Financial planner vs financial advisor. What is the difference?
First, what is a financial advisor?
Your parents or your grandparents probably had a stock broker. Someone who suggested which shares of companies would be good investments. The stock broker was probably not investigating the companies he was recommending or doing any research himself. He was selling the shares his sales manager told him to sell.
Do you know anyone today who has a “stockbroker”? I only hear the term stockbroker when I am speaking with someone who is around 70 years old. If you do an online job search for stockbroker, you won’t get any results. Where did they all go?
The term stockbroker has been phased out as it began to take on bad connotations such as those portrayed in various movies and other pop culture. Think of the movies Wolf of Wall Street with Leonardo DiCaprio and Wall Street with Michael Douglas.
Nowadays stockbrokers are known as “registered reps” by those in the financial services industry. The registered rep. title comes from the regulatory body called FINRA (Financial Industry Regulatory Authority), which oversees these renamed stock brokers. They are registered representatives (salespeople) of the brokerage firm that they work for.
For those outside the financial services industry, stockbrokers are now called “financial advisors”. This is a bit confusing of course because there are other professionals who also use the term financial advisor. There are insurance salespeople, there are investment managers, fund salespeople, bankers, credit unions, tax preparers, mortgage brokers, real estate investors, and others. Financial advisor is a broad term that can even include financial planners.
Generally speaking, a financial advisor makes money by selling insurance and/or investment funds for a commission. They are not required to put your interest ahead of their own.
What is a financial planner?
I define financial planner as someone who develops strategies to help clients maximize their financial future. The insurance and investment products necessary to implement that strategy are a secondary consideration. Planners plan. They don’t sell.
Financial planners don’t work for brokerage companies (also called broker/dealers). They work for registered investment advisors. That means they are regulated in a different manner from the registered representatives / stockbrokers / financial advisors mentioned earlier. The registered investment advisor regulations require planners to put their client’s interest ahead of their own. In other words, they are a fiduciary.
Is there a general rule of thumb?
If you want stand-alone investment advice, an insurance policy, or an annuity, then a financial advisor can provide you with those products.
If you want to coordinate various aspects of your finances, develop an integrated strategy or get help making a decision, then you want to see a financial planner.
How do you tell if someone is a financial planner or financial advisor?
The easiest way to check if someone is a broker is to look them up on FINRA broker check. https://brokercheck.finra.org/ You will need their name and city. If they come up on that search, then they are a broker and therefore a financial advisor.
If they work for a registered investment advisor, then look them up on https://adviserinfo.sec.gov/
I recently wrote a blog post about the best way to choose who you get your financial advice from is to understand their motivation. By motivation I mean understand how they are paid.
If you want more clarification on the difference, FINRA has a webpage that explains the difference in another way. http://www.finra.org/investors/investment-advisers
What is Andrew Marshall Financial, LLC?
We are a registered investment advisor firm registered in California. We are a financial planner.