The terms financial advisor and financial planner are often incorrectly used to mean the same thing. So what truly is the difference?
Financial Advisor
A financial advisor is a very universal term that can refer to any professional which you pay for a financial service. This can include brokering a stock trade, advising on investments, or even discussing a personal loan. Types of financial advisors include, but are not limited to the following:
- Stock Broker
- Estate Planner
- Loan Officer
- Banker
- Insurance Salesman
All of these positions are offering a specific service, which is their expertise, for a fee. Anyone who works in the finance sector of whom you have sought out services can fall under the financial advisor umbrella. It is important to note that, because only advisory services are being completed, no certifications are necessarily required for someone to be considered a financial advisor. A financial planner, on the other hand, has a much more specific role in finance.
Financial Planner
A financial planner is just one subset of the much more general financial advisor term. The goal of a financial planner is to work with either a business or an individual to meet a financial goal that could take many years to complete. For many individuals, this include retirement as this is a complicated process that can take decades to properly plan out, save for, and manage. One the business end of the spectrum, a financial planner may develop a plan to assist the business in growth both in the number of employees hired as well as total annual revenue and profits. Examples of different subsets of financial planners are as follows:
- Tax Professionals
- Investment Professionals
- Retirement Professionals
In order to hold one of these titles as a financial planner, the professional must become a Certified Financial Planner (CFP). Additional training is then required in a specific area of expertise to ensure clients are satisfied with the services provided.
The terms financial advisor and financial planner are used interchangeably far too often. It is highly important to recognize the difference between the two if a maximum return on investments is to be received. By utilizing the above descriptions, consumers can become more knowledgeable on financial topics and get the most out of the way finances are managed.