Definition of financial planner



What is a financial planner?

A financial planner helps clients meet their current financial needs and their long-term financial goals. They use a structured process to guide clients towards prudent financial decisions to maximize their potential to achieve their life goals.

Using their knowledge of personal finance, taxes, budgeting, and investing, combined with analytical tools and data that can illustrate potential outcomes, financial planners make recommendations that help clients make informed decisions. Financial planners may offer general advice or specialize in tax planning, asset allocation, risk management, retirement, estate planning, etc.

Financial planners advise and assist clients on a variety of tasks, from investing and saving for retirement to financing a college or new business and preserving wealth. Clients range from individuals and families to businesses, who may need assistance in designing and managing financial programs (for example, pension plans) for the benefit of their employees.

Key points to remember

  • All financial planners are financial advisers, but not all financial advisers are financial planners.
  • Financial planners work with individuals, families, and businesses to help them meet their current financial needs and long-term financial goals.
  • Some financial planners may hold the professional designation “CFP®” to establish their qualifications and knowledge base.
  • Financial planning includes help with budgeting, investing, saving for retirement, tax planning, insurance coverage and more.

Should you be a financial planner?

Understand the role of a financial planner

The Certified Financial Planner Board of Standards (CFP Board) describes financial planning as “a collaborative process that helps maximize a client’s potential to achieve their life goals through financial advice that incorporates relevant elements of personal circumstances. and the client’s financial situation ”.

While financial planners may specialize in one area, such as retirement savings, many offer a holistic approach that takes into account the overall well-being of the client. For example, instead of focusing only on retirement savings, the financial planner can help clients make decisions about family, career, education, and physical health.

Financial planners are considered trustees. This means that they are legally bound to act in the best interests of a client and cannot personally benefit from the management of the client’s assets. Fiduciary specifics may vary. Registered Investment Advisers (RIAs), for example, are trustees under the Investment Advisers Act of 1940 who advise high net worth individuals on investments. They are regulated by the United States Securities and Exchange Commission (SEC) or state securities regulators.

Like all financial advisers, financial planners must have sufficient education, training and experience for clients to trust their recommendations. As proof of these qualifications, a practitioner can earn and hold one or more professional designations, such as the Certified Financial Planner designation.

The CFP® designation

The most common professional designation is Chartered Financial Planner (CFP®), issued by the aforementioned CFP Board, a not-for-profit certification and standards body that administers the CFP exam. “Certified Financial Planner” is an official designation of expertise in the areas of financial planning, taxes, insurance, estate planning and retirement. The designation is awarded to individuals who pass the initial CFP® Board exams and then engage in ongoing annual training programs to maintain their skills and certification.

A CFP® can do more than just advise clients on available investments. Whether it’s providing help with budgeting, retirement planning, education savings, insurance coverage, or even tax optimization strategy, “finances” doesn’t mean one thing for most people, and “financial planning” is about more than just investing.

Fee or commission financial planners

Financial advisers (including financial planners) generally fall into one of two categories: fee and commission.

Fee-based financial advisers charge a flat rate, either per hour, per project, or per asset under management (AUM). Their income comes mainly from fees paid by their clients. However, fee-based advisers can also earn income through commissions for the sale of certain financial products. Costs-alone Advisors, on the other hand, only earn income through fees and not commissions.

In contrast, commission-based financial advisers earn income from the sale of financial products and opening accounts on behalf of their clients. Commissions are typically payments made by companies whose products and services are recommended by the advisor. Commission-paid advisors can also earn money by opening accounts for their clients.

Commission-paid financial planners might have an incentive to direct clients to investment products from which they receive payment, regardless of the suitability of the product to the client. Paid planners have no such temptation.

Choosing the right financial planner

It’s a good idea to interview at least three financial planners so that you can choose the one that’s right for you. Make sure you get answers to the following questions:

  • What are your references?
  • can you provide references?
  • What (and how) do you charge?
  • What is your area of ​​expertise?
  • Will you be my trustee?
  • What services can I expect?
  • How are we going to settle the disputes?

To check the status of a CFP® and for a guide on choosing the right advisor to work with, visit the CFP Board website.


What do financial planners do?

A financial planner is a type of financial advisor who helps clients manage their current financial needs and meet their long-term financial goals. The services offered by a financial planner vary depending on the provider.

Some create plans to help clients with many aspects of their financial lives, including savings, investments, insurance, retirement savings, education savings, taxes, and estate planning. Other financial planners have a narrow view, like insurance or securities.

Additionally, while some financial planners only prepare plans, others sell investments, insurance, and other financial products.

How much does a financial planner charge?

Financial planners charge fees to help clients create short and long term financial plans. Commissioned financial planners earn money when their clients purchase financial products recommended by the advisor. Paid financial planners do not receive any commission for products sold. Instead, they bill by the hour, project, or assets under management (AUM).

A 2021 AdvisoryHQ study found that hourly rates for financial advisers typically range from $ 120 to $ 300. The cost per project ranges from $ 275 to $ 4,500 or more, depending on the complexity of the job. For example, college planning “packages” range on average from $ 275 to $ 1,500; comprehensive financial planning costs $ 2,000 to $ 4,500.

What is the difference between a financial planner and a financial advisor?

Every financial planner is a financial advisor, but not all financial advisers are a financial planner. A financial planner helps clients (individuals, families and businesses) create programs to achieve their long-term financial goals. They may offer general financial advice or specialize in an area such as investing, taxes, retirement, or estate planning.

On the other hand, “financial advisor” is a general term that refers to almost all professionals who advise people about their finances, including licensed financial planners. They can help manage their clients’ money, manage investments, buy and sell stocks and funds on behalf of the client, and assist with estate and tax planning.



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