The services financial planners and advisors offer tend to overlap. Therefore, before you decide whether you should work with a financial planner, a financial advisor, or don’t use either one you should compare and contrast them.
Financial advisors are supposed to help clients manage their money. This includes investment management, insurance ‘investing’, real estate, etc.
They typically are collecting a fee based on the amount of assets they manage on behalf of a client. Should you pay this fee for the value you are getting? Probably not since most advisors nowadays simply put your money into a robo-advisor.
Financial advisors tend to lean towards investment management in stocks and bonds because that is the easiest place to collect fees. For example, its easier to collect a fee from a stock portfolio relative to a real estate portfolio.
Financial advisors also tend to deal a lot with insurance products like fixed and variable annuities as these also pay fee based commissions.
For Advisors, think investment recommendations…
Financial planners focus more on building a comprehensive plan and look at a broader picture.
They typically are certified financial planner (CFP) or chartered financial consultant (ChFC). CFPs tend to charge flat fees for building financial plans.
Sometimes they also charge a percentage of assets and collect commissions like a financial advisor.
Someone can be both a financial planner and advisor. However, if someone is an advisor it doesn’t mean they are a financial planner.
As good as financial planners sound, i.e. its awesome that someone will look at the big picture and build a plan, they have major flaws.
The two flaws are a lack of knowledge and a lack of transparent technology.
Lack Of Knowledge
Most planners truly want to help. However, their breadth of knowledge is limited.
Since they charge fees, most of the time their clients are older because lets face it, younger people don’t have money to pay expensive fees. Therefore, most of their knowledge centers around retirement planning, long-term care needs, and estate planning.
Very few if any financial planners focus on younger individuals. Therefore, they know very little about the various types of student loan repayment plans, mortgages, or other financial concerns of people aged 20 – 40.
For example, this is the reason why its so hard to find a “student loan planner.” Also, if you ask a financial planner about paying points on mortgage they wouldn’t know what you are talking about.
Lack of Transparent Technology
It is impossible to calculate and understand all the variables that go into a possible financial plan in your head.
The traditional world of financial planners have tried to solve this with financial plans consisting of 6 – 12 pages of numbers.
These ‘plans’ end up being even more confusing to clients. Not only that, but within a few days the plans are no longer relevant because things change. Therefore, there is no easy way for clients to know if they are doing things correctly and/or if they should change anything.
The only way to get up-to-date on your financial plan is to spend thousands of more dollars to speak to a planner again.
This system is very inefficient.
Should You Use Either One?
Either way, both financial advisors and financial planners tend to have biases in favor of assets (remember the fees we talked about?) but limited knowledge on areas of money that affect you such as student loans and mortgages.
These flaws plus my opinion that these individuals are overpaid for what you get is actually why I started FitBUX. Younger individuals needed an approach that incorporates their needs, allows them to easily build and simulate plans, implement it, and have their questions answered. On top of that, it needed to be cost efficient.
Again FitBUX does all that so yes, I’m bias. You should use FitBUX instead of a financial planner or financial advisor.
Financial planner vs financial advisor is a confusing topic for many. Just remember, financial advisors focus on investments. Financial planners focus on the holistic picture.
As I mentioned, for younger individuals, I don’t believe you should use either one!
By Joseph Reinke, CFA