The terms financial advisor and financial planner can be a little confusing to someone new to personal finance.
While the terms may seem interchangeable, they’re actually not.
All financial planners are also financial advisors, but not all financial advisors are financial planners.
The main difference between the two is that a financial advisor gives advice on a particular money matter, while a financial planner creates a specific plan to ensure you reach your financial goals.
Financial Advisor Explained
A financial advisor is the most basic term for anyone who helps clients manage their money.
They can help with any financial issue you may have, but they tend to work with clients on a more short-term basis.
They often manage investments, and hold a variety of credentials depending on the services they provide.
Investment brokers, bankers, money managers, estate planners and insurance agents are all types of financial advisors.
The typical advisor charges a client around 1 percent of the assets they manage, though you can find advisors that will charge less.
You don’t need any sort of certification to be a financial advisor, so be sure to ask your advisor what their credentials are before hiring them.
Financial Planner Explained
A financial planner works with a client long-term, creating a holistic financial plan that will ensure the client is able to meet specific financial goals in the future.
They’re the person to turn to if you’re looking to work on a specific financial challenge or goal, like paying off debt or saving for retirement.
If you’re not sure where to begin, a planner will set up an action plan to help ensure you get to where you want to go.
A reliable financial planner will be CFP certified—a designation not required in Canada (outside of Quebec) but certainly appreciated by savvy clients.
Before hiring a planner, ask if they are certified.
Certification requires a rigorous education process, culminating in two exhaustive exams—so challenging that 33 percent of candidates fail.
Candidates are also required to complete three years of direct financial planning work experience, ensuring that they have the experience to back up their knowledge.
They’re also bound to a strict code of ethics to put their clients first—which a planner without this certification isn’t bound to.
Did You Know?
There are 90,000 financial advisors working in Canada, according to a report from Advocis, the Financial Advisors Association of Canada.
Key Differences between a Financial Advisor and a Financial Planner
You have to first become a financial advisor in order to become a financial planner.
An advisor will handle your money for you and, for the most part, leave you out of the equation.
They have a hands-off approach with clients.
A planner will work directly with you to create a plan you understand and are a part of.
They have a hands-on approach with clients.
You will learn more about managing your money and how to reach your long-term big picture goals from a financial planner.
Planners deal with debt repayment plans, saving for college, mortgages, retirement planning and more.
Advisors generally deal with specific investments and estate planning.
Considerations Before Choosing an Advisor or Planner
If you’re looking for someone to give you financial advice in the future, the most important thing to consider is what your goals are.
If you’re just looking for general advice, or management on one specific type of investment, or need help with estate planning, a financial advisor might be all you need.
Financial advisors are great for short-term money matters.
If you’re looking for someone to develop a long-term, trust-based relationship with, a financial planner might be a better option.
If you have debt you need help dealing with, a financial planner will help you create a solid plan to get you out of debt as soon as possible.
If you want to save for a house or retirement, they can set that up for you too.
You can count on your financial planner to take your goals into account and set up specific plans to ensure you reach all of those individual goals on a set timeline.
Frequently Asked Questions
- Can you be a financial planner in Canada without a CFP?
Yes, you can be a planner without a CFP certification in every province except Quebec. Anyone can call themselves a financial planner, even if they have no certification at all, making it extra important to ask for certifications before paying anyone for advice. Of course, many financial planners learn the ropes on the job, so a lack of certification doesn’t mean they’re not trustworthy. But it’s worth having a word-of-mouth recommendation from a good friend before trusting a planner who isn’t certified.
- Is it worth paying for a financial advisor?
With investment apps like Wealthsimple making it easy for people to learn about investing and manage their investments themselves, it’s easy to think the 1 percent fee most advisors charge isn’t worth it when you could do it yourself.
This is likely true if you are younger, new to investing and have a small portfolio. But if you have a sizeable amount of money to invest, or particularly complicated investment needs around taxes, retirement and estate planning, a good advisor may well be worth their fee. The best advisors don’t take small accounts, so you have to have a large portfolio to work with them.