Financial Advisor vs. Financial Planner

The differences between a financial advisor and a financial planner are nuanced but significant. Generally, a financial planner takes a more holistic approach to a client’s finances and has a higher earning potential compared to a financial advisor. These distinctions influence the range of services offered and the methods used to help their clients achieve their financial objectives.

TABLE OF CONTENTS

• Financial Advisors
• Financial Planners
• Fiduciaries Explained
• Financial Advisors vs. Financial Planners
• Career Outlooks
• Certifications
• Frequently Asked Questions

What is a Financial Advisor?

A financial advisor is someone who can work independently or within a financial institution like a bank or brokerage. Their focus can be more specific than financial planners and their job duties can specialize in many different areas including:

• Investments
• Retirement
• Taxes
• Estate Planning
• Insurance 
• Debt Management

How to Become a Financial Advisor >>

What is a Financial Planner?

A financial planner most often works at a brokerage or investment firm and very rarely works in a bank or a credit union. Their focus is broader than a financial advisor, meaning they will help you develop a comprehensive financial plan for the short and long term. The top five services provided by financial planners are:

• Wealth management/Investment Planning
• Comprehensive Financial Planning
• Retirement Planning
• Estate and Tax Planning
• Risk Management/Insurance Focus

Important Skills For Financial Planners >>

What is a Fiduciary Financial Advisor?

A fiduciary financial advisor is someone who is legally and ethically obligated to act in the best interest of their clients when helping them with their finances. Being a fiduciary financial advisor means they need to put their client's needs above their own, or their firms, and avoid all conflicts of interest at all costs.

For example, in the investment industry, it’s common for finance professionals to earn money from the fees and commissions associated with their client’s investments. A fiduciary financial advisor cannot legally recommend their client buy or sell anything that would directly benefit them or their firm's interest over their clients.

A financial advisor can become a fiduciary by becoming a Certified Financial Planner™ (CFP^®) which requires members to adhere to a code of ethics that includes fiduciary duties or a Registered Investment Advisor (RIA).

The fiduciary duties of a financial advisor include:

• Loyalty, meaning they must put their client's interests ahead of their own.
• Care, meaning they must perform their duties with competence and thoroughness. 
• Good Faith, meaning they must be honest and fair. 
• Full Disclosure, meaning they must be transparent about fees or conflicts of interest and provide clear communication when covering these topics. 
• Ongoing Management, meaning they must continuously monitor their client's performance and be proactive. 

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Differences Between Financial Advisors and Financial Planners

The differences between a financial advisor and a financial planner are subtle but financial planners are usually more distinguished and earn more than financial advisors. Sometimes financial advisors' professional education can start broader and later focus more on a specific financial service like taxes, whereas becoming a financial planner usually requires specific work experience, certifications, and adherence to ethical standards.    

Education Differences

There is a lot of overlap between the education that is required for a financial planner and a financial advisor. They both typically have bachelor's degrees in finance, economics, business, or accounting.

Financial advisors will typically pursue licensing like the Series 7 or Series 63 exams, which is often required for advisors to work in certain states. Financial advisors may also pursue becoming a CFP Professional or a CFA Charterholder although it’s not required.

Financial planners will often pursue the CFP designation because of how credible and widely respected the designation is. Clients usually want their financial planners to be CFPs because it’s very common in the industry and signals that the financial planner is someone who can be trusted. 

Service Offerings Differences

Think of a financial planner as the one who designs the plan for your entire financial future whereas a financial advisor is someone who specializes in a specific aspect of your plan like your investment portfolio.

Financial planners will focus on the big picture, and take a holistic approach to your financial future. They will help their clients define their financial goals and develop the strategies to achieve them.

Financial advisors can specialize in specific areas of finance like investments or insurance and typically have access to large data sets. They can develop financial models and make recommendations based on their current financial markets and economic trends.

Typical Duties of a Financial Advisor >>

Earning Differences

Financial advisors are typically compensated based on a percentage of the assets they manage or commissions they earn by selling their company's financial products. For example, they can sell mutual funds, which are large investment pools that hold various stocks and bonds.

This means that financial advisors have the potential to earn large amounts of money based on commissions and how much money their clients have to invest. It also means their salaries can fluctuate quite a bit based on market conditions. 

Many Financial planners are paid the same way as financial advisors. They earn a fee on the assets that are invested under a management plan, typically called Assets Under Management (AUM). On top of AUM fees, they will also earn a planning fee.

Some financial planners on the other hand may have their earnings capped at a certain rate based on a fee associated with their product (a financial plan). These are called “fee-only financial planners”. They charge their clients an hourly rate or even a retainer fee, similar to how a law firm will charge a fee for their firm to be on retainer.

According to the latest data from the CFP Board, the median 2022 total compensation for a financial planner was $198,500 USD. This includes a financial planner's base pay, variable pay, company profits, and profit shares.

Source: CFP Board Compensation Study

The latest median salary for a personal financial advisor is $99,580 per year according to the U.S Bureau of Labor and Statistics.

Career Outlooks for Financial Advisors and Financial Planners

The latest job outlook for a personal financial advisor is strong and expected to grow by 13% in the next 10 years,  which is much faster than the average according to the U.S Bureau of Labor and Statistics.

Most people at some point in their lives will need the assistance of a financial advisor or planner to help them with retirement or their taxes.

According to the U.S Bureau of Labor and Statistics, each year, an average of approximately 25,600 openings for personal financial advisors are projected over the decade. Many of these openings are anticipated to arise from the need to replace workers who transition to different occupations or leave the workforce, such as through retirement.

Commonly Held Certifications for Financial Advisors and Financial Planners

Below is a list of the most common certifications financial advisors and financial planners will pursue at some point in their careers. 

Certified Financial Planner (CFP^®)

The Certified Financial Planner (CFP^®) designation is a certification that financial planners earn through the Certified Financial Planner Board of Standards. The CFP^® certification is considered one of the most rigorous certifications for financial planners. This designation is a great fit for financial planners who want to specialize in accounting and investments.

 

 

Chartered Financial Consultant (ChFC^®)

The ChFC^® designation is a certification for financial advisors to earn through the American College of Financial Services. The ChFC^® designation is considered one of the most prestigious certifications a financial advisor can have. This designation is a great fit for financial advisors who want to specialize in insurance, investments, and estate planning.

Certified Public Accountant (CPA)

The CPA designation is a credential that indicates an accountant is licensed to audit financial statements, prepare tax returns, provide financial advice, and perform forensic accounting services in the United States. CPA licenses are administered by individual state boards of accountancy and the American Institute of Certified Public Accountants. Both financial advisors and financial planners are good fits for becoming a CPA if they plan on specializing in accounting and taxation.   

Certified Investment Management Analyst (CIM^®)

The Certified Investment Management Analyst (CIM^®) is a certification for financial professionals who manage investment portfolios, specifically in Canada. The Canadian Securities Institute awards the CIM® designation and is considered one of the most prestigious certifications Canadian financial advisors can hold.  

Series 7 and 63 Licenses

The Series 7 and Series 63 licenses are required for finance professionals working in the United States securities industry. Financial advisors will typically earn these certifications and use them to demonstrate their expertise in federal and state-specific securities regulations. Financial advisors will need both licenses to be fully qualified for roles, especially if they advise their clients on investment products. 

 

 

Frequently Asked Questions

Below are commonly asked questions about financial advisors and financial planners. 

Can You Be a Financial Advisor Without a Degree?

Yes technically you can be a financial advisor without a degree but you will need to possess a college degree or enough professional work experience to get hired at a firm. You will also have a hard time earning licenses and certifications without a degree because most of them also require a college degree in a related field and enough professional work experience to earn them. 

Who Needs a Financial Advisor?

Someone who needs advice from a finance professional about a complex financial situation like a business owner or someone who is going through a life transition such as retirement are great examples of someone who can benefit from hiring a financial advisor. 

Can a CPA Be a Financial Advisor?

Yes, a financial advisor can be a CPA. A financial advisor who is also a CPA is someone who specializes in accounting and taxation and can help navigate retirement planning and business operations. 

Can Financial Advisors Give Tax Advice?

Yes, but financial advisors should be careful when providing tax advice because they could be held liable for any penalties or interest that result from their advice. Financial advisors often discuss tax-related strategies with their clients within the scope of their client's financial planning efforts. Financial advisors do not prepare tax returns rather they help their clients evaluate tax-efficient investment options like IRAs. 

Can a Financial Planner Prepare a Will?

No, a financial planner cannot prepare a will because a will is a legal document that requires specific legal expertise from a lawyer. Instead, financial planners will help their clients make plans about how assets will be distributed after a death but they can't prepare the actual legal document. 

Is a Certified Financial Planner a Fiduciary?

Yes, a Certified Financial Planner is required to act as a fiduciary when helping their clients during financial planning discussions. When someone earns the CFP^® designation they agree to act in their client's best interests over their own and is part of becoming certified as a financial planner.