What Is A Financial Planner?
Financial planner, financial advisor, financial representative, wealth manager, insurance agent. These, among many others, are titles you have probably encountered throughout your life. Maybe you have a professional relationship with someone that has a title on this list, or you might have a friend or family that works in the field of finance. Either way, you may have wondered at some point; what’s with all the titles? Do they all mean something different? Let’s take a deeper look at the professionals that fall under the financial umbrella.
Financial Advisor
Let’s start with the most common title seen in the financial services industry. Financial Advisor is most often used by professionals that provide either investment management or insurance services. Most advisors will do both in some capacity, but there is likely a greater focus on one over the other. For example;
An advisor at a mutual company will focus primarily on life insurance. They use life insurance as the cornerstone of their financial plans, and they offer a wide variety of whole-life and universal-life insurance policies along with a sampling of disability insurance policies. A mutual company advisor can also manage investments, but they primarily focus on insurance.
On the other hand, an advisor at an investment company will focus on investments first. Most of these companies offer a wide range of investment options that can adapt to an individual’s needs and goals. These options could be fixed income instruments, mutual funds, ETFs, etc. They will also be able to help you place insurance, but a strong investment portfolio will be the cornerstone of their financial plans.
Financial Advisor is also an umbrella term for professionals with the titles below;
-Wealth Manager
-Investment Manager
-Financial Representative
-Insurance Agent
-Estate Planner
The main consistency across all financial advisors is that they offer a specific product or service. A mutual company advisor may offer a whole-life policy, an investment advisor a unique mutual fund, or an estate advisor may offer certain revocable and irrevocable trusts. Financial Advisors typically offer great services to their clients.
The main limitation with financial advising is the scope of the services offered. For example, if you have a tax question regarding one of your investment accounts, your advisor will likely direct you to your CPA. If you want to create a will or power of attorney, your advisor may direct you to an estate planning attorney. When all is said and done, you will likely have three or four professionals managing pieces of your financial puzzle without any one of them seeing the whole picture. This is where a financial planner enters the conversation.
Financial Planner
A Financial Planner is a professional that does (or should) offer comprehensive financial planning services. What does comprehensive mean in a financial planning context? Well, it means that the following services are offered in some capacity;
-Investment Planning
-Tax Planning
-Insurance Planning
-Estate Planning
-Cash-Flow Planning
Now, this does not mean that a financial planner will necessarily file your taxes, or build an estate plan, or even place an insurance policy. However, they will advise on each of the topics above. A comprehensive financial planner will look at each piece of the puzzle with regards to the entire picture to ensure that every part of your financial plan is working in concert.
Many, but not all, financial planners are fiduciaries. A fiduciary is someone that must always act in your best interest. That sounds great in theory, but what does that actually mean?
Let’s say you meet with two financial professionals, one of them is a fiduciary and one of them isn’t. You meet with each professional because you need life insurance and investment management. The fiduciary calculates that you need $500,000 in life insurance and builds a portfolio of funds that have low fees. The non-fiduciary calculates that you need $750,000 in life insurance and builds a portfolio of funds that have higher fees.
The scenario above highlights the main problem with the financial services industry. It is very easy for professionals to offer more-than-necessary levels of insurance, or higher-than-necessary fees on investments because many professionals work on a commission basis. Working with a fiduciary will help you avoid this conflict-of-interest present in our industry.
Regardless of who you decide to work with when you make the decision to start your financial planning journey, do you research, meet with a handful of professionals and find the individual and firm that will offer you a fiduciary, personalized service.
This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.
