buying and selling investments on behalf of a client, (but they must have special qualifications to do so. See below.)
A financial planner, meanwhile, usually refers to someone who takes a more comprehensive approach.
The work is generally more in-depth and may involve fully managing investment portfolios and assisting a person in achieving financial goals from college graduation all the way up to and through retirement.
There is nothing stopping someone from calling themselves a financial planner if they provide planning services as they're broadly defined. But within the industry, there is a tacit understanding that the financial planning title should fall only to those who carry the Certified Financial Planner (CFP) designation.
Getting a CFP designation isn’t easy. Someone seeking one must have a college degree, have three years of work experience in planning, complete rigorous coursework (or hold select degrees or licenses for accounting or law, for example) and pass exams administered by the Certified Financial Planner Board of Standards, a non-profit organization that manages the certifications.
The CFP Board has a code of conduct, rules about ethics, and disciplinary procedures. You can verify someone is a CFP right on the board’s website.
What Those Acronyms Mean
That’s not to say a person who isn’t a CFP isn’t expected to uphold strict ethical and fiduciary standards, especially if they are actively managing clients’ financial accounts. Many financial advisors who aren’t CFPs have other certifications, as well as degrees in finance and business, that make them well-versed in matters related to retirement, investing, taxes, and more.
The Financial Industry Regulatory Authority, known as FINRA, provides a comprehensive list of professional designations that will help you decode most acronyms you may see at the end of a financial advisor’s name. The list explains the required education and certification, who regulates someone with that designation, and how to make a complaint or check disciplinary actions.
Buying and Selling Investments
If a financial advisor is going to buy and sell securities directly on behalf of clients, they must pass exams administered by FINRA and register with FINRA and state regulators. Often called brokers, these financial advisors work for broker-dealers that must be registered with the Securities and Exchange Commission (SEC), the main federal agency charged with enforcing securities laws.
Then there are investment advisors, people who are paid to give advice about securities. They must register with the SEC or, in the case of smaller operations, state securities regulators.
You can check on a specific broker or firm by using FINRA’s BrokerCheck website. It tells you whether someone is registered to sell securities or give investment advice and gives other background on education and complaints. BrokerCheck also searches the SEC’s comparable tool, the Investment Adviser Public Disclosure (IADP) website. And if someone doesn’t come up on BrokerCheck, you can check with your state’s securities regulator.
Regardless of whom you hire to help with your finances, make sure to take these basic steps to protect yourself and get the most for your money:
- Ask for recommendations from friends and family, but also do your own independent review by interviewing people and asking lots of questions
- Don’t hire anyone without verifying their background and credentials and checking if any complaints have been registered against them
- Ask them to spell out their compensation clearly, including how you will pay them and whether they’ll be getting paid by anyone else for their work for you
- If you’re using them to make investments, ask them if they are licensed to sell you the investment and then verify with BrokerCheck, the IADP site, and the SEC’s Action Lookup.