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Financial Planner vs Financial Advisor

A common question I hear from folks I meet with is; “what’s the difference between a Financial Planner and a Financial Advisor (aka Broker)?” “Oh, you’re a Financial Planner, you just make stock picks right?”

Now picture a cartoon image of a man pulling his hair out, shouting “No, No and No!” That’s what I’m thinking on the inside when I get asked this question. However, I’m dedicated to providing practical knowledge about the confusing world of titles, phrases and acronyms that the financial services industry spits out (at a mind blowing rate).

Simply put, there are two types of job categories associated with the financial advising/planning world. Those that are financial products salespeople and those that provide services.

  • Financial Advisors – sell financial products
  • Financial Planners – provide financial planning services

Financial Advisors (Brokers)
Now, before I get hate mail from Financial Advisors and their families, there is nothing wrong with being a financial products salesperson, It’s a perfectly fine profession.

The rub and confusion comes from the use of the term “advisor”. Using the term “Advisor” implies the use of the verb “advise“, “to give an opinion or suggestion to someone about what should be done”. Makes you think they should “have your back” right?

Given two products of equal suitability, would a commission based sales person recommend the product that is in your best interest? Or the one that pays the highest commission?

Financial Planners
It can be said that Financial Advisors (Brokers) are not Financial Planners, and that all Financial Planner are advisors. Whaaat? Yes, I know … stick with me here. Two more confusing terms here to grasp. There are two standards that Financial Advisors and Financial Planners are held to and there is a huge difference between them.

  • Financial Planners – Fiduciary & Suitability
  • Financial Advisors – Suitability Only

  • Fiduciary – recommend products that are in the clients best interest (in addition to being appropriate to the clients specific situation)
  • Suitability – recommend products that are appropriate (suitable) for the client specific situation (needs, risk tolerance etc.)

Both a Financial Advisor and a Financial Planner must recommend products that are appropriate for clients, but only the Financial Planner (fiduciary) must recommend the products that are in the clients best interest.

A simple analogy as an example.

A butcher’s job is to sell you meat products, a nutritionist’s job is to recommend food selections with your best interest in mind. The butcher doesn’t care what your cholesterol or blood pressure levels are, the nutritionist does and selects the food products with your specific situation in mind.

  • Butcher = Financial Advisor (aka Broker).
  • Nutritionist = Financial Planner.

As always, be sure to consult with your financial planning professional to determine the best options available to you.

Steve