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Financial Planner or Advisor - Which is Right For You? Thumbnail

Financial Planner or Advisor - Which is Right For You?

Today, more people are seeking financial advice than ever before. However, in the highly fragmented and muddled world of financial services, it can be challenging to find the right type of financial advisor. 

Given a choice, most people would want to work with a professional who can deliver authentic, unbiased, conflict-free advice with their best interests in mind. 

Yet, relatively few financial advisors are in a position to provide it. 

Most financial advisors have no obligation or incentive to act in the best interests of their clients other than it’s the right thing to do.

Financial Advisor—What’s in a Name?

The crux of the problem lies in the very loose definition of “financial advisor” and who can actually wear that hat. Anyone who dispenses financial advice or recommends financial products, such as an insurance agent, stockbroker, or a registered representative with a broker-dealer, is often viewed as a financial advisor. Many refer to themselves as such. However, these advisors generally work for and are paid by a financial services company, such as an insurance company, a stock brokerage firm, or a broker-dealer, which raises the potential for a conflict of interest. Essentially, their allegiance and contractual obligation are to their employer, not their clients.

Other financial advisors operate independently of a financial services company, reporting to and paid directly by their clients. They are under no obligation to sell specific financial products and, instead of earning commissions for selling products, they make their living by the fees their clients pay them. In that regard, they only answer to their clients, and their only obligation is to act in a fiduciary capacity to serve their clients’ best interests.

Financial Advisors Who Work for You

There are only two types of financial advisors obligated to act as fiduciaries when advising their clients—Registered Investment Advisors (RIAs) and advisors who hold a Certified Financial Planner (CFP) designation.

RIAs are registered with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940, legally binding them to act in their clients’ best interests. CFP advisors earn their designation from the College of Financial Planning after completing a rigorous curriculum in financial planning and passing a two-day test. To maintain their designation, they must adhere to a strict code of ethics, including acting in a fiduciary capacity when advising their clients.

The key difference is that an RIA is an investment advisor who designs and manages investment portfolios based on their clients’ goals and risk profiles. A CFP is a financial planner who works with a client holistically to plan in all aspects of their financial life. RIAs typically charge a percentage fee for their investment advice between 1.0% and 1.5% of assets under management. CFPs can charge a flat fee to develop a plan, a retainer fee for annual planning services, or an hourly rate, all depending on the level of planning required by the client.

Some RIAs are also CFPs, providing retirement, tax, and estate planning in addition to their investment management. You may also encounter a non-fiduciary financial advisor, such as an insurance agent or stockbroker, who also holds a CFP designation. While they may be bound by the CFP code of ethics, they are also contractually obligated to their company, presenting a potential conflict of interest. 

Be cautious of advisors who hold themselves out as a CFP who also sell investment or insurance products for a commission. That is almost certainly not the type of advisor you’re looking for!

Is a Financial Advisor or Financial Planner Right for You?

The choice of working with a fiduciary financial advisor or financial planner really depends on what you are looking for in an advisory relationship. There are many factors to consider, such as your financial goals, planning needs, the amount of money you have to invest, and the type of financial guidance you need. 

You need a fully integrated, comprehensive financial plan. If you need an advisor to help you develop a comprehensive plan involving multiple financial disciplines, you should work with a financial planner. CFPs are trained to objectively assess your financial situation and help you establish achievable goals. They can advise you on the best courses of action and how to implement your plan. 

However, a true financial planner is typically not in a position to actually implement your plan. You will need to work with other financial professionals, such as an estate attorney for your estate plan, an insurance broker to implement a protection plan, or an investment advisor to execute your investment strategy. Good financial planners work closely with other financial professionals who can help you implement your plan. 

You have substantial assets you need to invest. If your primary concern is having a customized investment strategy for investing your assets, you should probably work with an RIA. They have the expertise needed to develop a strategy around your particular objectives and risk profile. They select the appropriate investments, track them, and adjust your portfolio to keep you on track towards your objectives. In addition to their investment track record, you need to consider whether their investment philosophy is compatible with yours and their fee structure is reasonable.  

You would prefer to have your financial planning and investment management under one roof. It’s not unreasonable to want the person who is intimately familiar with your financial goals and planning needs also to manage your investments. Your best option is to choose an RIA who is also a CFP. They have the training and tools to help you develop a comprehensive plan and implement the investment portion of the plan. 

With nearly 400,000 financial professionals holding themselves out as financial advisors, finding the right one to serve your needs can be daunting. The key is knowing what you want from an advisory relationship and asking enough of the right questions so you can separate the wheat from the chaff. 

If you’re in the market for a fiduciary financial advisor who can help you align both your personal and professional finances, while helping you build wealth in both areas, we encourage you to reach out to us today. 

RiversEdge Advisors was founded in 2013 to provide fee-based wealth management solutions to business owners and their families both locally in Wilmington, DE and virtually all over the country. The advisors at this firm serve as the outsourced CFOs for busy, high-income business owners looking to simplify their personal and professional finances and build substantial wealth for the future.

Schedule a call with us to chat. We look forward to meeting you.