What is Better, a Financial Advisor or a Financial Planner?

Effective money management may call for professional help. Not only newbies, but seasoned investors can also benefit from expert financial assistance. When we talk about professional financial help, two terms come to mind - financial advisor and financial planner. Some roles might be similar, yet their scope of operations and responsibilities differ significantly.

Which one is more suitable for you - a financial advisor or a financial planner? To find the correct answer, it is important to understand what roles each plays.

Defining the Roles: A Financial Planner

The final goal for both professionals is the same - financial well-being. That said, there are visible differences between their focus and the approach they take.

What’s the role of a financial planner? A financial planner assists individuals or entities with planning for long-term financial objectives. This may involve retirement planning, planning for a child's education, or organising investments to buy a house. They are likely to specialise in strategic asset allocation in a way that maintains the balance between desired returns and risk tolerance in the long run.

Defining the Roles: A Financial Advisor

A financial advisor’s work scope is more generalised. Advisors may assist with investment management, the purchase or sale of securities, offering insurance options, estate planning, or general money management advice. The basic works of a financial advisor include:

• Drafting a tax and estate plan

• Managing the buying and selling of stocks and funds

• Providing suggestions about investments

• Managing different investments

• Offering advice on the amount of money one should save

The term financial advisor can refer to a broader range of professions, such as:

• Bankers

• Money managers

• Wealth managers

• Stockbrokers

• Insurance agents

• Estate planners

Not all financial advisors are financial planners, but all financial planners operate within the general umbrella of financial advisors.

Advisor vs. Planner: The Key Differences

While there is overlap between the two roles, there are distinct differences:

Things to Consider Before You Get Started

A financial planner or a financial advisor, whichever type of professional expertise you choose, you must consider some important factors.

Credentials and Licensing

The professional’s service you opt for must have the right credentials and the proper license from SEBI, FPSB, CPF, or a recognised standard in the country.

Experience

A professional with significant experience with specialisation in the areas you are seeking assistance in will be able to provide expert perspectives and insights.

Specialisation

A financial expert can have different specialisations. It can be stock investments, taxation, estate planning, or so on. The expert you choose must have specialisations that align with your needs.

Compensation Structure

Transparency in terms of charges and fees is crucial. Do they charge upfront? Do they take a percentage of total assets? Or, do they work on a commission basis? The charges add to your financial responsibility, and you must be aware.

Reputation

Do some research on the past and current reputation of the professional. Read feedback from previous and existing clients. A good reputation can translate into strong reliability.

What Else to Do?

Before you go on and hire a professional planner or advisor, conduct an interview or discussion with the prospective candidates. Try to understand their way of working. See if their approach can adequately address your financial goals.

Deciding Between a Financial Planner and a Financial Advisor

The kind of professional assistance you need depends on your financial objectives.

• Suppose you are looking for a comprehensive, long-term financial plan that will address education funding, investing, estate planning, and/or retirement. A financial planner might provide a more suitable service.

• When you need financial advice on a broader range, for instance, buying insurance, trading stocks, banking, and such, a financial advisor might help you better.

Note: At times, some may need and benefit from hiring both a financial planner and a financial advisor. The financial planner can help plan an overall financial strategy, while the financial advisor can take care of particular tasks, like investment plan implementation.

Conclusion

Financial advisors and financial planners play vital roles in finances. The key to effective financial planning and advice is to know what you need and when. When you need an extensive financial plan, you will need to appoint a financial planner, probably for a significant duration. However, when you need a suggestion for something specific, like stock trading, a planner might be an unnecessary expense, and an advisor may fit the role much better.

Disclaimers:

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.