What is the difference between a Financial Advisor and a Financial Planner?

When you think about trusted professionals you use in your daily life, what are the top ones that come to mind? Maybe a family doctor, attorney or auto mechanic.  You frequent these services because you’ve built a strong relationship with those individuals and are confident that they are experts in their field, will do the job correctly and provide helpful recommendations.

But what about who you work with for the financial aspects of your life?  How do you choose who you work with to provide recommendations for your financial future?  Unlike the doctor or attorney, a financial professional isn’t required to have an extensive academic background, or even years of experience to call themselves a financial advisor.  So what qualifies someone to be a financial advisor or a financial planner, and how do you know which one to work with and when?

A financial advisor is someone who provides advice on various financial strategies or products available to individuals and families.  You would seek out a financial advisor when you need assistance in making a decision on what strategy or product should be employed in a given circumstance.  Maybe you’re retiring, you received an inheritance or switched jobs and aren’t sure how to transition your finances. Generally an advisor is paid to provide this sort of advice. This compensation could be in the form of a commission earned by recommending a product for purchase, or it could be in the form of a fee to manage an investment portfolio.  In most cases a financial advisor is only compensated if you choose to act on their recommendation.

In addition to financial advisors, there are financial planners. The main difference is their overarching approach to their advice and how they are compensated. A financial planner will review all aspects of an individual or family’s financial picture and recommend various actions be taken. Most financial planners aren’t directly compensated through commissions but rather through fees or subscriptions. 

Aside from the similarities and differences between a financial advisor and a financial planner, what is more important are the qualifications of either one.  It is not uncommon for your neighbor, who had been working in a totally unrelated field, to take a job at a financial institution and a week later they are now a financial advisor.  In this circumstance, it would be fair to question their qualifications.  Fortunately in the financial industry there are an array of certifications and designations that enhance a professional’s knowledge in the field.  An accountant doesn’t require a CPA certification but do you prefer working with someone who has invested in that education to handle your tax and accounting?.  If a financial advisor, or planner takes the extra step by acquiring the Chartered Financial Analyst (CFA), or the Certified Investment Management Analyst (CIMA), the Certified Public Accountant (CPA), or the Certified Financial Planner (CFP), it should tell you they have taken an extra step in providing better recommendations and service.  Most of these designations, and there are many more, require candidates to have a minimum number of years’ experience and pass both graduate level courses and a comprehensive exam.  

So whether you meet with a financial advisor, or a financial planner, the most important first question to ask them is what their background is and what investment they made in themselves before you engage with them. To learn more read our “Five Questions to Ask a Financial Advisor” blog post.
At Kroon & Mitchell we have capabilities of both financial advising and financial planning. In addition we differentiate ourselves by adding tax strategy. We believe in an integrated approach to tax and investment. Any investment strategy has tax implications. We customize our approach based on your needs and financial goals. Contact us for a free consultation.