Financial Planner vs Financial Advisor

Defining the difference between a financial planner and a financial advisor is a bit of a moving target, so much so that even within this blog I tend to use them interchangeably. But there are differences, and in general, you’re going to get a slightly different experience depending on which one you hire.

A financial advisor and a financial planner are similar in that they both provide advice on financial matters, such as investing, saving, and managing money. However, there are some key differences between the two.

A financial advisor typically refers to someone who works for a financial services firm and is licensed to sell financial products, such as stocks, bonds, mutual funds, and insurance. They may also provide investment advice, but their primary focus is on selling financial products.

A financial planner, on the other hand, is typically a professional who helps clients create a comprehensive financial plan that takes into account their current financial situation, future goals, and risk tolerance. They may also provide advice on tax planning, estate planning, and retirement planning. Although some are, financial planners are not necessarily licensed to sell financial products.

In summary, a financial advisor focuses on selling financial products, while a financial planner focuses on creating a comprehensive financial plan for their clients.

Which one is better?

It depends on what you can afford, but in general financial planners are going to be more comprehensive, or at least more capable of being comprehensive. Plus they’re far less likely to give questionable advice in order to earn a higher commission, which unfortunately, regardless of how much legislation is passed to help stop, is still all too common. A financial advisor usually won’t charge you a fee for their advice, so there’s often some cost savings up-front, but if you can afford it hiring a financial planner means you’ll have far less chance of receiving biased advice.

How much does working with a financial planner or advisor cost?

The cost of working with a financial planner or advisor can vary widely depending on the type of service provided and the qualifications and experience of the planner. Here are a few different ways that financial planners or advisors may charge for their services:

Hourly fee: Some financial planners charge an hourly fee for their time, which can range from $100 to $300 or more per hour.

Flat fee: Some financial planners charge a flat fee for a specific service, such as creating a financial plan or reviewing an investment portfolio. This type of fee can range from a few hundred dollars to several thousand dollars.

Retainer fee: Some financial planners charge a retainer fee, which is a set amount paid on a regular basis, such as monthly or quarterly. The planner may provide ongoing advice and support for the duration of the retainer period.

Asset-based fee: Some financial planners charge a percentage of the assets they manage for the client, typically around 1% annually.

Commission-based: Most financial advisors are commission based, meaning they receive a percentage of the sale of certain financial products like stocks, mutual funds or insurance.

It’s important to note that before engaging a financial planner, you should ask about their fee structure and understand it clearly. You should also ask for the planner’s Form ADV, a document that financial planners are required to file with the Securities and Exchange Commission (SEC) and state regulators, which provides information on the planner’s qualifications, experience, and compensation.

A better question

The title of the professional you’re working with certainly matters, but several other things matter much more. Here’s my own list of what matters most in hiring a financial advisor or financial planner:

1) Do you actually like spending time with the person?

2) Do they have at least a few years of experience?

3) Do they have education, credentialing, and designations that support they know a lot about money?

4) Do they specialize in working with people like you?

This last point is often drastically underrated. Our firm, for example, is built to serve two types of people: small business owners and people who are about to retire. If you’re not one of those people, it may certainly still make sense to work together, but if you find a financial planner who has built an entire business around serving people exactly like you, you should at least interview them to see if they check off the other boxes. And I promise no hard feelings if you leave.

The reason this is so important is that you want the people who help you with your money waking up every morning thinking about how to help you with your money.

The obvious reality is that unless you have enough wealth to hire your own full-time Financial Planner or Financial Advisor they’re not spending every waking hour on you. They’re spending some time on your situation, but not all their time, and so the more similar their other clients are to you, the more overlap you’ll get in the new strategies your advisor is spending their time learning for others.

You see this same specialization phenomenon in virtually every other industry in our world today, but because the average financial advisor is somewhere around 55 years old and tends to be stuck in their way of doing business (my opinion), our industry has been slow to adapt. Understandable, but not in the best interest of clients.
The way people have historically chosen most services was based primarily on proximity. Example: you probably use a dentist whose office is within 10 miles of your home. However, for some services, this isn’t the case. If you’re going to have brain surgery, it’s okay to travel to make sure you’re getting a great brain surgeon.

Due to remote meeting technology being as easy as it is today, many more industries are becoming more like brain surgery in that regardless of geography, you want to work with the best option available.

With this in mind, the best financial advisor for you may live on the other side of the country. Many of my own clients live on the other side of the country, and we’ve never actually met in person. But because we like one another and they’re similar to our other clients, we have high levels of trust and the relationship works great.

In summary

Most people in the market for financial advice should interview several potential candidates – at least a short phone call – before determining who to engage with. In order to narrow the list of interviews, look for:

– a Financial Planner,

– that works with people like you,

– with simple fees,

Then give them a chance to see if you like one another.

A solid relationship with a good financial planner or advisor should make/save you many multiples of the fees you pay them over your lifetime. All while being an enjoyable experience. So if you’re in the market for a new or different advisor, get started today.

*If you’re interested in learning more about working with us click here.

By: David Talley, CFP®