Choosing a financial advisor versus a financial planner (2024)

While financial advisors and financial planners often perform many of the same functions, you should know the common differences between them. Understanding the distinction will help you determine which financial professional is best suited to accommodate your needs.

Here’s everything you need to know as you decide between choosing a financial advisor vs. a financial planner.

What is a financial advisor?

A financial advisor tends to focus on specific, near-term issues related to your money, such as making investment decisions, preparing taxes and selecting insurance. For example, if you’re trying to decide which stocks to buy or how to deal with your taxes (maybe in relation to investing), you might consult a financial advisor. If you have a relationship with this person, you might go to them as these more immediate concerns pop up.

Government regulations require financial advisors to hold a Series 7 license (the General Securities Registered Representative license) if they wish to sell securities. Therefore, most financial advisors you deal with will have a Series 7, as well as a Series 66 license. Passing these co-requisite exams is equivalent to passing the Series 63 and 65 exams, which you might also see associated with qualified financial advisors.

This suite of certifications allows an advisor to sell securities, offer financial advice and charge a fee for these and related services.

Financial advisors often hold certifications in other, specialized areas, such as insurance, accounting and retirement.

What is a financial planner?

A financial planner generally takes a more comprehensive, long-term approach to money management. While they often hold the same licenses and carry out the same functions as financial advisors, financial planners tend to focus on creating personalized and holistic plans for clients. For example, financial planners often lay out the roadmap for you as it relates to saving for college, buying a home, retirement, estate planning and end-of-life issues.

Because they’re often buying and selling securities on behalf of clients, financial planners generally require the same licenses as financial advisors. They might also hold credentials in areas of specialization.

The Financial Industry Regulatory Authority (FINRA) explains that “the financial planning profession doesn’t have its own regulator. Instead, individuals who call themselves financial planners may be regulated in relation to other services they provide. For example, an accountant who prepares financial plans is regulated by the state Board of Accountancy, and a financial planner who’s also an investment adviser is regulated by the Securities and Exchange Commission or by the state where the adviser does business.”

Though not required by law, the certified financial planner (CFP) designation can indicate that a financial planner is well qualified. A private organization, the Certified Financial Planner Board of Standards, issues this certification, which requires individuals to meet “rigorous education, examination, experience and ethical requirements.”

According to FINRA, CFPs must complete an official CFP Board program or hold advanced formal education or credentials, such as a certified public accountant (CPA) license or a doctorate degree in financial planning, finance, business administration or economics, in addition to meeting the prerequisites of having a bachelor’s degree and three years of full-time financial planning experience (or the part-time equivalent).

Because of the lack of regulatory consistency, all of this can be confusing. Therefore, be sure to use FINRA’s professional designation tool to look up the letters next to the name of a financial planner (or advisor) to see what they stand for and what one needs to do to obtain them.

Common types of investment professionals

To help make sense of some of the most common investment professionals, Gerri Walsh, president of the FINRA Investor Education Foundation and senior vice president of investor education at FINRA, directed CNN Underscored to a FINRA breakdown of the different types:

It’s important to ensure that you’re not dealing with a lawyer or accountant passing themselves off as licensed or qualified to buy and sell investments on your behalf or provide financial advice outside of their area of expertise.

As Walsh explained, “Make sure that the investment professional is registered to sell securities, give advice or both.” She suggested using FINRA’s BrokerCheck tool “to research the background and experience of individuals and firms” and confirm if “a person or firm is registered, as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice or both. It also gives investors a snapshot of the person’s employment history, regulatory actions and investment-related licensing information, arbitrations and complaints.”

You can run similar checks at the Securities and Exchange Commission (SEC)’s Investment Adviser Public Disclosure website or via regulators in your state.

Most of the time, searches for firms should come back clean. According to the latest industry snapshot from the Investment Adviser Association, the percentage of registered investment adviser (RIA) firms with no history of disciplinary action reached a new high in 2022:

Walsh also encouraged investors to conduct their “own independent review of the investment professional to make sure they’re the right person to meet your needs” and to take time to thoughtfully “articulate your financial goals and objectives, which involves assessing the level of risk you’re willing to take with your investments, including your willingness and ability to withstand volatility and losses.”

Key differences between a financial advisor and a financial planner

Some financial advisors do what financial planners — by definition — do. The inverse also holds true. To best differentiate between financial planner versus advisor, focus on the scope and time frame.

Generally speaking, financial planners address and keep tabs on multiple areas of their clients’ finances. They develop long-term, strategic plans in these areas and update them on a regular basis over the years. Financial advisors tend to focus on specific transactions and short-term situations. They might get you into a stock without necessarily considering how it fits into your bigger financial picture. This said, some financial advisors do take on this more comprehensive role.

What’s the cost difference between a financial advisor and a financial planner?

Again, there’s considerable overlap so it’s best to not generalize. Instead, use the SEC and FINRA resources, and ask the financial professionals you’re considering how and what they charge.

Financial advisors and planners typically charge their clients according to one of three models:

• Commission-only
• Commissions and fees
• Fee-only

If an advisor or planner charges a commission, it means they get compensated by selling certain financial products. Commission rates vary considerably, but can range from a fraction of one percent to a few percentage points for products such as mutual funds to double-digit percentages for insurance and annuities. Of course, working on commission can create conflicts of interest, which are not illegal as long as your financial advisor or planner discloses them.

The National Association of Personal Financial Advisors (NAPFA) recommends only dealing with advisors and planners who use the fee-only model. This eliminates conflicts of interest and often ensures that your advisor or planner adheres to the fiduciary standard, which requires them to make decisions based on your best interest, not merely what’s suitable for your situation.

Another good reason to look closely at financial planners with the CFP designation: they’re held to the fiduciary standard by the CFP Board.

Fee-only financial advisors and planners typically charge clients by the hour, a project rate or a percentage of the assets under management (AUM) for a particular client. These rates vary across firms.

Our review of the fee landscape shows that, with some exceptions, you’ll find rates as low as $150 and up to $950 per hour, with a common range between $200 and $500. Flat fees also vary wildly, with some as low as a few hundred dollars. Some firms charge thousands or even tens of thousands of dollars. AUM fees generally range between 1% and 2%.

When is the best time to get a financial advisor?

If you require very specific or infrequent advice, you might be best served by going with a financial advisor. Similarly, if you require help or guidance on a transaction, such as buying or selling a stock or purchasing insurance, your best choice might be a financial advisor with experience and expertise in that area.

If you don’t feel comfortable making these types of somewhat isolated decisions, a financial advisor can be the perfect person to call for assistance.

When is the best time to get a financial planner?

A financial planner can make more sense if you want a deeper analysis of specific components of your finances or desire a well-rounded, long-term plan. For example, if you want to strategically buy stocks and other assets to help you achieve long-term goals, a financial planner might be better equipped to help.

If you have considerable wealth and require a long-term estate plan with multiple moving parts, such as preservation of capital, income generation, taxes, insurance and legal issues, a financial planner is likely the better choice.

How to find a financial advisor or a financial planner

This article provides numerous resources to not only help you find a financial advisor or financial planner but to make sure the ones you do come across are legitimate and well-qualified.

In addition, the CFP Board offers a useful database of its members that allows you to search for certified financial planners filtered by location and areas of specialization.

If you know exactly what you need help with — including how often and for how long — it’s easier to decide between and settle on a financial advisor or financial planner. It also can’t hurt to ask family, friends, work colleagues or even your employer for the name of the firm or individual they use. Word of mouth often generates the best referrals.