What is the Difference Between a Financial Advisor and a Financial Planner?

July 30, 2023
for People

Financial advisors and financial planners have different roles and responsibilities when it comes to managing your finances. A financial advisor typically provides advice on investments, such as stocks, bonds, mutual funds, and other securities. They can also provide advice on retirement planning, estate planning, and tax planning. On the other hand, a financial planner is more focused on helping you create a comprehensive financial plan for your future. They will help you set goals, develop a budget, and create a plan for reaching your goals. They may also provide advice on insurance, college savings, and other financial topics.

Education and Certification Requirements

For financial advisors, a bachelor's degree in finance, economics, or a related field is typically required. Many financial advisors also hold certifications such as the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Series 7 and Series 66 licenses. These certifications require passing rigorous exams, meeting work experience requirements, and adhering to ethical standards.

Financial planners who wish to provide comprehensive financial planning services often pursue the CFP designation as well. This certification requires completing a CFP Board-approved education program, passing the comprehensive CFP exam, fulfilling a work experience requirement, and agreeing to abide by the CFP Board's Code of Ethics and Professional Responsibility. Some financial planners may also hold additional designations such as the Chartered Financial Consultant (ChFC) or Certified Public Accountant (CPA) to further enhance their expertise in specific areas of financial planning.

How to Select a Financial Advisor or Planner

Selecting the right financial advisor or planner involves research, interviews, and careful consideration of each professional's qualifications and approach to financial planning. Follow these steps to find the perfect match for your financial needs:

  1. Identify Your Financial Goals: Before starting your search, determine your financial goals and priorities. This will help you identify the services you require from a financial advisor or planner.
  2. Gather Recommendations: Ask friends, family members, or colleagues for recommendations of professionals they have worked with successfully in the past.
  3. Research Credentials: Verify that potential advisors or planners have the necessary certifications and experience in their field. Review their regulatory history through resources like FINRA's BrokerCheck or CFP Board's website.
  4. Interview Prospective Candidates: Schedule meetings with several candidates to discuss their approach to financial planning and how they can help you achieve your goals. During these interviews, ask questions such as:
  • What is your investment philosophy?
  • What types of clients do you typically work with?
  • How do you charge for your services (fee-only, commission-based, etc.)?
  • Can you provide references from current clients?
  1. Evaluate Communication Style: Consider whether each candidate's communication style aligns with your preferences. You should feel comfortable discussing personal financial matters with them.
  2. Review References and Testimonials: Contact provided references or read online reviews to gain insight into other clients' experiences working with each candidate.
  3. Make Your Decision: After completing the steps above, select the financial advisor or planner who best meets your needs and requirements based on their credentials, experience, communication style, and client feedback.

Ongoing Communication for Maintaining Progress

Regular communication with your financial advisor or planner plays a crucial role in staying on track towards your financial goals. By consistently discussing your progress, you can ensure that your financial plan remains aligned with your objectives and adapts to any changes in your life.

  • Monitoring Your Financial Plan: Frequent check-ins with your advisor or planner allow you to assess the effectiveness of your current strategies and make necessary adjustments. This helps maintain the relevance of your plan as market conditions, personal circumstances, or financial goals evolve.
  • Addressing Life Changes: Significant life events like marriage, having children, career transitions, or retirement may impact your financial situation. Regular communication ensures that these changes are accounted for and incorporated into your financial plan.
  • Staying Informed: By maintaining an open line of communication with your advisor or planner, you can stay informed about relevant news and developments that may affect your investments or overall financial strategy. This will enable you to make timely decisions based on accurate information.
  • Building Trust: Ongoing communication fosters a strong relationship between you and your financial professional. As trust develops over time, you'll feel more comfortable sharing personal information and seeking guidance on complex financial matters.
  • Accountability: Regular meetings with your advisor or planner hold both parties accountable for the progress made towards achieving your goals. This accountability serves as motivation to continue making prudent decisions that align with the long-term vision of your plan.

In summary, maintaining consistent communication with a financial advisor or planner is essential for tracking progress and ensuring that any necessary adjustments are made to keep you on track towards achieving success in meeting your financial goals. Fiduciary Duty and Its Importance in Financial Advisory Roles

A fiduciary duty is a legal obligation to act in the best interests of another party, placing their needs and interests ahead of one's own. This concept is crucial in the financial advisory industry because it ensures that both financial advisors and financial planners prioritize client goals and make recommendations that genuinely benefit them.

Fiduciary Duty for Financial Advisors

Financial advisors who are registered with the Securities and Exchange Commission (SEC) or a state securities regulator are required to adhere to a fiduciary standard. This means they must provide investment advice that is suitable for each client's unique circumstances, disclose any potential conflicts of interest, and ensure that fees charged are reasonable. Additionally, they should regularly monitor clients' portfolios to maintain alignment with their objectives and risk tolerance.

Fiduciary Duty for Financial Planners

As part of their certification requirements, Certified Financial Planners (CFPs) must also adhere to a fiduciary standard. They are obligated to put their clients' best interests first when providing financial planning services. This includes disclosing any conflicts of interest, acting with loyalty and care, maintaining confidentiality, and providing professional services diligently.

In summary, understanding the importance of fiduciary duty in both roles can help you choose a trustworthy professional who will prioritize your financial well-being. When selecting a financial advisor or planner, be sure to inquire about their commitment to upholding this critical responsibility.

Addressing Behavioral Biases as a Financial Advisor or Planner

Financial advisors and planners can help clients overcome these biases by implementing the following strategies:

  • Education: Educating clients about common behavioral biases can increase their awareness of potential pitfalls in their decision-making process. By understanding these tendencies, clients will be better equipped to recognize when they are influenced by emotions rather than rational analysis.
  • Objective Analysis: Providing objective data and analysis helps counteract emotional reactions that may cloud judgment. Advisors and planners should encourage clients to base their decisions on sound research rather than feelings or intuition.
  • Long-term Perspective: Encouraging clients to focus on long-term goals rather than short-term fluctuations can reduce the impact of emotional reactions such as fear or greed. Developing a comprehensive financial plan provides a roadmap for achieving objectives while minimizing impulsive decision-making.
  • Periodic Reviews: Regularly reviewing clients' financial plans and investment portfolios can help identify when behavioral biases may be affecting their decisions. This allows for timely adjustments to align with their goals and risk tolerance.

In conclusion, understanding the role of behavioral finance in shaping clients' financial decisions is crucial for advisors and planners to provide effective guidance. By addressing these biases, they can help clients make more rational choices that align with their long-term objectives.

Behavioral Finance and Its Impact on Financial Decisions

Behavioral finance is a field of study that combines psychology and economics to understand how biases, emotions, and cognitive errors influence individuals' financial decision-making. Financial advisors and planners can play a critical role in helping clients identify and overcome these biases to make more rational choices for their financial future.

Common Behavioral Biases

Some common behavioral biases that affect financial decision-making include:

  • Loss Aversion: The tendency to prefer avoiding losses over acquiring gains, leading to overly conservative investment strategies or holding onto losing investments for too long.
  • Overconfidence: Overestimating one's own abilities or the accuracy of information, which may result in excessive trading or taking on too much risk.
  • Anchoring: Relying too heavily on an initial piece of information (the "anchor") when making decisions, potentially causing investors to hold onto investments with poor prospects.
  • Herd Mentality: Following the actions of others without considering personal circumstances or objectives, which can lead to impulsive investment decisions based on market trends rather than fundamentals.


In conclusion, the roles of financial advisors and financial planners are both distinct and essential in managing one's finances. They each require specific qualifications and credentials, which confirm their knowledge and expertise in the field. A financial advisor focuses on providing investment advice and assisting in areas such as retirement planning, estate planning, and tax planning. A financial planner, meanwhile, helps in crafting a comprehensive financial plan, taking into account one's goals, budget, and future needs.

The selection process for these professionals is crucial and involves careful consideration of their qualifications, approach to financial planning, communication style, and adherence to the fiduciary duty to prioritize clients' best interests. Regular communication with your chosen advisor or planner is key in tracking progress towards financial goals and adapting to life's inevitable changes.

Furthermore, financial advisors and planners play an instrumental role in overcoming behavioral biases in financial decision-making. By offering objective data, long-term perspectives, education about these biases, and regular reviews of clients' financial plans, they can guide clients towards more rational financial decisions.

Understanding the differences between financial advisors and financial planners, the importance of their fiduciary duty, and their role in mitigating behavioral biases can greatly improve one's financial journey, leading to more informed decisions and better financial outcomes.

Thus, whether you choose to work with a financial advisor or a planner, the key is finding a trustworthy professional who is equipped to understand your unique financial needs and is committed to helping you achieve your financial goals. With their guidance, you can make the most of your financial resources and build a secure future.