Over time, the financial services industry has blurred the line between the terms financial “advisor” and “planner,” often at the expense of the client’s experience.
A financial planner can be — broadly — defined as someone who sits down with a client and does lifelong financial planning. Financial advisor is a more general term. An advisor tends to focus on more instantaneous financial matters, particularly investment decisions.
“When I think of an advisor, I think of someone who is advising me about investment,” said Skip Schweiss, president of the Financial Planning Association. “When I think of a planner, I think of a more holistic approach to planning my financial life.”
Experts weigh in
An issue has emerged, though, with this generality: anyone can call themselves an advisor or planner, with no regulatory oversight. This means the advisor who purports to be an expert may be just two or three years out of college without any certifications or designations. Many CFP designation holders in the financial services industry want to make clear the differences between themselves and those without financial planning or advising credentials.
“Neither one of those terms is regulated, so almost anyone can call themselves either of those things, which is a problem because it can confuse consumers about what they’re getting,” Schweiss said.
Schweiss said he would prefer to have a planner because he would want that holistic approach, but he recognizes that “different people have different needs, and you might have different needs at different stages of your life, too.”
Brent Weiss of Facet Wealth, based in Baltimore, is a certified financial planner and believes the industry needs a higher ethical standard.
When I look at the industry, it has done a very poor job of creating a transparent standard of the services we provide for clients,” Weiss said. “The question should be: ‘Are you a CFP professional?’ We have to elevate the expectations of what good financial advice really is.
“Consumers deserve a higher level of expectation when it comes to service and advice,” he said.
What a financial planner is
So what does a financial planner actually do? A planner is a professional who can help both individuals and companies create specialized programs to meet their long-term financial goals. According to the Financial Industry Regulatory Authority (FINRA), essentially anyone can claim to be a financial planner. They could be brokers, investment advisors, insurance agents, practicing accountants — or people with absolutely no financial credentials.
A planner might have a specialization in taxes, estate planning, retirement or investments. If they hold credentials, they may have multiple designations or licenses, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA), Chartered Financial Consultant (ChFC) and more. To obtain any of the aforementioned licensures, a planner has to complete a different set of examination, education and work history requirements. This means that a planner or advisor with no credentials might not even have gone through that examination and education.
By and large, a planner is a specific type of financial advisor. All planners are kinds of advisors, but not all advisors are planners. Planners are often less investment-centric than advisors are — instead they specialize in creating comprehensive planning to help clients achieve financial goals. Financial planners typically form longer-term relationships with their clients than financial advisors do. Investors tend to view professionals in the industry who call themselves planners as more approachable and assume they are more affordable compared with advisors.
Anora Gaudiano, an advisor with Wealthspire Advisors, based in New York City, does not differentiate between advisor and planner, though she considers herself a planner.
“In my opinion, an advisor should do everything a planner does, and a planner should do everything an advisor does,” Gaudiano said. “For a lot of people, an advisor is associated with the investment part of it, but since we are all advisors and planners, we do everything.”
Many experts in the field urge those who want to work with a financial planner to look for a CFP. CFP holders have a fiduciary duty to work exclusively in their clients’ best interests. They must follow the CFP Board’s code of ethics and conduct, which means they have to always provide advice prioritizing the clients’ financial interests and goals rather than their own.
“As a fiduciary, we don’t distinguish between financial advice and financial planning,” said Stephanie Mackara of Charleston Investment Advisors, based in Mt. Pleasant, South Carolina. “Our clients’ financial goals and personal goals are viewed holistically, and we then implement a plan to help them achieve their goals, a portion of which includes providing financial advice.
“As CFP designation holders, we pledge to be full fiduciary advisors, so that means we will always put out clients’ interests first, and we will never engage in any conflicts of interest,” Gaudiano said.
A financial planner would be more interested in the entire financial process, from gathering clients’ personal information to actually implementing and even monitoring plans to ensure they unfold the way the clients want. Because the overuse of the financial planner title, it is crucial to look for an accredited designation after a professional’s name (for example, Mary Johnson, CFP).
Mackara believes there is a distinction between people who call themselves advisors who are not RIA-licensed and do not exercise a fiduciary duty.
“These types of advisors are reminiscent of stock brokers who buy and sell on behalf of their client but don’t have a strategic plan that aligns their investments with their goals,” Mackara said.
The Department of Labor made an attempt at federally regulating fiduciary financial planners with its infamous fiduciary rule battle but could not push it past the courts. Now, the sole financial regulation that exists for those who can call themselves a financial planner is at the state level.
One example is Nevada. In the Silver State, if one calls oneself a financial planner, one must operate at a fiduciary level or run into legal trouble.
Mostly, though, financial planners are regulated only in relation to the other services they provide. For instance, an accountant who calls himself a financial planner would be regulated by a state board of accountancy — but really only for the services he provides as an accountant.
Russell Rivera of Voice Wealth Management, based in New York City, was a trader for the first 10 years of his career. Then, he started to find the idea of portfolio management more interesting than trading.
“Being a decent communicator, it suited my skills more,” Rivera said. “Beyond that, it’s recognizing that our society would be better off if people got into finance and financial literacy early.”
Rivera does investment management, budgeting, estate planning, college planning and “even business stuff.” He sees himself “as a planner first.”
“Advisor is not a term that I use,” Rivera said. “The term advisor has been deemed meaningless.”
For example, he said, an insurance salesperson can be called an advisor. Rivera believes being a planner is about “trying to empower the client to make choices within their own plan,” and if a professional is only giving advice, “you can become a product salesman.”
Weiss started his company to fight for families like his. His grandmother, a cancer survivor, worked with a financial advisor who invested her life savings in a stock in a company that was “going to find a cure for cancer.” He said, “She lost her money, and he made a fat commission.
“We can’t even agree that consumers and clients deserve what’s best for them,” Weiss said. “How are consumers supposed to trust us when we can’t agree on the fiduciary rule?”
What a financial advisor is
Now, what is a financial advisor and how does that differ from a financial planner? An advisor is someone who helps clients manage their money, including investments and other accounts. A client pays an advisor, and in exchange, the advisor helps with any kind and any number of money-related tasks and goals. A financial advisor might help manage clients’ investments, broker the sale and purchase of stocks and funds, or create a holistic tax and estate plan.
Mackara thinks the term financial advisor is “a little misleading.” She believes it is an umbrella term that covers a host of different service models within the financial services industry.
If the advisor is working with the public, they must have a Series 65 license. Aside from regulatory licenses, there are more than 100 voluntary certifications available for a financial advisor to earn. Advisors might have any number of credentials depending on the services they provide to clients. However, there is decreasing motivation to earn a certification if clients will work with an advisor without a certification anyway.
“Different licenses will dictate whether a planner can execute trades for a client, but, if one is an RIA, they have a fiduciary obligation to their clients that allows both planning and investment advice,” Mackara said.
Many view a financial advisor as a professional who offers a balance between investing guidance and financial planning, but the term basically refers to anyone who helps clients manage their money. Like a planner, advisors may have specializations in various areas: investment management, estate planning, retirement planning, debt repayment, tax planning, insurance or any other aspect of the financial industry. Or, instead of having a specialization, an advisor might help you sporadically with each of the aforementioned financial matters. A financial advisor is likely going to be a professional who is more interested in the markets and securities.
Rivera believes a planner “looks at multiple ways of doing things and is often willing at times to step outside of their normal method of doing things if they see an opportunity to do things differently.” An advisor, in Rivera’s view, “has one way of doing business.”
Advisors may cater to particular income levels. For example, ultrahigh net worth individuals will potentially want to consider working with a private wealth manager, while someone who is having trouble getting out of debt could prefer to receive guidance from a financial counselor.
Advisors are typically compensated in one of three ways: fee-only, fee-based or by commission.
Fee-only advisors only make money based on the services they provide to clients. Advisors paid by commission earn money based on the specific financial services or products they sell, typically through a broker-dealer. Fee-based advisors charge a fee upfront for their services, as well as earn a commission for any financial products they sell, such as insurance policies. Some advisors may also charge a flat rate or an hourly fee. Each advisor has a different fee schedule for their services. If a client wants to avoid the continual sales pitches and the high potential for conflicts of interest, a fee-only professional, or RIA, is often the choice.
The cost of a financial planner or advisor can depend on several factors, such as how the advisor or planner is going to be compensated and if the advisor or planner will offer their guidance and services on an ongoing basis. Because of this, no one can generalize the price of either. Many planners and advisors who offer continual services charge a percentage of the client’s account size or assets under management.
The quantitative reasons for having a financial advisor are substantial. People who work with financial advisors have more financial security, and there is research that suggests working with an advisor can result in additional returns on annual investment ranging from about 1.5% to nearly 4%.
Times in life when you’ll need an advisor most
Here are the situations in which people need a financial advisor most in life, according to SmartAsset:
- A person is retiring soon. To maximize retirement income, one needs to make intelligent decisions surrounding complicated topics, such as 401(k) and IRA withdrawals and Social Security.
- A person is managing their own investments. Individual investors should always propose their strategies to impartial third parties for advice. A person could be neglecting many opportunities in their portfolio.
- A person has children. There are many ways to ensure one’s children are well taken care of financially, such as saving enough money for their college tuition or planning their inheritance.
- A person has inherited money. It can be very difficult to manage abrupt or colossal increases in net worth.
- A person already has a financial advisor. Perhaps there is a better advisor out there for someone who currently works with one. People should ensure they have found an advisor who makes a positive, material difference in their finances.
- A person is going through a divorce. Unbiased advice is highly important when combing through finances amidst a divorce. Those who are divorcing should seek guidance from a professional, disinterested third party.
- A person is trying to accumulate wealth. Even if a person is a long way from retiring, wise financial choices made early in a person’s career have the potential to increase the value of one’s retirement accounts by thousands of dollars.
What to take away
As controversy looms over what actually defines a financial advisor and a financial planner, there remain many options when deciding where to receive financial guidance and recommendations.
When looking for an advisor or planner, Weiss said, “We need to be asking: ‘What is your education? What is the ethical standard you hold yourself to?’”