Two of the common go-to experts in the financial industry are "financial planners" and "financial advisors.", but what's the difference between the two?
While these terms are frequently used interchangeably, they can refer to different types of financial professionals with varying roles and responsibilities. In this blog post, we'll explore the key differences between financial planners and financial advisors in Melbourne and help you understand which one is right for your financial planning or objective. Read on.
What is a financial planner?
A Melbourne financial planner is a specialized category under the broad term "professional financial advisor". A financial planner is an expert who helps individuals and businesses create a comprehensive financial plan to achieve certain objectives: such as planning for a business expansion, child’s education, payments for a client's home, retirement, and more.
A financial planner must be certified by certain institutions (chartered financial analyst (CFA) designations, CFP, etc.) to be considered qualified, and must have an in-depth understanding of financial products, services, tax, and legal implications of different financial decisions. They work directly with clients to develop a strategic plan that takes into account their current financial situation, goals, and risk tolerance.
Some of the tasks that a financial planner may perform include:
- Developing a budget
- Creating an investment plan
- Analysing insurance needs
- Planning for retirement
- Creating an estate plan
What is a financial advisor?
The term "financial advisor" or adviser can be considered an umbrella term for the service providers in finance showcasing their expertise. Thus, a financial advisor is a financial professional who provides—but is not limited to—strategic financial advice on various aspects of finance including investments, taxes, insurance, and retirement planning.
Financial advisors can be brokers, insurance providers, registered representatives, or investment advisors. Their main scope of work with clients is to develop personalised "advice" and plan to help them achieve their financial goals and manage their money effectively.
Some of the tasks that a Melbourne financial advisor may perform include:
- Recommending investment strategies
- Assessing risk tolerance
- Creating a diversified portfolio
- Offering tax planning advice
- Providing retirement planning guidance
Financial Planner vs Advisor
Scope of Services
The primary difference between a financial planner and a financial advisor is the scope of their services. While both professionals aim to help prospects and potential clients effectively manage their finances, financial planning services generally provide more comprehensive services.
Financial planners tend to focus on developing plan(s) with all aspects of a client's financial situation being considered, including taxes, insurance, and estate planning. On the other hand, financial advisers specialise in specific areas, namely investment advice, management, or retirement planning.
Certifications
Another differentiator between a financial planner and a financial advisor is their regulatory requirements.
Financial planners usually hold certifications like Certified Financial Planner (CFP), which emphasizes their mastery of comprehensive financial planning, whereas certified financial advisors might have a wider range of certifications depending on the specific services offered. Both are required to attain different qualifications to practise professionally.
What is financial planning?
People who want to effectively manage their finances and achieve their objectives must engage in financial planning. Financial planning encompasses debt management, retirement planning, estate planning, insurance, investment, budgeting, cash flow management, savings, and risk management.
It is an ongoing procedure that constantly changes in response to your life and financial circumstances. By following a structured approach, led by financial professionals, you may take control of your financial future, reduce uncertainty, and make sound decisions to attain financial security and prosperity.
Why is there a need for financial planning?
Financial planning significantly helps in terms of effectively managing one's financial direction. With thorough planning, all objectives, like securing your future, become feasible.
Effective financial planning helps minimize debts, guarantee a sound retirement, make smart investment choices, and reduce tax obligations. It also includes obtaining the right insurance, ensuring assets are passed on, and providing peace of mind for handling financial challenges.
How to choose the right professional for your circumstances
When choosing between a financial planner or a financial advisor, always consider your specific needs and goals. If you're looking for comprehensive financial plans that cover your entire financial picture, a financial planner may be the best choice. Otherwise, if you'd rather opt for immediate investment or debt management and consultation, a financial advisor may suffice.
Aim for an expert with a suitable track record, credentials, and experience to help you achieve your goals and avoid unnecessary roadblocks. Most financial advisors and planners have passed specific licensing exams and training, which are administered by the Financial Industry Regulatory Authority (FINRA). There are also different licenses or designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Certified Investment Management Analyst (CIMA), among others.
Practical Tips for Hiring a Financial Planner or Financial Advisor
Hiring a trustworthy financial planner or advisor will significantly improve your personal or business's financial management. As you know, it's paramount for all finance professionals to help equip their prospects and clients with the right mindset and information to help them reach a well-informed decision. Practical tips are as follows:
- When prospecting to hire a financial expert, start with the "end goal" in mind. Define your objectives, consult different experts, and understand the specific services you need and want to avail. Knowing your objectives clearly will help you land an expert who specializes in similar or identical cases as you and help you achieve your objectives.
- Confirm that the expert you're in contact with possesses the necessary qualifications to help you. Generally, qualified planners have the following certifications: Certified financial planners (CFP) or chartered financial consultant ( ChFC ) designation. These documents indicate a high level of expertise and adherence to the Financial Industry Regulatory Authority (FINRA) and all important professional standards. It is to confirm that the financial planner is a fiduciary, meaning they are legally obligated to act in your best interest, to avoid potential conflicts of interest.
- Understand your expert's fee structure. Whether it's hourly, flat fees, commission-based, or a percentage of assets under management. Make sure you know which services are included to avoid any surprises moving forward.
The right advisor will help you navigate complex financial decisions but also work with you to achieve your long-term objectives with confidence. Beyond these basics, before deciding on "which expert to hire", consider interviewing a couple of financial planners for comparison: their services, qualifications, fees and communication styles. This strategy will help you guarantee that you land someone you feel comfortable working with in all aspects.
When is the best time to get a financial advisor?
If you're dealing with financial matters like purchasing life insurance or investing in the stock market, a knowledgeable financial advisor can offer specialised expertise. For instance, they can help you understand the different types of insurance policies, including their pros and cons, and which one is best suited for your needs. Similarly, if you're interested in investing, an advisor can provide insights into market trends, help you choose suitable investments, and create a strategy to maximise returns while managing risk.
If you're not comfortable making these decisions on your own, a financial advisor can provide the guidance and reassurance you need. They can help you feel confident that your decisions are well-informed and grounded in solid financial principles. This is especially valuable for those who may not have the time or expertise to comprehend certain financial matters but still want to make informed choices for their financial future.
Frequently Asks Questions (FAQs)
Recurring questions our prospects and active clientele asked. Now answered. Please read as follows:
Are all financial planners also financial advisors?
Yes. Although there is a fine line between financial planners and financial advisors, not all financial advisors are financial planners. Financial planners offer a much deeper analysis and will help you much with long-term plans. Financial advisors, in contrast, are best for general transactions and infrequent need for "on a more general way" advice approach.
What's the difference between a financial advisor and an accountant?
Financial advisors mainly assist with long-term financial plans and investment management. Their main aim is to develop personalised financial guidance to assist clients in reaching their objectives and managing their investment portfolios effectively. They guide various financial aspects, such as retirement plans, investment strategies, estate planning, and insurance.
Accountants, however, focus on maintaining and reporting financial records. Accountants guide tax strategies and deductions to optimise clients' tax situations. Ultimately, the primary objective of accountants is to keep precise financial records, guarantee proper tax filings, and adhere to regulatory requirements.
Move in the right direction with the team at Northeast Wealth
Equip yourself with the right tools and knowledge to make your financial dreams a reality when you work with a qualified financial expert here at Northeast Wealth.
Northeast Wealth is a financial services firm in Australia offering financial planning and strategic financial advice. Our team of experienced Melbourne financial planners and advisors can provide comprehensive financial planning services to help clients reach their financial goals, from debt reduction to cash flow, to effective financial management.
We take a holistic approach to financial planning and strive to successfully help our clients achieve peace of mind. Contact Northeast Wealth today to schedule a consultation and learn more about how you can achieve your financial goals with us.
James O’Reilly is the Director of Northeast, a fast-growing financial advice firm that empowers clients to achieve meaningful financial progress and well-being. He's also the co-host of the Australian Retirement Podcast, one of Australia's fastest-growing podcasts.