Are Financial Planners also Financial Advisors? – updated Nov 2014
Financial planners provide various types of planning services (personal, college, retirement, estate, charitable). The combination of services varies by financial planner expertise.
Financial advisors are focused on investment services such as strategy, asset allocation, manager selection and performance measurement. Or, the financial advisor is actually a money manager because he makes investment decisions for clients without their approval in advance.
Planning Services
Planning is an essential financial service because it is provides a roadmap for your financial future. Once you have a plan it should be updated annually for any changes that impact the achievement of your financial goals.
Investment Services
Most investment plans are built around two core concepts: Accumulate money during your working years and preserve money during your retirement years. This means you need investment advice that will help you accomplish both goals while minimizing your exposure to risk and expenses that are deducted from your accounts.
Overlap
Financial planners may also provide investment advisory services and investment advisors may also provide planning services for three reasons:
- They want to provide an integrated package of services to their clients
- They want to control as many revenue streams as possible
- They want to keep competitors away from their clients
Note, only one of the reasons benefits you and it creates a new form of risk. The financial planner or financial advisor may be offering a package of services to protect his interests, but he is not an expert in all of the disciplines. Therefore, you may be impacted by bad advice.
Maximum Revenue
Most financial planners and financial advisors want to control as many revenue streams as possible. It is time-consuming and expensive to win new clients so maximizing revenue per client makes sense if you are an advisor. However, it is a major source of risk if you are an investor. The advisor makes a great pitch to control all of the revenue streams and you buy the pitch because you like the advisor. What’s the risk? The advisor provides good advice in one discipline and bad advice in another. And, you act on the bad advice because you do not know the difference between good financial advice and bad advice.
Insurance Services
Financial planners and investment advisors can hold insurance licenses that permit them to sell fixed and variable insurance products. The licenses are popular with planners and advisors because the sale of insurance products generates the biggest commissions in the financial service industry.
Planners and advisors ask one simple question that works 90% of the time: “Do you want me to handle your insurance requirements or do you want me to refer you to an insurance that I think is reliable.” It makes sense to leave insurance with the planners and advisors because they know what you need.
Other posts from Jack Waymire
I like this article because the lack of standard nomenclature in our industry is harmful to both advisors and clients. Advisors can call themselves just about anything, which leaves clients confused about what they are “buying” in an advisor/planner/manager/etc. And if an advisor holds him/herself out as something more than they really are, they could get in trouble or, at the least, fail to meet expectations.
There is another, more basic question, too. Why are “financial advisor” and “investment advisor” synonymous? Shouldn’t “financial advisor” be the all-encompassing title for someone who is hired to advise on all aspects of a client’s finances? (Closer to “financial planner” as explained in the article.) And “investment advisor” should be limited to the title for the person (may be the same person) who invests client money for them.
Again, good article. I hope to see more like this.