ratemyadvisor January 16, 2023

If you’re looking for someone to give you advice on how to craft a plan that will allow you to retire with enough money to enjoy yourself, you may have been Googling the difference between financial planners and financial advisors. If you had, you probably became frustrated rather quickly with the lack of clarity around your question. 

The reason for this is that there is no official distinction between the two terms. In fact, a financial professional is welcome to refer to themselves as an advisor or as a planner, depending on which term they think will attract the clients they want to have. So, if you’re asking yourself what the difference between an advisor and a planner is in the hopes that the answer will help you hire the right financial professional, you’re actually asking the wrong question.

Don’t worry, though: if you’re looking for guidance on what type of financial professional to hire, we’ve got your back. Keep reading for a complete breakdown of the various services provided by financial professionals and what to look for to make sure the person you hire will be able to provide you with the services you need. 

Certifications

First the bad news: basically anyone can slap a sign that says “Financial Advisor” on their house and claim to be one. This means that, in all likelihood, there are financial “professionals” out there operating without licensure or certification. 

Are all of them monsters looking to prey on the financially anxious and fiscally vulnerable? No, not necessarily. But, if someone doesn’t have licensure or certification in financial services, you really have no idea whether or how they are qualified to be giving financial advice, and you should approach professional relationships with such folks with extreme caution. 

Luckily, in order to officially register with state and federal governments as a financial professional, there are various levels of certification needed. 

Required certification programs

There are a whole battery of tests one must take in order to become certified to sell various financial products. For example, in order to legally sell packaged securities (like mutual funds and variable annuities), you must obtain your Series 6 License. The Series 7 License allows you to sell basically any financial product on the market, including stocks and bonds (it’s a much more comprehensive version of the Series 6). 

The Series 65 License is also required by most states for a person to operate as a financial professional within its borders. 

All of these licensing exams test prospective advisors’ knowledge of the rules and regulations they’ll need to abide by in order to practice in an effective and ethical manner. 

So, at the bare minimum, any advisor or planner you hire should have a Series 65 License. If they don’t they probably aren’t practicing in an official capacity, and you may want to avoid doing business with them. 

Optional certification programs

There are many certifications would-be advisors/planners can obtain that will waive the requirements for a Series 65 and other typical licensures. The idea here is that any of these programs ensure the same (if not better) level of knowledge as the Series exams, with the added benefit of an ethical component as well. There are quite a lot of optional certifications available, so we’ll break down some of the more common ones here: 

  • Chartered Financial Consultant (ChFC)

Before taking the courses necessary for this certification, candidates must have “three years of full-time business experience” and a high school diploma (or equivalent). The coursework itself involves eight online, self-study courses and a closed-book final exam. In order to maintain the certification, ChFCs must complete 30 hours of continuing education every two years, one of which must be in ethics. 

  • Chartered Financial Analyst (CFA)

The CFA certification is quite a bit more involved than the ChFC one. Here are the prerequisites: 

  • Obtain a bachelor’s degree no more than 11 months before starting coursework or have at least 4,000 hours of work experience or higher education prior to starting coursework. 
  • Obtain 4,000 hours of experience in investment decision making processes (though they may do this after the coursework if they choose). 
  • Submit two or three professional letters of recommendation. 

CFA coursework is also self-study, however there are three exams necessary to obtain the certification (as opposed to the one needed for a ChFC). These exams are closed-book and proctored. 

Because the requirements are more stringent, there are no continuing education requirements for this certification.

  • Certified Financial Planner (CFP)

CFP certification requirements are similar to CFA’s, though the prerequisites are slightly less involved. While you do need a bachelor’s degree, there’s no timeline on when you can have earned it. What’s more, you only need 2,000 hours of experience in financial planning, and it can be full or part time. 

The training itself, however, is more involved. The CFP Board has a series of registered programs you could progress through in order to qualify for CFP certification. They are as follows: 

  • Certified Public Accountant (CPA)
  • ChFC
  • Chartered Life Underwriter (CLU)
  • CFA
  • PhD in business or economics
  • Doctor of Business Administration
  • Attorney’s license 

To maintain a CFP certification, a financial professional must undergo at least 30 hours of continuing education every two years (even if they have a PhD already). 

  • Personal Financial Specialist (PFS)

One of the more exacting certifications to acquire and maintain is the PFS. In order to earn this licensure, an applicant must be a member of the Association of International Certified Professional Accountants (AICPA), hold an unrevoked CPA certificate issued by a state authority, and have at least two years of full time teaching or business experience in personal financial planning within five years before their application is submitted. 

The training itself required for a PFS certification is a little more lenient, though still lengthy. Applicants must complete a minimum of 75 hours of personal financial planning education within five years of applying to take the exam. This could include college coursework or continuing education programs. 

The exam itself consists of 160 undisclosed questions that can be taken online or at a testing center. 

In order to maintain PFS certification, one must undergo the equivalent of 60 hours of continuing professional education every 3 years. 

  • Certified Financial Fiduciary (CFF)

CFF certification has the most intense prerequisites of any of the certifications listed here: you must have 10 years of relevant work experience (or 5 years’ experience and a relevant bachelor’s degree) before taking the in-person training class and passing the final exam (which you can take online). 

What’s more, CFF certification requires 10 years of continuing education annually. 

The reason for all this, is that the designation of “fiduciary” indicates that those who hold it are bound by law to work in the best interest of their clients’ financial situation, rather than working to sell financial products for a company. 

So, if you really want to be certain that you can trust the advice your financial professional gives you, making sure to work with licensed fiduciaries is probably the best way to do that. 

Services

Now that you understand the various certifications and licenses that financial professionals might have, the most important question to ask yourself if you think you’re in need of a financial professional of some sort is “what services do you think you’ll need?”

Depending on what you’re looking to get out of your relationship with your financial professional, you can seek out advisors or planners who offer those services specifically. Here’s a quick list of some of the most common financial planning/advising services offered: 

Creating a long-term financial plan

If you’re a young person and want to make sure that you’re able to retire at a reasonable age and live comfortably once you do, creating a long-term financial plan (and sticking to it) is an excellent idea. This involves creating the plan and also meeting somewhat regularly with your financial professional to check in on progress and make adjustments as necessary. 

A professional with any of the certifications listed above will be able to provide you with a financial plan, however it may be a good idea to make sure that you work with a fiduciary if you’re going to create a long-term financial plan. 

The last thing you’d want would be to set a plan up and execute on it for years only to discover that you bought a lot of expensive financial products that earned a financial professional lots of commission bonuses and shot yourself in the foot in the long run because the products did not deliver as promised. 

It should also be noted that creating a long-term financial plan requires a knowledge of a lot more moving pieces than making a single investment or purchase, and so hiring a professional with more experience and credentials (whether they’re a fiduciary or not) is probably in your best interest here. 

One time investments

Lots of people seek financial professionals’ advice because they’ve acquired a chunk of money (either from the sale of a house, the death of a relative, or some other windfall situation) and they want to know what their best option for investing is. 

Anyone who has a good sense of the global financial market is capable of providing good advice in these situations, since they don’t have to think about all of the complex factors that go into planning for retirement. However, this does leave the door open for under-qualified “professionals” to prey on naive investors. 

Again, the more strict requirements of the certifications a professional holds, the more confident you can be that they’re working in your best interest (and, of course, being a fiduciary is the absolute best case scenario). 

Purchasing financial products

Sometimes, your specific situation might call for the purchasing of one or more distinct financial products. For example, if you’re on the verge of retirement and realizing that you have a monthly budget deficit, purchasing an annuity that will pay out in fixed amounts in perpetuity might be your best option. 

Many financial professionals who sell such products, however, work on commission, so their main motivation might not be to make the best choice for you, but to convince you to buy the most expensive product. 

If you’re in an odd situation and aren’t sure what your best option is, speaking with multiple professionals might be the way to go. This way, you have multiple perspectives and are less likely to fall victim to predatory selling techniques.