"Financial planner" and "financial advisor" are popular titles for individuals who help consumers manage their money. Today we're here to break down the two roles and answer, "what is the difference between a financial planner and a financial advisor?"
It may seem that when people say "Financial Planner" or "Financial Advisor" (or any other financial title for that matter), that they're referring to the same person, and you're not wrong. It can be a bit confusing. But, there are actually differences between a financial planner and financial advisor. It just so happens that some people do both. First, let's break down what each one is.
What is a "financial planner"?
A financial planner lays out a roadmap for your finances. This roadmap looks at where you are right now financially, and where you want to be in terms of your financial goals and your retirement. They should help you understand that there are trade-offs that come with putting your money toward something near-term (like school, or purchasing a house), versus focusing on retirement.
Caution: Many financial planners don't make any allowances for being female, and they may make assumptions that make your financial plan unachievable (the problem is not you).
Financial planners may offer broad advice (like Untangle Money) or specialize in tax planning, asset allocation (this is a fancy way of saying "put this much into RRSPs, TFSAs, and what rate of return you will need to get in them), risk management, retirement, estate planning, etc. You can check out our post on the financial planning process for more information about financial planning!
Some financial planners help clients through their own practice, others work for a bank, wealth management firms, or a non-profit organization.
A financial planner may hold various licenses or designations, such as a Certified Financial Planner (CFP), QAFP, or a CFA.
We believe that Fee-For-Service financial planners with a QAFP, a CFP or a CFA provide a good combination of being free from conflict-of-interest, and having the knowledge needed to serve you well.
What is a "financial advisor"?
A financial advisor is the person who helps you invest the money in a way that meets your plan.
For example: if you need a 6% rate of return on your investment to meet your goal, a financial advisor will recommend specific financial products to buy with the aim of achieving that return.
Most financial advisors work with people who have a minimum amount of money that they are able to invest. The amount of money required has gone up significantly over the past few decades, with many requiring a minimum of $500,000 to invest. If you have less than this you may need to pay an hourly rate.
Sisterly Advice: This is one of the reasons we like robo advisors. They cost less, and achieve better results on average.
Caution: There are many financial advisor credentials that the advisor might hold, and many people are referred to as financial advisors. “Financial advisor” as a general term includes subsets of the financial advisor group, such as stockbrokers, insurance agents, money managers, estate planners, bankers, etc. It is more likely to mean that they have the licenses required to sell the products, rather than it being a reflection of the advice they give you.
Only a financial advisor who is licensed to sell products can give you specific recommendations on where to invest your money. For example they can say, ‘Buy this stock, buy this bouquet of stocks, buy this many units of them’.
So, what is the difference between a financial advisor and a financial planner?
Hopefully, we’ve made it clear that these are two different skill sets. One involves planning, trade-offs, and an understanding that the value of money changes over time (financial planner).
The other involves understanding where and what financial products to invest in, and understanding of the financial markets, and an ability to remain calm when markets go up and down as they do on a daily basis (financial advisor or investment advisor).
Note: the same person can provide both services.
Basically, any professional that can help you manage your money in some fashion can be considered a financial advisor. A financial planner, on the other hand, is a financial advisor within a specified area of interest such as financial planning. Investopedia lays it out as: every financial planner is also a type of financial advisor, but every financial advisor is not necessarily a financial planner.
Key differences:
On the one hand, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. Including planning for their retirement, a child’s post-secondary education, the down payment on a house, etc. A financial planner relies on strategic portfolio allocation for investments with relatively long term horizons, ensuring that expected returns and risk tolerances are in balance.
On the other hand, a financial advisor is a broader term for somebody who may be involved not only in this type of planning but also other facets of money management or financial products. They may, for instance, provide life insurance, real estate, or accounting services, help place short-term trades, and/or provide banking accounts.
Now that we've (hopefully) illuminated the differences between a financial planner and financial advisor, we want to provide you with next steps. Traditionally the first of those steps would be to get a financial plan, then you invest your money according to that plan! However, we say don't let that hold you back - you don't need a plan first. You can start investing right away, right now! But whether you have a plan first or get one after, you can use that plan to ensure you are putting enough money away for the goals you set for yourself.
For more information about financial planning, advisors and more, check out these posts from our blog:
What's next?
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Financial independence is a huge part of being a strong, independent person, and it is our mission to help women, and anyone who doesn't feel safe or welcome in financial spaces typically dominated by cis men, set themselves up for financial success.
At Untangle Money we help women understand their (real!) financial picture, and obtain financial guidance from people that actually, really, get it; this is why we offer affordable options so that we are accessible to everyone. We would love to help you, too! Join the community of hundreds of other women looking to strengthen their financial well-being. You can check out our products and plans here or get in touch for a free consultation!