The world of finance can be confusing.
Not just for the man on the street but for those who want to have a career in finance too.
One of the terms that are always mentioned is that of “financial advisor”.
But as you delve into this term, you can see it pertains to many different functions within the industry.
Yes, someone calling themselves a financial advisor could specialize in various areas and it’s more of an umbrella term used in the industry.
For example, someone calling themselves a financial advisor could focus on various aspects of finance such as:
Many financial advisors wear numerous financial hats and branch out into other areas.
But do they differ from accountants?
If that’s something you’ve always wanted to know, well then this article on Financial Advisor vs Accountant is surely a must-read.
The Role Of A Financial Advisor
The financial planning services offered by a financial advisor are geared to helping a client to improve their financial situation, for the most part.
For example, you may help develop a plan to increase their overall wealth within the framework of their financial goals.
Financial advisors, however, can specialize in various aspects of the financial industry including:
- Investment portfolio planning
- Retirement planning
- Estate planning
- Life insurance
- Risk management
- Advice on debt issues
Let’s look at these in a little more detail.
Often, a business owner or individual will make contact with a personal financial specialist (PFS) to help them with their investment portfolios.
In some cases, they may want a portfolio drawn up from scratch.
It’s critical to note that any financial advisor who helps with investments must be registered with a state securities regulator or the Securities and Exchange Commission (SEC).
These investment portfolios are set up for many reasons including:
1. Earning higher returns
With more well-established businesses, an owner could seek financial advice to help streamline current investments.
More often than not, the goal here is to fine-tune investments to produce higher returns, or to look for other investments that will.
Fiduciary financial advisors are best placed to help achieve this.
2. Help save for retirement
When starting out in their career or with a business, the last thing an individual is thinking of is their retirement.
As they get older, however, retirement savings become important and it’s here where they might turn to a financial advisor.
3. Meeting financial goals
Everyone should have a set of financial goals.
Sometimes, however, we might be a little unrealistic in setting them.
Financial advisors are the perfect people to not only help a business on the path to achieving financial goals but also with ensuring they are within reach.
Once they are met, a financial advisor can help draw up the next set.
4. Business expansion
Other than making money, the ultimate aim of owning a business is to see it grow.
If it does, that will help with increasing capital, amongst other things.
Growing a business is without a doubt an area where a financial advisor can help in terms of investments.
I’ve touched on this already briefly but it’s worth noting that many people turn towards a financial advisor to help with retirement planning and wealth management.
Let’s expand on how they can do this.
1. Identify your saving goals for retirement
Every individual is going to have different savings goals when it comes to retirement.
That’s based on whether you are married or not, if you have children, and many other factors.
For many people, finding the time to identify these goals isn’t easy and often, retirement savings and drawing up a financial plan are the last thing on their minds.
2. Spot gaps in current retirement savings plans
While a business owner might have a retirement savings plan already set up, a financial advisor can help strengthen it.
This is achieved by identifying areas that could be improved as well as certain sections that have been overlooked.
3. Provide advice on 401 or retirement accounts
Many retirements or 401 pension accounts can be streamlined by a financial advisor to ensure the best benefits within tax laws.
4. Planning for healthcare needs
As people approach retirement age, planning for long-term healthcare becomes a priority and here, a financial professional’s guidance can help.
5. Planning for supplemental retirement income
Without a doubt, this is an area where a financial advisor is most needed in retirement planning.
Additional retirement income, through annuities, for example, should be at the forefront of all retirement planning for a business owner.
6. See how social security benefits fit into the retirement picture
Social security benefits are an area that financial advisors can help guide those planning for retirement at some point in the future.
7. Asset management
Assets can secure incoming revenue for an individual once they have retired.
Assets that fall into this bracket include property, for example.
Advisors can provide all the advice in this regard when looking towards successful retirement planning and wealth management.
Sadly, budgeting is an area of both business and personal finance that is often overlooked.
Because of that, many businesses struggle with:
- Cash flow problems
- Tax liability
- Ineffective pricing for their services
- Understanding complicated financial statements
To draw up an effective budget, one that actually works in the long run, is something that both business owners and individuals must undertake.
The role that a financial advisor can play in this process should never be underestimated and many businesses turn to them to help them draw up or improve their budgets.
When it comes to financial planning, those aspects linked to the estate of the person to who the plan pertains to are often overlooked.
It’s critical to remember that estate planning includes several aspects, for example:
- Deciding who will inherit assets, property and money
- Deciding who can make financial and medical decisions on someone’s behalf if they are not able to (if they are incapacitated for any reason)
Most people will turn to an estate attorney to help finalize their estate planning but financial advisors too can become involved in the process in the following ways:
1. Ensuring beneficiary designations are up to date
Both business owners and members of the public will have investment accounts, insurance policies, and retirement accounts where designated beneficiaries must be nominated.
From time to time, these beneficiaries may change.
Part of effective estate planning is to see that these documents are kept up to date or supplemented whenever they need to be.
This may include naming contingency beneficiaries in certain situations.
2. Identify and point out how life changes can affect estate planning
Estate planning is a once-off thing for some.
Once they’ve drawn up what they think is needed, they don’t review this aspect of their lives very often, if at all.
But as life goes on, changes can have a significant impact on these plans.
Advisors should be looking to identify these life changes and advise their clients on how they will affect their estate planning.
3. Guide clients through changes to their estate planning
While many people will draw up an estate plan and forget about it, others will be more hands-on.
This often leads to changes in their estate planning.
And this is something a financial advisor is in a prime position to help them with.
There’s another side to this as well, however.
And that’s helping clients to realize the impact of not being flexible when it comes to estate planning.
4. Step in when things do change
For a financial advisor, it’s not always about anticipating what might happen while dealing with a portfolio of a client but stepping in when things do.
That could include:
- Client death
- Client incapacitation
- Other incidents that affect their business
Financial experts have a significant role to play when these unanticipated scenarios play out.
Because they have the whole picture of the overall finances of a client, a financial advisor is in a prime position to sell life insurance products.
Note, however, that often requires a specific added license.
It’s critical to understand what risk management is to see just how a financial advisor can play a role in advising clients.
With both business clients and in personal portfolios, risk management is all about diminishing the consequences of an unexpected threat, uncertainty, or incident.
In other words, ensuring that these unforeseen circumstances don’t cost money or if they do, as little as possible.
Advice on debt issues
As finance experts, it makes perfect sense that a financial advisor can help a business owner and others with debt issues.
Debt is not only often a part of running a business but affects individuals too.
And when debt is out of control, usually a financial advisor is called in to help sort out the problem.
This includes credit card, business, and any other type of debt that might be incurred.
Financial advisor education requirements
In this section, we are going to look specifically at what it takes to become a Certified Financial Planner (CFP) that specialized in one of the areas we’ve covered above.
Now let’s look briefly at the education requirements needed to become a CFP.
- Enroll in and complete a financial advisor education program as stipulated by the CFP Board.
- Pass the CFP certification exam which is offered on three occasions each year
- Either hold a bachelor’s degree or earn one within of achieving a CFP exam pass
- Have financial planning experience (6000 hours professional or 4000 hours apprentice)
- Pass the CFP candidate check
A bachelor’s degree and a CFP certification are the minimum entry-level qualifications sought by employers.
Many, however, do prefer to employ candidates that have a master’s degree.
Note too that there are continuing education requirements for CFPs as well.
This will see them having to attend various courses that amount to 30 hours every two-year cycle.
What can a CFP expect to earn?
Well, it’s all based on experience, just as with most other jobs but also the area they specialize in.
Entry-level CFPs, to those with up to five years experience, can expect to earn around $60,000 per year.
A CFP with 20 years of experience will be earning around $100,000.
Of course, these figures are all relative and differ from state to state, for example.
In terms of growth rate, the financial advisor field is expected to grow at a rate of around 4% until 2029.
There are many reasons for this but an aging population with specific retirement planning needs is an example of one.
Around 11,000 new CFP jobs are expected to be created in the United States from now until the end of the decade.
The Role Of A Certified Public Accountant
Now that we have insight into the role various financial advisors play, it’s time to take a look at how an accountant differs.
The easiest way to do that is to define just what an accountant does, much as we did earlier with financial advisors.
Accountants differ in the fact that they look after company finances, handle tax preparation, tax returns and other tax situations, auditing financials, and more.
Let’s look at these and other areas an accountant may be called upon.
Accountants help both business owners and individuals with all the aspects of getting their taxes in order each year with the IRS.
This preparation includes not only focusing on the tax returns themselves but advising on various tax strategies to help streamline outgoing tax payments.
They can also advise clients in many other tax situations they face.
As an example, they would determine the minimal tax impact that will occur on transferring a business to a buyer.
The other huge area where an accountant plays a role in business is auditing.
In fact, this is the primary role for many in the finance industry.
Auditing sees them checking through the financial statements of a company.
This guarantees that their financial transactions take place within the law.
Once they are happy that these financials pass the audit, an auditor’s opinion is passed on the statements.
This is issued with the statements when needed by various third parties.
Sometimes an accountant might not be asked to audit financial statements but instead, review them.
While similar to an audit, this isn’t as involved and will be less expensive.
Accountants can also act in a consultancy role for a business.
This can involve several areas where their services would be helpful including:
- Day-to-day finances
- Advisory roles such as if various financial controls are sufficient
- Financial forecasts
- Cash flow
- Savings analysis
Identifying helpful new systems
A business that started five years ago certainly isn’t the same now as it was on day one.
There are many systems that an accountant will be aware of that can help a business owner streamline things from an accounting and financial perspective.
This can have many benefits for a business, like improving productivity.
An accountant will quickly see where these systems can help and pass on advice as to how to implement them in a cost-effective manner.
Forensic accounting is an area in which many accountants look to specialize.
It certainly is a fascinating aspect of the job, that’s for sure.
Here, they will look into financial records that have been tampered with, or even in some cases partially destroyed.
This often occurs when various fraudulent and other criminal activities such as money laundering have occurred.
But that’s not all.
Forensic accounting can also include:
- The calculation of economic damages
- Calculating how much a business is worth
- Forensic analytics of computer records
- Claims involving professional negligence
- Royalty audits
While financial planning certainly is more the domain of a financial advisor, there are some areas in which an accountant can provide advice.
For example, they can highlight tax implications of the sale of a business,
They can also help with estate planning
This includes ensuring the lowest possible tax implications when assets are passed on.
In some cases, accountants may be called on to help attorneys.
An example of this is when disputes between businesses occur but this may not be the only reason.
Sometimes, they might get involved when it comes to:
- Settlements in a divorce case
- Bankruptcy proceedings
Take someone like a freelance writer.
Their time is precious and is geared towards researching the topics they are writing about as well as the writing itself.
It’s people like this and other small business owners that will often look for an accountant to help them with their bookkeeping.
That’s because they would rather pay someone a flat fee to do the service for them instead of employing a permanent staff member.
So there you have the main areas where accountants often work.
Some will specialize, for example, in tax or forensics while many choose to operate across all of them.
Accountant education requirements
Now let’s look at the education requirements for those looking to become an accountant, specifically a certified public accountant (CPA)?
Well, here’s a quick breakdown:
- A bachelor’s degree although many employers will look for a master’s degree, particularly for higher-paying jobs.
- This should include at least 150 hours of relevant college coursework
- Pass the CPA certification exam
- Obtain a state-based CPA license to practice (which is over-and-above the exam and also includes up to two years of relevant experience.
Once you have the relevant state-based licensing, CPAs also have to adhere to strict continuing education requirements.
This requires CPAs to complete 120 hours over a three-year cycle.
Note, some states have seperate continuing education requirements that focus on ethics as well.
These add another six hours to the cycle.
What can a CPA expect to earn?
While it obviously varies from state to state, on average, a new CPA is going to earn around $66,000 per annum.
It’s pretty similar to a CFP actually.
And as the CFP salary increases with years of experience, so does that of the CPA.
In fact, one with around 20 years of experience is going to earn up to $120,000 and in some cases even more.
Again, this is often state or city-based.
So a CPA in New York is probably going to earn more than one in a smaller city.
But of course, this isn’t set in stone.
While there are small sections where the work of a financial advisor and an accountant does overlap a little, there is no doubt that these are two very different areas of employment.
And in this article, we’ve given you a brief idea of just how these two crucial employment options in the world of finance operate.
Their overall importance is shown in the fact that there will be significant growth in the finance industry until the end of the decade.
If you’d like to know any more about becoming a financial advisor or an accountant, make sure you drop us a comment below and we will get back to you.
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