Overcoming economic disparities and achieving financial freedom is no small feat. For many of us growing up, financial literacy was not a part of our academic curriculums, and money was barely talked about in our homes (aside from the fact that we didn’t have enough of it).
Whether you’re a recent graduate who just landed your first “real” job, a thriving small business owner, or a seasoned professional approaching retirement, the topic of finances can be stressful and intimidating. As a result, you might consider seeking professional help. From financial advisors to financial planners and coaches, the lines can get blurred, making it difficult to choose the most suitable option.
This article will clarify the differences between financial planners, advisors, and coaches to empower you to make informed decisions when leveling up your finances.
What is a financial planner, and what do they do?
It’s important to be aware that anyone can call themselves a financial professional, but the title alone does not make them qualified to give you financial advice or manage your money. “The first thing to understand about this topic is that there is no formal definition for any of these titles, and the titles themselves are not regulated, so anyone can hold themselves out as a financial planner, advisor, coach, or counselor,” says Shelitha Smodic, CFP® and founder of Meaning of Money.
Perhaps you want to purchase a home in a few years or save for your children’s college. A financial planner takes a holistic approach to analyzing your financial situation and maps out a plan to help you reach those milestones.
In layman’s terms, here’s what you can expect when working with a financial planner: “With a financial planner, the expectation would be that you would meet with them to determine your goals, and they would collect financial information from you. They would then spend time analyzing the information you provide and provide you back recommendations that they may or may not help you execute,” explains Smodic.
What is a financial advisor, and what do they do?
Similar to a financial planner, financial advisors may also provide tax, retirement, and estate planning, but they tend to focus heavily on investments. You can expect a financial advisor to help you build an investment portfolio based on your financial goals and risk tolerance. They make themselves available to clients for questions regarding investment strategies, wealth management, and portfolio updates. If they have the required licensing, they may also offer investment products and commission- or fee-based services.
What is a financial coach, and what do they do?
Financial coaches (also known as financial counselors) educate their clients on the fundamentals of personal finance and empower them to reach their financial goals. In addition to coaching their clients on budgeting and debt elimination strategies, they also focus on helping their clients improve their mindset toward money and attracting wealth.
Ultimately, a financial coach will not do the work for you. Instead, you can expect them to equip you with the necessary resources and tools, followed by guidance on applying this knowledge to your specific financial situation. Without additional certifications and licenses, financial coaches are limited in the advice and services that they can offer. This is why they might refer you to a financial planner or advisor for more targeted concerns outside of their scope.
What are the credentials of a financial planner, advisor, and coach?
The Certified Financial Planner (CFP) certification is the highest and most widely recognized credential that a financial planner can receive. The CFP certification requires extensive education, coursework, and exams to prepare financial planners to act in the best interest of their clients. This ensures a consistent level of ethical standards in alignment with the CFP Board.
The credentials of a financial advisor may vary based on their areas of focus. Since financial advisors typically assist their clients with investments and could potentially buy and sell securities, they must have the necessary securities licenses to comply with industry regulations. The Series 7 and Series 65 are just two of the most common licenses that a financial advisor may have, depending on their scope of work.
There are plenty of programs out there that provide certifications for financial coaching. The financial coach certification program offered by the National Financial Educators Council is one of the top programs for individuals to become certified. However, a financial coaching certification does not equip coaches with the required skills or credentials to thoroughly examine your finances and provide advice in the way that a financial advisor or CFP can.
Smodic continues to stress the importance of doing your due diligence when vetting financial professionals. “Do not hire someone just based on their title. Furthermore, do not trust someone just based on their title. Look at their credentials and the services they offer. Ask about the clients they typically work with and how they are compensated.”
Understanding the difference and choosing the right financial professional for your needs
Whether you want to create a financial plan to save for a major life event or need help developing an investment strategy to retire early, you don’t have to navigate the process alone. There are financial professionals with the proper knowledge and skill sets to help you achieve your goals, but it’s not a one-size-fits-all situation.
Financial planners and advisors both give financial advice, but the key difference lies in their approaches and areas of focus. Education, retirement, or estate planning are just a few examples of the many things a financial planner may be able to help you with.
Some people think that working with a financial planner is only for the wealthy, and while that might’ve been true in the past, times are changing and the financial services landscape is becoming more inclusive. “Traditionally, financial planning has only been available to high-net-worth or ultra-high-net-worth individuals, which can have high minimums to be clients, such as a million dollars in investable assets. However, several financial planners are opening firms with lower minimums and that offer more niches so you can find financial planning firms geared toward millennials, retirees, teachers, or people with families with young children,” Smodic shares.
On the other hand, financial advisors often assist by developing investment strategies, providing insurance solutions, and managing assets. While you can expect to work with a financial planner long-term, a financial advisor can offer guidance for immediate needs.
A financial coach will work with you to build a healthy relationship with money and make wise financial decisions. Focusing on the basics, they can help you develop a plan to reduce debt and improve your spending habits, but they do not manage assets in the way that a financial advisor would.
While financial planners, advisors, and coaches help people with their finances, they all serve in different roles and have varying levels of expertise. Now that you understand the distinction between each of these professionals, you can consider your needs and determine what’s best for you. “Take your time to find someone that is the right fit for you. Find someone you feel comfortable communicating with and asking questions,” Smodic suggests. Most importantly, be cautious of the potential risks associated with trusting someone to help you navigate your financial circumstances.
Don’t let this process intimidate you, sis. Seeking professional guidance can be the key to financial literacy, long-term success, and generational wealth.