Considering the services of a financial professional but asking yourself what the difference between a financial planner and a financial advisor is… read on!
Even though most people use a financial planner and a financial advisor interchangeably, these two words have distinct meanings. Both a financial planner and a financial advisor help clients meet their financial goals in different ways.
A financial advisor provides ample financial advice and recommendations to help improve your financial situation while a financial planner deliberately drafts a plan that you must follow to realize your financial objectives both in short and long-term. You need the services of the two professionals in the management of your finances.
Let us now answer the question of what does a financial planner do versus what a financial advisor does, to understand that makes the two distinct.
What does a financial planner do?
A financial planner is a professional who assists you in organizing your finances and predicts the results of your savings and investments to prepare you for retirement. They help you make decisions that will increase your chances of accomplishing your financial goals as useful as possible. They help create a comprehensive plan that is tailored towards the realization of your long-term financial goals.
Financial planning is a process. You define your financial goals, your current financial situation and the necessary steps you will have to take to achieve your goals. Creating the plan is what defines the qualification level of a financial planner. The plan should outline clear and achievable action steps that will take you to your next financial level.
A financial planner advises you on the types of retirement accounts to use, the mortgages you should pay off or refinance and the insurance plans you need to enroll in. Experienced financial planners will even advise you on the changes you need to make to improve your tax situation. They will also advise you about the required rate of return to help achieve your financial objectives within a specific period.
A good financial planner will gather all your account statements and your financial life data to have an in-depth understanding of your spending behaviors. They will make effective recommendations once they have a clear understanding of your financial situation and behaviour.
What does a financial advisor do?
A financial advisor is a broad term for a person who manages your money. They can help to manage your investments or broker the purchase and sale of stocks in your company. In addition to these, a financial advisor offers a wide scope of services compared to a financial planner.
To help better understand what is a financial advisor, it is good to have in mind
subsets such as the estate planners, bankers, insurance agents, stockbrokers and many more. Therefore, becoming a certified financial planner gives you more security and designation because you have undergone specialized training.
In our definition of what is a financial advisor we must emphasise that he/she lacks the authority of a financial planner. That is why they can only make recommendations to their clients who will then decide whether or not to proceed with the implementation. Financial advisors are usually compensated by commissions on products such as mutual funds and life insurance.
What’s the difference between a financial planner and a financial advisor?
The similarity between a financial advisor and a financial planner is that the latter is a financial advisor who has specialized by undergoing through a certification program. A financial advisor may not necessarily be a financial planner; he or she may decide to specialize in the other over 100 fields in wealth management.
Here are important aspects that point on what’s the difference between a financial planner and a financial advisor:
- Financial Planners have a designation
- To become a financial planner, a financial advisor has to undertake a professional examination. On completion, the examinee will be termed as a Certified Financial Planner (CFP) which is a designation recognized and regulated by the Financial Planning Standards Council (FPSC). At present, there are about 18,000 Certified Financial Planners recognized by the FPSC in Canada.
- CFP professionals follow strict rules and standards that are created to protect clients.
- You must have a specific minimum level of work experience to become a certified financial planner. You should also continually take part in education programs to maintain your designation status.
So, the next time you want to hire a financial planner, ensure that their designation is either a Certified Financial Planner (CFP) or a Registered Financial Planner (RFP). General financial advisors do not have designations.
How to verify if a financial planner or a financial advisor is registered or certified
You can confirm the status of any person calling himself a financial planner on the Financial Planning Standards Council website. This is an international website that hosts the registration of all certified financial planners and provides the current status of their designation. You can also read the disciplinary history of the professional you are interested in.
Before settling for a financial planner, ensure that their designation in the FPSC is ‘good standing’ and that they do not have any disciplinary cases in their history. You will be feeling secure when working with a highly rated financial planner.
You can check for any disciplinary actions against a financial advisor at the Investment Industry Regulatory Organization of Canada. Also, search the Canadian Securities Administrators disciplined persons list for your planner’s name. Also, you can search for the enforcement hearings with Mutual Fund Dealers Association of Canada. If you live in Quebec, you can check in the l’Autorité des marches financiers for complaints against the planner you wish to hire.
Financial planners and advisors are paid in different ways depending on the type of service they have offered you. They include:
Most advisors charge an hourly fee when they advise you on your current financial situation. Most charge within the range of 100 to 200 Canadian Dollars an hour.
Most financial advisors love taking commissions when they buy stocks on your behalf. The percentage varies depending on the level of experience of the advisor.
- 3. Management expense ratio
This is a percentage of money that you give to your financial planner or advisor based on the value of the assets they manage and control on your behalf.
In short, the word “planner” or “planning” is reserved for Certified Financial Planners who specialize in advising and drafting plans to improve the financial situation of his or her client.
The advisor on the other hand is a general term for a person who manages your money. This can be a stockbroker, estate planner or even a banker in theory.
A financial planner is a certified financial advisor who specializes in advising and drafting plans to improve the financial situation of his or her client. A financial advisor is a general term for a person who manages your money. They can be stockbrokers, estate planners or even bankers. Check for a financial planner’s designation status in the Financial Planning Standards Council (FPSC) website to find out if they have been certified.
Should you wish to learn more on the subjects or services discussed in this blog, feel free to reach out to me by email or via Facebook Messenger at any time. I’m always available to help those who want to grow their wealth!