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The terms "financial planner" and "financial advisor" are often used interchangeably, but there are some key differences between the two.
Both financial planners and financial advisors can help you manage your money through investments and other financial plans. But a financial advisor doesn't always take a holistic approach to your financial plan as a financial planner does. Here's a quick summary of the key differences between the two and how to determine which is right for you.
Financial Planner vs. Financial Advisor
|Financial Planner||Financial Advisor|
|Helps you design a strategy to meet short-, mid- and long-term goals||A broad term for financial professionals who can help you manage your money|
|Uses a holistic approach that can include budgeting, saving, investing, insurance and more||May or may not provide a comprehensive plan for their clients|
|May specialize in certain areas, such as insurance, tax, retirement or estate planning, but still provides a comprehensive plan||May specialize in certain areas, such as insurance, tax, retirement or estate planning, without a holistic approach|
What Is a Financial Planner?
A financial planner is a financial professional who can help you create a comprehensive strategy for your financial life.
They often gather a lot of your financial information to help you with every aspect of your money management. While some may focus on investing, retirement planning, estate planning or other areas, they'll typically still provide you with recommendations to help in all areas of your financial plan.
Financial planners may have their own practice or work for a bank, credit union, wealth management firm or even a government agency.
Financial planners may also act as financial advisors by providing you with specific investment advice, and they may even offer to manage your investments on your behalf. If a financial planner offers certain products or services, such as investment management or insurance, they'll need to be licensed to sell them.
There are a few different ways financial planners get paid:
- Fee-only: You'll pay a fee, typically at an hourly rate, but it could be an annual rate.
- Commission-based: You don't have to pay to consult with your planner, but they'll charge a commission for trades as they manage your investment account.
- Fee-based: These advisors make money from a mix of fees and commissions.
When you work with a financial planner, you'll undergo a thorough fact-finding process, so they can make sure to provide you with comprehensive advice. Because planners can have a specific focus area, be sure to work with one that aligns with your top priorities.
What Is a Financial Advisor?
"Financial advisor" is a catch-all term for financial professionals who can help you manage your money. That can include financial planners, but it can also include insurance agents, estate planners, private bankers, tax professionals, stockbrokers and more.
While financial advisors don't always act as financial planners, giving you a holistic approach to your finances, they can specialize in certain areas, which can be beneficial if that's all you're looking for.
Like financial planners, advisors need to be licensed to sell investment products and services, as well as insurance policies. They also typically get paid in the same ways.
Which One Is Right for Me?
Ultimately, the right option for you depends on your needs and goals. If you want advice for the full breadth of your financial plan, a financial planner can give that to you. But if you have a specific goal in mind and don't need help with a full financial plan, it may be better to work with a financial advisor who specializes in one area.
Regardless of which type of financial professional you choose to work with, take your time selecting one. Ask around in your family and friend circles to see if you know anyone who works with a planner or advisor that they'd recommend.
You can also run an internet search for professionals in your area and read reviews from current and former clients.
In your first meeting with a planner or advisor, ask about their experience, specialties and processes. Also, ask about how they get paid and how it might impact you. Even if they have glowing reviews, an excellent planner or advisor still might not be the right fit for you.
It's important to take your time with this process to ensure that you have the right professional in your corner.
The Bottom Line
If you're looking for help with your finances, both a financial planner and a financial advisor can help you. But while those terms are often used interchangeably, they're not always the same.
Think about what your financial goals and needs are, and take your time to vet potential professionals to help you decide which one is the right fit for you. Knowing whether you want a more comprehensive approach to your plan or if you just need help with a specific area can help with this.
Working with a planner or advisor can make it a lot easier to work toward your financial goals, but do your due diligence to find the right one for your situation.