What Is a Financial Planner? A financial planner assists clients in meeting their immediate financial demands as well as their long-term financial objectives. They guide customers via a structured procedure to help them make wise financial decisions so that they can achieve their life goals.
Financial planners give suggestions to customers based on their expertise of personal finance, taxes, budgeting, and investments, as well as analytical tools and data that can demonstrate probable results. Financial planners can provide general advise or specialize in areas such as tax planning, asset allocation, risk management, retirement, and estate planning.
Financial planners help customers with a wide range of issues, including investing and saving for retirement, as well as funding college or starting a new business and safeguarding capital. Individuals and families are among our clients, as are corporations that may require assistance in developing and implementing financial programs (such as retirement plans) for the benefit of their employees.
Understanding the Role of a Financial Planner
Financial planning, according to the Certified Financial Planner Board of Standards (CFP Board), is “a collaborative process that helps a client maximize his or her potential for meeting life goals by providing financial advice that incorporates relevant elements of the client’s personal and financial circumstances.”
While some financial planners specialize in one area, such as retirement planning, many others provide a holistic approach that considers the client’s total well-being. Instead than focusing simply on retirement funds, a financial planner may assist clients with family, career, education, and physical health decisions.
Fiduciaries are financial advisers who act in the best interests of their clients. This implies they are legally obligated to operate in the best interests of their clients and are unable to profit personally from the management of their assets. The intricacies of fiduciary relationships can differ. For example, under the Investment Advisers Act of 1940, registered investment advisors (RIAs) are fiduciaries who provide investment advice to high-net-worth people. The Securities and Exchange Commission (SEC) of the United States regulates them, as do state securities regulators.
Financial planners, like other financial advisors, must have appropriate education, training, and experience in order for clients to trust their suggestions. A practitioner may obtain and hold one or more professional titles, such as the certified financial planner title, as proof of their qualifications.
The CFP® Designation
The CFP Board, a nonprofit certification and benchmarks body that administers the CFP test, issues the most widely held professional credential, certified financial planner (CFP®). A professional credential demonstrating experience in the areas of financial planning, taxation, insurance, estate planning, and retirement is “certified financial planner.” Individuals who pass the CFP® Board’s initial examinations and subsequently participate in annual education programs to maintain their skills and certification are given the designation.
A CFP® may help customers with much more than just investing advice. Whether it’s budgeting, retirement savings, education savings, insurance, or even tax optimization strategy, “finances” doesn’t mean the same thing to everyone, and “financial planning” encompasses much more than just investing.
Fee-Based vs. Commission-Based Financial Planners
Fee-based and commission-based financial advisors (including financial planners) are the two most common types.
Financial advisors that work on a fee basis charge a fixed amount depending on the hour, project, or assets under control (AUM). Their primary source of income is the fees that their clients pay. Fee-based advisors, on the other hand, may make money via commissions on the sale of specific financial products. Fee-only consultants, on the other hand, make their money only from fees rather than commissions.
Commission-based financial advisors, on the other hand, make money by selling financial products and opening accounts on behalf of their clients. The commissions are typically paid by corporations whose products and services the advisor recommends. Client accounts are another way for commission-based advisors to make money.
Choosing the Right Financial Planner
Interviewing at least three financial advisors is a good idea so you can pick the best one for you. Make certain you have responses to the following questions:
- What qualifications do you have?
- Are you able to provide references?
- What do you charge (and how do you charge it)?
- What is your specialization?
- Will you take on the role of my fiduciary?
- What can I expect in terms of services?
- How will we resolve disagreements?
Consult the CFP Board website to check a CFPstanding ®’s and for advice on selecting the best advisor to deal with.
FAQs
What do financial planners do?
A financial planner is a sort of financial advisor who assists customers in managing their present financial demands as well as achieving their long-term financial objectives. A financial planner’s services differ depending on who provides them.
Some design plans to assist customers with a variety of financial issues, including as savings, investments, insurance, retirement planning, college planning, taxes, and estate planning. Some financial planners specialize in a specific area, such as insurance or stocks.
In addition, some financial planners merely design plans, while others market investments, insurance, and other financial goods.
How much does a financial planner charge?
Fees are charged by financial planners for assisting clients in developing short- and long-term financial strategies. Financial advisors who work on a commission earn money when their clients purchase financial items that the advisor suggests. Fee-only financial advisers are not compensated for the items they sell. Instead of charging by the hour, project, or assets under management, they charge by the hour, project, or assets under management (AUM).
According to a research conducted by AdvisoryHQ in 2021, financial advisers’ hourly charges typically vary from $120 to $300. Depending on the complexity of the operation, the cost per project can range from $275 to $4,500 or more. College planning “package offerings,” for example, range from $275 to $1,500, while comprehensive financial planning costs between $2,000 and $4,500.
What is the difference between a financial planner and a financial advisor?
A financial advisor is a financial planner, but not every financial planner is a financial advisor. A financial planner works with clients (individuals, families, and corporations) to develop plans that will help them achieve their long-term financial objectives. They may provide general financial advice or focus on a specific area such as investments, taxes, retirement, or estate planning.
On the other hand, “financial advisor” is a broad phrase that includes qualified financial planners and practically any professional who advises people on their finances. They may assist their clients with money management, investment management, buying and selling stocks and funds on their behalf, and estate and tax planning.
