What is a Financial Planner?
Financial planners work with clients to help manage their money and achieve their long-term financial goals.
Financial planners need to have a deep understanding of personal finances, taxes, budgeting, investing, and taxation. A financial planner may be a specialist in tax planning, asset management, risk management, retirement planning or estate planning. Many of their clients are young professionals or retired people.
Financial planners assist their clients in a wide range of areas, including investing and saving for retirement and funding college educations or starting a business to preserve wealth.
Financial planning is defined by the Certified Financial Planner Board of Standards (CFP Board), as “a collaborative process that maximizes a client’s potential to meet life goals through financial advice that incorporates relevant elements of their personal and financial circumstances.”
Some financial planners are specialists in one area, such as retirement savings. Others offer a holistic approach that considers the client’s entire well-being. They might address the financial implications for family, education, and health.
Fiduciaries are financial planners. Fiduciaries are legally bound to act in the best interest of their client and cannot accept any payments from third parties when they recommend financial products to clients.
A financial planner who is able to offer specific financial products must have the right education, experience, and training. A practitioner can earn and maintain one or more professional titles, such as the Certified Financial Planner title, to prove their qualifications.
Financial advisors (including financial planners) generally fall under one of two types: commission-based or fee-based.
Fee-based financial advisors charge an hourly, per project or per asset under management (AUM) flat rate. Fees paid by clients are the main source of their income. Fee-based advisors can also make a commission selling certain financial products. Fee-only advisors on the other side, however, only earn income through fees paid to them by their clients.
Financial advisors who are paid a commission make their income by opening accounts and selling financial products on behalf of their clients. Commissions are payments from companies that the advisor recommends. Opening accounts for clients can help commission-based advisors make money.
Financial planners who are paid a commission can be tempted to recommend investment products to clients. This temptation is not available to fee-only planners.
Financial planners can sell insurance, investments, and other financial products. Others assist their clients in creating an investment plan, and then leave it up to the clients to make those decisions.
Financial advisors are all financial planners, but not all financial advisors can be called financial planners. Financial planners help clients (individuals, businesses, and families) to create plans that will achieve their long-term financial goals. A financial planner can offer general advice or specialize in a specific area like investments, taxes or retirement planning.