Achieving one's corporate or personal monetary goals takes strategy, discipline and dedication. In order to craft a robust gameplan designed for the long-haul, many people commission the help of an independent third party for guidance. Of these entities, there are two primary types: financial planners and financial advisors.
There is no one-size-fits-all money management service. They come in various forms, each with specific qualifications and specialities. However, through the performance of some basic due diligence, it is possible to find an ideal financial resource for nearly any objective.
What Is A Financial Planner?
A financial planner is a qualified professional who aids individuals and companies with meeting their long-term monetary objectives. Financial planners are typically licensed as Certified Financial Planners (CFP), Chartered Financial Analysts (CFA), or Personal Financial Specialists (PFS). To earn these credentials, the professional must meet a combination of educational, testing or work history requirements.
A financial planner provides clients with advice regarding how to optimise their capital resources and achieve a set collection of goals. Specialised guidance is local to the following three areas.
1. Tax Planning
By definition, tax planning is the "analysis and arrangement of a person's financial situation to maximise tax breaks and minimise tax liabilities." This task is typically addressed by increasing deductions, reducing income or taking strategic losses over time.
2. Risk Management
In the financial arena, "risk" is a diverse term that means different things to different people and businesses. For individuals, important risks stem from periodic unemployment or asset losses. In the case of businesses, risk may arise from macroeconomic conditions, government regulation or Black Swan events.
Accordingly, risk management is the process of understanding the various risks to which a person or entity is exposed and working to mitigate them.
3. Asset Allocation
According to Investor.gov, asset allocation "involves dividing an investment portfolio among different asset categories such as stocks, bonds, and cash."
In practice, asset allocation is the act of diversifying holdings and periodically re-evaluating performance. Asset allocations are unique to each individual situation. The structure of a portfolio depends greatly upon capital resources, risk tolerance and investment horizon.
It's important to remember that financial planning is a multifaceted discipline. Frequently, meeting future monetary goals involves the combination of tax planning, risk management and asset allocation strategies. In this fashion, a solid financial planner must have expertise in one or all of these areas.
What Is A Financial Advisor?
A financial advisor is a catch-all term used in reference to any professional that helps other people manage their money. For a fee, a financial advisor provides guidance with investing, acts as a stock broker, or builds customised strategies for estate and tax management. Costs may be assigned as a percentage of assets under management, or on hourly, commission or fixed schedules.
In contrast to financial planners, financial advisors are not required to be credentialed in the provision of specific services. However, industry professionals such as stockbrokers, investment advisors, bankers and estate planners are considered to be financial advisors.
If a financial advisor solicits services to the public, typically need a license. For instance, public financial advisors in North America are required to pass the Series 65 examination administered by the Financial Industry Regulatory Authority (FINRA). While it is possible for a financial advisor to be a licensed CFA or CFP, additional certifications aren't service prerequisites.
In many cases, the roles played by a financial advisor and financial planner are extremely similar. However, there are several differences between the two to be aware of.
Ultimately, it's up to the individual to decide which service is ideal for their unique situation. Nonetheless, factors such as costs, qualifications and meeting schedules are items worth considering when choosing a financial planner or advisor.
As a reference, the WiserAdvisor financial services evaluator provided the following key discrepancies:
1. Client Relationships
Financial planners operate on the "fiduciary standard of care," meaning that they act in their client's best interest. Conversely, financial advisors sell and recommend financial products without educating clients on investing or investing alternatives.
Financial planners must carry a certification, while financial advisors need not be registered with a formal body.
3. Meeting Schedules
Even though meeting schedules will vary according to the parties involved, there is a standard difference. In most cases, a financial planner will meet with clients on an ongoing basis (monthly, quarterly). Conversely, financial advisors may conduct only one or two consultations.
Fee structures vary per service. Costs are commonly allocated per hour, as a flat rate, or they're commission-based.
Although financial planners and financial advisors may serve similar purposes, their industry standings are very different. Subsequently, the responsibility falls upon the individual to select a reputable, upstanding and sound provider.
Fortunately for parties searching for an ideal service, performing the necessary due diligence may be accomplished online. A few important areas of research are a person or firm's licensing, legal status and general background. While these items are relatively straightforward, they can quickly identify any red flags regarding a financial advisor or financial planner.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…