By 360 Financial, Big Picture Planning and Wealth Management in Minnesota, MN
What exactly is the difference between a financial planner and a financial advisor?
The financial services industry is full of jargon and designations that can leave you confused and unsure about who your financial partner should be as you head toward retirement.
Should I get a financial planner or a financial advisor?
Do I need both?
What about a wealth manager?
Or should I just be doing this on my own!?
In this guide, we'll explain the key differences between financial planners and advisors so you can start working with the right person for your situation.
Table of Contents
What Is a Financial Advisor?
A financial advisor is a broad term for anyone offering financial advice.
This includes professionals who help with investments, retirement accounts, or budgeting. They can work for banks, investment firms, or independently. Some advisors focus on managing your portfolio, while others help you choose the best insurance policies.
Many financial advisors are licensed to sell specific products, such as mutual funds or annuities. Individuals selling financial products like stocks or mutual funds are typically registered as representatives of broker-dealers, which is regulated by the Financial Industry Regulatory Authority (FINRA).
The Use of the Term “Financial Advisor”
It’s important to note that the US has no uniform rule restricting the term "financial advisor."
This means individuals can call themselves financial advisors without necessarily being licensed. As long as they are not violating securities laws or providing regulated investment advice without registration, someone can call themselves a financial advisor.
While the titles are not regulated, many services provided under those titles (e.g., investment advice for a fee) are subject to strict regulatory oversight.
If someone provides investment advice for a fee, they must register as an Investment Adviser (IA) with either the Securities and Exchange Commission (SEC) or state securities regulators, depending on the assets under management.
SEC registration typically applies to advisors managing more than $100 million in assets, while those below this threshold generally register at the state level.
Registered advisers are often referred to as Registered Investment Advisers (RIAs). RIAs are held to a fiduciary standard, meaning they must act in the best interests of their clients.
If you want help with retirement planning and investment management, look for an independent advisory or wealth management firm.
Look for advisory firms who have financial advisors with some of the following qualifications:
Certified Financial Planner (CFP®)
Chartered Financial Analyst (CFA®)
Chartered Financial Consultant (ChFC®)
Accredited Investment Fiduciary (AIF®)
Certified Investment Management Analyst (CIMA®)
Personal Financial Specialist (PFS)
Some financial advisors have multiple designations and qualifications. For example, they may be a CFP and an AIF.
Before working with a financial advisor, make sure they have the qualifications and experience required to provide assistance and advice related to your specific situation.
We’ll go over the different types of designation in more detail later in this post. But first, what is a financial planner?
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What Is a Financial Planner?
A financial planner focuses on creating a comprehensive plan for your financial goals.
Whether you're planning for retirement, education savings, or buying a home, a financial planner can help. Financial planners take a big-picture approach, often mapping out your goals over the long term. They also consider things like tax strategies and long-term risk.
For instance, if you want to retire at 55, a planner can calculate how much you need to save each year and where to invest your money. They specialize in planning for the future, not just managing today’s finances.
The Use of the Term “Financial Planner”
The term “financial planner” is not regulated in the US at the federal level.
This means almost anyone can call themselves a financial planner, regardless of their qualifications, licenses, or expertise.
Unlike terms like "Certified Public Accountant (CPA)" or "Attorney," the title "financial planner" is not protected or legally defined by federal or state law. There are no specific licensing or educational requirements for using this title.
Professional designations, certifications, and industry standards help differentiate qualified financial planners from others.
How to Identify Qualified Financial Planners
Since the title isn’t regulated, qualifications and professional designations are critical indicators of a planner’s expertise.
Look for the following designations and standards:
CFP: The CFP is the most recognized and respected credential for financial planners. It requires extensive education, passing a rigorous exam, meeting experience requirements, and adhering to strict ethical standards, including acting as a fiduciary.
ChFC: This is a comprehensive designation focused on financial planning, often seen as an alternative to the CFP.
PFS: Awarded to CPAs specializing in financial planning.
Fiduciary Standards: Qualified financial planners who are fiduciaries must act in their client's best interests, providing an extra layer of responsibility. As a financial planner, if they are a fiduciary.
As you can see, designations may be important when looking for the right financial advisor. If you have a complex financial situation, you’ll want to ensure that your financial advisor or wealth management team has the expertise and education to help you.
What Is a Certified Financial Planner?
A Certified Financial Planner is a professional with specialized training in financial planning.
Earning the CFP designation requires completing rigorous education, passing an exam, and gaining real-world experience. CFPs are trained to help clients with retirement planning, estate strategies, tax optimization, and more. They follow a strict code of ethics and prioritize acting in your best interest.
The CFP Board oversees and enforces certification standards for CFP professionals in the US, providing an additional level of consumer protection.
For example, if you’re navigating how to pay for your kids’ college tuition while saving for retirement, a CFP can create a plan that balances both goals. Their expertise goes beyond investment advice, offering a holistic view of your financial future.
Are All Financial Planners CFPs?
As mentioned previously, not all financial planners have a Certified Financial Planner designation.
Some financial planners may use the title “financial planner” without earning the CFP designation. While they might still provide valuable advice, they haven’t met the same education, examination, and experience requirements as CFPs.
Think of it like comparing a general contractor to a licensed architect. Both can help with home projects, but one has specialized training. If you’re looking for a planner, ask about their credentials.
Key Differences Between Financial Advisors and Financial Planners
Financial advisors and planners have different focuses, qualifications, and client relationships.
Advisors often manage investments and aim to grow your wealth while minimizing risk. They might recommend stocks, bonds, mutual funds, or other investment tools. Planners, on the other hand, create long-term strategies tailored to your life goals. Their advice often covers saving, spending, and retirement planning.
Qualifications also vary. Planners with a CFP designation must meet strict educational and ethical standards. Advisors might hold licenses for specific financial products.
Ultimately, the choice depends on your needs.
If you’re juggling debt and saving for retirement, a planner is key. If you’re investing a lump sum, an advisor might be the better fit.
If you have a complex financial situation, it would be wise to work with a wealth management firm that provides investment management and financial planning services and tax planning and estate planning advice. When you work with a team of qualified specialists, you know you’re getting the best possible advice and guidance.
Designations That Matter
Credentials like CFP and AIF show expertise and training in financial planning and investment advice.
A CFP focuses on creating comprehensive financial plans. CFPs undergo extensive training and exams, ensuring high standards of ethics and knowledge.
The AIF designation signifies expertise in fiduciary responsibility, meaning the professional must act in your best interest.
These designations help you gauge a professional’s skills and focus. If you want investment help, look for a CFA. For holistic planning, a CFP is a strong choice. Always ask about credentials before hiring.
You may also find an advisor who is a Chartered Financial Analyst (CFA). A CFA specializes in investment analysis and portfolio management and often works with high-net-worth clients.
Cost of Financial Planners vs. Financial Advisors
The cost of working with a financial planner or financial advisor depends on the services they provide.
Financial advisors often charge based on assets under management (AUM). This means they are paid based on a percentage of the money they manage for you. Typically, the percentage ranges from 0.65% to 1.5% of AUM annually. For example, if your portfolio is worth $2,000,000, you might pay $20,000 a year or 1% of AUM.
Typically, the lower the percentage, the more investments you have with a financial advisory firm. You can ask to see an advisor's cost structure.
Financial planners may charge hourly fees, flat rates, or retainers. Hourly rates typically range from $150 to $400 per hour, while a comprehensive plan might cost $2,000 to $10,000.
Planners often offer services for a set fee instead of basing it on your portfolio size. However, planners will not be managing your portfolio for you or updating your plan regularly.
Each time you wish to have your financial plan updated, you'll need to hire the financial planner again. Some financial gurus recommend only working with a financial planner to save on costs. However, this may not be the best advice.
Wealth management firms often include financial planning as part of their service at no extra cost.
Your wealth management team should be able to help you with tax planning and estate planning, as well as investment management and financial planning. They can help you to avoid costly mistakes and catastrophic investment decisions.
If you have a high net worth or a complex financial situation, it’s quite likely that your wealth management team will be well worth the investment.
How to Find the Right Financial Planner or Advisor
Finding the right professional starts with checking their credentials and experience.
Look for designations like CFP, CFA, or AIF to ensure a solid knowledge base. Ask how long they’ve worked in the industry and the types of clients they serve. For instance, some specialize in retirement, while others focus on business owners.
Request references or reviews and make sure that they’re transparent about fees.
Checking Credentials
Use tools like the CFP Board’s website or FINRA’s BrokerCheck to verify credentials.
BrokerCheck only applies to broker-dealers and their representatives, not financial planners, unless they are dually registered as brokers.
For RIAs, the SEC’s Investment Adviser Public Disclosure (IAPD) system may be more appropriate. For example, you can easily type in the name of an advisor, their advisory firm, and their state. A PDF report will quickly come up, allowing you to see their qualifications and work history, as well as any disciplinary actions.
Finally, meet with several professionals before making your choice.
The right planner or advisor should listen to your goals and explain their strategies clearly.
Common Designations:
CFP (Certified Financial Planner): A professional who specializes in comprehensive financial planning, including retirement, tax strategies, education savings, and estate planning. CFPs must meet strict education, examination, and experience requirements and adhere to a fiduciary standard, prioritizing their clients' best interests.
CFA (Chartered Financial Analyst): An investment professional specializing in portfolio management, financial analysis, and research. CFAs undergo rigorous training and exams covering investment strategies, risk management, and economics, making them ideal for high-net-worth clients and institutional investors.
AIF (Accredited Investment Fiduciary): A professional with expertise in fiduciary responsibility, ensuring that financial decisions prioritize clients’ best interests. This designation is valuable for those managing retirement plans, trusts, or other accounts requiring fiduciary oversight.
ChFC (Chartered Financial Consultant): A financial planning professional with training similar to CFPs but with an additional focus on retirement and insurance strategies. They are often sought by individuals needing detailed retirement and estate plans.
CPA/PFS (Certified Public Accountant/Personal Financial Specialist): A CPA with advanced financial planning training, combining expertise in tax strategies with personal financial advice.
CIMA (Certified Investment Management Analyst): A professional specializing in advanced portfolio management and investment strategies, ideal for clients with complex portfolios or wealth management needs.
What Is a Fiduciary?
A fiduciary is a financial professional legally obligated to act in your best interest.
This standard applies to some financial advisors and financial planners, ensuring their advice prioritizes your goals, not their commissions or incentives. Fiduciaries must disclose conflicts of interest, recommend products or strategies best suited to you, and maintain transparency.
For example, a fiduciary financial advisor managing your investments would select funds with the best performance for your needs—not those offering them higher fees. Always ask if your advisor or planner operates under the fiduciary standard to make sure that they’re committed to your financial well-being.
Who Should Work with a Financial Advisor?
Hiring a financial advisor is ideal when you need help managing investments or making immediate financial decisions.
Key times to seek an advisor include when you receive an inheritance, sell a business, or start earning a high income. An advisor can help allocate your assets, manage risk, and pursue growing your wealth efficiently.
For instance, if you want to diversify your portfolio or reduce tax burdens on your investments, an advisor can guide you. They’re particularly important for ongoing investment management and building wealth over time.
(There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. )
If you have $1M or more in investable assets, you should work with a fiduciary financial advisor who can help aim to optimize your investments. If you are 3-5 years away from retirement, you should work with a financial advisor to plan your retirement income streams and ensure your tax planning and estate planning are up to date.
Who Should Work with a Financial Planner?
A financial planner is best suited for creating a long-term strategy for your financial goals.
You might hire a planner when preparing for retirement, saving for a child’s college education, or navigating life changes like marriage or divorce. Planners create a roadmap for pursing these milestones, addressing savings, debt, and risk management.
For example, if you aim to retire at 60, a planner can calculate how much to save and suggest strategies to maximize your retirement income. They’re ideal for mapping the big picture and aligning your financial actions with your life goals.
If you have less than $250,000 in investable assets and are comfortable with investing on your own, hiring a financial planner may be the right choice for you.
Consider Holistic Wealth Management
Holistic wealth management is ideal for individuals with complex financial needs and long-term goals.
This approach integrates all aspects of your financial life, including investments, estate planning, taxes, insurance, and retirement. It’s particularly valuable for high-net-worth individuals, business owners, or those navigating significant life transitions.
For example, if you’re selling a business, a holistic wealth manager can help reinvest proceeds, reduce tax burdens, and plan for your family’s future.
They provide a coordinated strategy that goes beyond managing investments, seeking to ensure your financial decisions align with your goals.
If you need a comprehensive, all-in-one solution, consider working with a holistic wealth manager.
Common Questions
Is a financial advisor better than a financial planner?
A financial planner can provide financial advice, but they cannot manage your investments for you.
If you need a range of services that include financial planning and investment management, then it's better to seek the guidance of a financial advisor.
If you have less than $250,000 and you plan to manage your investment yourself, then it would likely be better to seek the guidance of a trustworthy financial planner.
Look at the websites of a few Certified Financial Planners in your area and find one that can create a plan based on your financial needs and goals.
However, if you have investable assets over $1M, then you should begin looking for a financial advisor who can help you prepare for retirement as well as assist with estate planning and tax planning.
What is the difference between financial planning and wealth management?
Financial planning focuses on creating a roadmap for your financial goals, like retirement or education savings.
Wealth management goes further, integrating financial planning with investment management, estate planning, and tax strategies. It’s a more comprehensive approach, typically suited for high-net-worth individuals with complex financial needs.
When is the right time to hire a financial advisor?
The right time to hire a financial advisor is during significant financial events, like receiving an inheritance, selling a business, or preparing for retirement.
Advisors can help you manage investments, reduce taxes, and make smart financial decisions that seek to protect and grow your wealth.
Which financial professionals are fiduciaries?
Certified Financial Planners (CFPs), Registered Investment Advisors (RIAs), and certain other financial professionals who adopt the fiduciary standard are fiduciaries.
They are legally and ethically obligated to prioritize your best interests over their own, ensuring advice and decisions align with your financial goals.
What is a registered investment advisor?
A registered investment advisor (RIA) is a firm or individual registered with the SEC or state regulators.
RIAs provide personalized financial advice and manage investments while operating under a fiduciary standard, ensuring they always act in the client’s best interests.
What is the most important financial industry regulatory authority?
The Securities and Exchange Commission (SEC) is the most important regulatory authority in the financial industry.
It oversees investment advisors, brokers, and markets to protect investors. The SEC enforces rules requiring transparency and ethical practices, ensuring that financial professionals act in the best interests of their clients.
However, you can use FINRA’s BrokerCheck to verify financial advisors and the CFP Board’s website to check CFP credentials. These tools provide information about qualifications, licensing, and any disciplinary actions, helping you confirm a professional's expertise and trustworthiness.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
