Financial Advisor vs Financial Planner

In your search for the right financial professional to help you manage you and your family’s finances, you may run into the question: “What’s the difference between a financial advisor and a financial planner?” It’s an excellent question to ask, and it shows that you’re on the right track in finding the perfect fit for you. In this post, the experts at DHJJ will cover the basics of what you need to know about the financial planning distinction. Read on to learn more.

What is a Financial Advisor?

Generally, financial advisors will help individuals manage their money in exchange for pay. There are many pay structures that financial advisors use, including flat rate fees or fees based off of a percentage of investment income earned. The term “financial advisor” can be very broad: it encompasses a range of many more specific professionals, including insurance agents, bankers, brokers, and financial planners. Importantly, individuals without any financial credentials at all might also call themselves “financial advisors.”

There is no regulating body to decide who may or may not use the title. For this reason, it’s crucial for individuals who are looking for help managing their finances to do their due diligence.

What is a Financial Planner?

“Financial planner” is a term generally reserved for a financial advisor who helps individuals manage their money in a holistic way, focusing on the complete picture of the individual’s long-term objectives. You can think of a financial planner as an advisor who serves as a trusted partner for life. Financial planners consider all of a client’s money goals – from major life purchases, providing for their family, to travel and retirement. They’ll also consider your risk tolerance before recommending investment decisions or money management strategies.

Financial planners who give retirement advice or who create retirement plans for their clients are required by the United States Department of Labor to serve as fiduciaries for their clients. “Fiduciary” is an important distinction to look for when selecting a financial advisor or financial planner. The term fiduciary means that the professional is legally required to act in the best interest of their client, not themselves. (For reference, other fiduciaries include attorneys and estate executors.) The fiduciary responsibility means that your financial planner is beholden to high standards, and is bound by law to only recommend strategies that will fully benefit you, regardless of their own potential for profit.

What’s the Difference?

Think of the difference like this: while all Porsche Panameras are cars, not all cars are Porsche Panameras. Similarly, while all financial planners are financial advisors, not every financial advisor can call themselves a financial planner. Financial planners are generally thought of as professionals who take a broader approach to managing an individual’s entire financial situation, while financial advisors may have a more narrow goal.

When you’re making a choice regarding who to trust with your financial future, make sure that you look into each candidate’s educational background, experience, and professional distinctions. As previously mentioned, while many financial advisors offer sound investment advice, not all financial advisors have a client’s long-term goals (or even their best interest) in mind.

Do you Need a Financial Advisor or Financial Planner?

While the needs of different individuals vary, those looking for a long-term partner to help manage their finances may be best suited for a fiduciary financial planner. Financial advisors who do not center on long-term planning may serve as a complement to clients with a high risk-tolerance who are interested in exploring short-term investment strategies.

This is not to say that financial planners would never recommend strategies that carry some measure of risk. Depending on your age, income, savings, and other factors, your financial planner may work with you to recommend a mix of risk-tolerance strategies. Individuals who would like to plan and save for major milestones, such as college education funds or retirement, should work with a financial planner, as planning for these types of life goals typically requires solid, trusted strategies and low long-term risk.

How to Find a Fiduciary Financial Planner

The financial industry is replete with certifications, but one distinction you can be sure about is the Certified Financial Planner® (or “CFP”) title. The title is granted and governed by the CFP Board, and is considered the highest standard in financial planning. All Certified Financial Planners are fiduciaries, so you can be sure these professionals will work in your best interest.

In order to gain the title, CFPs must sit for and pass multiple levels of vigorous testing, ultimately including the 6-hour CFP exam. A tough exam, the pass rate hovers between 60 and 65 percent, and test-takers typically devote themselves to a full-time study period of 4-6 months. CFPs are also required to hold a bachelor’s degree or higher from an accredited university, complete three years of full-time financial planning experience, and pass the CFP Board’s character and fitness standards.

DHJJ: A Team of CFPs at Your Service

If you’re looking for a trusted partner who can guide you through life’s major financial milestones and into a sound retirement, you’ve come to the right place. DHJJ’s team of Certified Financial Planners are skilled at taking the stress out of financial planning. All of our Certified Financial Planners are also Certified Public Accountants who are able to balance your current wealth and plan for retirement while working on a tax strategy.

If you’re ready to start planning for the next phase of your life, contact us online to connect with one of our experienced CFPs, or give us a call at (630) 420-1360. You can also stop by one of our offices in Naperville or St. Charles, Illinois.