This article highlights the key differences between a financial advisor and a financial planner.
In today’s complex financial landscape, comprehensive financial planning isn’t just an advantage—it’s a necessity. With countless investment options, evolving tax regulations, and life’s unpredictable twists and turns, having a well-laid plan can make the difference between financial success and unforeseen challenges.
Of course, life comes with many responsibilities, and you may not have the bandwidth or expertise to navigate the intricacies of personal finance on your own. So, who should you turn to for guidance— a financial advisor or a financial planner?
On the surface, the titles may seem interchangeable, but the nuances between them can significantly shape your financial future. As such, it’s crucial to understand the key differences, so you can make the right choice for your financial needs and goals.
Financial Advisor vs. Financial Planner: Delving into Each Role
“Financial advisor” tends to be a catch-all term encompassing a variety of professionals in the finance realm. Many financial advisors operate within larger institutions such as broker-dealers, insurance companies, banks, or investment firms. Their affiliation with these institutions can shape the services they provide and the advice they give.
For instance, some financial advisors may specialize in selling products like mutual funds, insurance policies, or annuities. Others may focus on specific domains, such as retirement advice, estate planning, or tax strategies.
Financial planners, on the other hand, don’t just offer advice. Instead, they take a more holistic and strategic approach to wealth management, understanding each client’s current financial situation and future goals and crafting a comprehensive plan to bridge the gap.
Notably, many financial planners hold the CERTIFIED FINANCIAL PLANNER™ (CFP®) certification. CFP® professionals must meet stringent education, examination, experience, and ethical requirements, ensuring they’re well-equipped to address a broad range of financial planning topics.
4 Key Differences Between a Financial Advisor and a Financial Planner
#1: Fiduciary Responsibility
Not all financial advisors have an obligation to place their clients’ interests above theirs. Those who operate under the “suitability standard,” must only provide suitable recommendations, which may not be the best option for their clients.
In contrast, CFP® professionals must act as fiduciaries. These financial planners have a legal and ethical duty to prioritize their clients’ best interests when giving financial advice, ensuring transparency and trustworthiness in their dealings.
#2: Qualifications
Some financial advisors have degrees or certifications, while others may not. In general, those who give specific investment advice or manage money must pass one or more qualifying exams administered by FINRA.
For financial planners, becoming a CFP® professional is a rigorous process. Indeed, the CFP® certification process has four requirements:
- Education. The two-part education requirement includes completing coursework on financial planning through a CFP Board Registered Program and holding a bachelor’s degree or higher in any discipline from an accredited college or university.
- Examination. Candidates must pass the CFP® certification exam, a 170-question, multiple-choice test that consists of two 3-hour sessions over one day.
- Experience. CFP® professionals must complete either 6,000 hours of professional experience related to the financial planning process or 4,000 hours of apprenticeship experience that meets additional requirements.
- Ethics. All CFP® professionals must adhere to CFP Board’s Code of Ethics and Standards of Conduct and act as fiduciaries when providing financial advice.
#3: Scope of Services
Financial advisors can offer a diverse range of services depending on their qualifications and business model. For example, some advisors may concentrate solely on investments, while others may cover broader domains, such as insurance or tax planning.
Financial planners, however, generally offer comprehensive financial planning services, resulting in a holistic approach. Services may include retirement planning, tax minimization strategies, estate planning, investment management, and more.
The scope of services a financial advisor or financial planner provides can offer important insights into the care you’re likely to receive as a client. While a financial advisor may focus on one area of your financial life, a financial planner strives to understand your complete financial picture, ensuring a more integrated service model.
#4: Compensation Structure
A financial professional’s compensation structure depends on the nature of their practice. The most common compensation models generally include product commissions, asset management fees, hourly fees, or a combination of these options.
Financial advisors who sell financial products like mutual funds, insurance policies, or annuities may receive a commission for each product they sell. While this model may work well for some, it can also lead to potential conflicts of interest, resulting in recommendations that may generate a higher commission for the advisor but aren’t necessarily in the client’s best interest.
Other financial advisors may charge a percentage of the client’s total assets they manage or a flat hourly fee for the services they perform. These compensation methods tend to offer more transparency and can align the advisor’s incentives with the client’s success.
CFP® professionals operate under a distinct ethical framework that requires them to disclose all potential conflicts of interest. For this reason, many financial planners opt for a fee-only model to minimize potential conflicts and ensure objective advice.
Understanding a financial professional’s compensation structure is crucial when seeking financial guidance. Ultimately, it can influence the advice you receive, as well as the quality of service they provide.
Additional Considerations
Beyond the factors above, a financial professional’s commitment to ongoing education and regulatory compliance can help ensure you’re receiving the best advice possible. The following considerations can also distinguish a financial advisor from a financial planner:
- Continuing Education. Many financial advisors proactively stay up to date on topics and trends in wealth management, and some may have periodic training mandates depending on their affiliations and certifications. All CFP® professionals must complete 30 hours of continuing education every two years, ensuring their knowledge is current.
- Disciplinary Oversight: Both financial advisors and financial planners fall under the scrutiny of bodies like FINRA, the SEC, or state regulators. CFP® professionals must also adhere to CFP Board’s Code of Ethics and Standards of Conduct, reflecting their commitment to high standards of competency and ethics. Violations of the board’s standards can lead to disciplinary actions or even certification revocation.
Keep in mind that any professional under the scrutiny of federal or state regulators must publicly disclose if they’ve been the subject of disciplinary action. You can find this information using FINRA’s BrokerCheck tool or the SEC’s Investment Adviser Public Disclosure website.
Financial Advisor or Financial Planner? Choosing the Right Financial Partner for Your Objectives
Choosing a financial partner to guide you along the path to financial freedom is a personal and nuanced decision. While there’s often overlap between a financial advisor and financial planner, their fiduciary responsibilities, qualifications, and services can differ significantly.
It’s important to choose a professional who aligns with your values and needs, upholds your best interests, and steers you towards a prosperous financial future. By conducting thorough research and asking the right questions on the front-end, you can avoid unwanted surprises that may impede your progress toward future financial goals.
At Benchmark Wealth Management, we prioritize your financial well-being, offering holistic planning for high-net-worth individuals. With a fiduciary, fee-only approach, your best interests are our top priority. Contact us to discover how we can help you achieve your financial objectives.
About Rick
Richard W. Stout III is managing director of Benchmark Wealth Management, LLC, with 25 years of experience in the financial industry. He specializes in financial planning and asset management for individuals, families, and institutions seeking to build and monitor durable and sustainable plans for their financial futures. Rick is a Certified Financial Planner™ professional and holds the Accredited Investment Fiduciary® (AIF®) designation. He obtained his MBA from Rensselaer Polytechnic Institute and his BA in Economics and Anthropology from the University of Connecticut. Rick has earned a Master of Science degree in Personal Financial Planning from the College for Financial Planning. He has extensive background experience in lending, credit review and analysis, and real estate and partnership management. Learn more about Rick by connecting with him on LinkedIn.
About Thomas
Thomas J. Britt is managing director of Benchmark Wealth Management, LLC, with 23 years of experience in the financial industry. He specializes in executive financial planning, retirement planning, investing, as well as the management of trusts and endowments. Thomas is a CERTIFIED FINANCIAL PLANNER™ professional. He holds the Master Planner Advanced StudiesSM, MPAS®, Certified Investment Management Analyst® (CIMA®), and Chartered Retirement Planning Counselor℠, CRPC® designations. Thomas earned a Bachelor of Science in Finance from the University of New Haven, an MBA in financial technology from Rensselaer Polytechnic Institute, and a Master of Science in Personal Financial Planning from the College for Financial Planning. He is also a proud veteran of the United States Navy Submarine Force. Learn more about Tom by connecting with him on LinkedIn.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Advisor Public Disclosure site, www.adviserinfo.sec.gov/firm/160192
Securities offered by Registered Representatives through Private Client Services, Member FINRA, SIPC in the following states: AZ, CA, CT, FL, KY, MA, ME, MI, MN, NH, NJ, NY, RI, TX. (Securities-related services may not be provided to individuals residing in any state not previously listed.) Advisory services offered through Benchmark Wealth Management, LLC a Registered Investment Advisor. Benchmark Wealth Management and Private Client Services are unaffiliated entities.
