Hello and welcome to an informative piece on the difference between CFP vs financial advisor.
At the end of this article, you’ll understand how a certified financial planner differs from a financial advisor in roles, work environment, experience, and salary.
Our specific areas of focus are:
Let’s get started!
CFP vs a Financial Advisor: Who Are They?
Before we talk of the difference between the financial advisor and financial planner certifications, we must first understand what they entail.
Definition of Financial Advisors
Financial professionals give clients financial advice and direction on their investment choice.
Anyone in the financial industry can claim to be a financial advisor, but real experts hold specific designations.
Some of the specific titles for financial advisors include:
- Wealth Advisor,
- Broker-dealer,
- Portfolio manager,
- Chartered financial consultant (ChFC),
- Investment advisor, and
- Asset manager.
The U.S. Securities and Exchange Commission (SEC) demands any individual or company trading securities or advising clients to register with the SEC or their state licensing bodies based on their assets under management (AUM).
Definition of Financial Planners
They focus on tax planning, estate planning, retirement planning, and risk management.
They also plan for significant events such as educational funds and weddings.
Certified financial planners are more specific and definitive in their areas of expertise than licensed financial advisors who focus on the general management of investments in securities.
Anyone can also claim to be a financial planner, but a recognized financial planner must hold the CFP designation.
While the National Association of Personal Financial Advisors (NAPFA) oversees the affairs of financial advisors, the Certified Financial Planner Board of Standards (CFP Board) issues the designation for financial planners.
However, every financial professional must pass the Financial Industry Regulatory Authority (FINRA) exams before practicing.
Roles and Responsibilities of CFP vs Financial Advisor
According to the Bureau of Labor Statistics (BLS), personal financial advisors’ fundamental task is to determine the best-suited investments for a client’s financial goals.
An advisor also intimates clients of investment opportunities and the possible risk factors and recommends investments in line with a client’s preferences.
Investment advisors consistently research investment opportunities and make timely decisions in their clients’ interests.
However, the essential duty of a financial advisor is close monitoring of a client’s account and regularly updating them on their financial situation.
Investment advisers often meet with their clients at least once annually for investment strategy updates and reviews in line with current realities.
A financial advisor may also have a client’s permission to trade stocks and bonds on their behalf.
However, a certified financial planner x-rays clients’ current economic realities, examines their tax implications on their earnings, and assesses their investments.
A CFP also helps them sort debts, develops an investment strategy, and ensures a balance between risk levels and asset protection.
The Difference?
A financial planner comprehensively examines a client’s financial condition than mere investment management that an advisor does.
A planner broadly analyzes how an investment fits into a client’s financial future, but an advisor may not take the complete picture into cognizance.
Apart from investment management, a licensed financial planner also provides specialty services such as estate planning, wealth management, and taxation.
A skilled financial planner is also adept in addressing personal finance:
- Insurance planning,
- tax planning,
- investment planning, and
- money management.
However, both finance professionals don’t just differ in responsibilities to their clients but also in their earning potential.
Salaries of Financial Advisors vs Financial Planners
Before acquiring the financial advisor license, you probably want to know how much these professionals earn.
Financial advisors are either self-employed or working with financial services outfits.
They generally receive a ratio on the value of assets under management (AUM).
Some also receive charges based on the insurances and stocks they trade on behalf of clients.
Many advisors prefer hourly payments; you get a specific amount every hour you work on clients’ financial products.
Advisors may also receive commissions on the financial products they trade.
The BLS figures reveal that the median salary of financial advisors as of May 2020 was $89,330.
The statistical body also states that advisors working for commodities, securities, and other investment outfits earned an annual average of $95,540, while those in the insurance sector earned $71,280.
Financial advisor salary also differs by location.
For instance, advisors in New York earned 27% more than the national average as of the first quarter of 2021, while those at Houston earned 9% short of the national average.
Advisors with in-demand skills also earn higher than their contemporaries.
Some of the skills that can distinguish an advisor from the crowd are counseling, data analysis, tax consulting, and communication skills.
Just as there are many overlaps in the certified financial planner vs advisor, their salary range also overlaps, depending on their area of specialty.
However, the fee structures are different.
As of February 2021, financial planners’ average annual salary was $64,000, excluding commissions, profit sharing, and bonuses.
However, professionals with about five to ten years of experience earn 11% beyond the national average, while those who have been in the profession for more than a decade earn approximately 30% beyond the standard.
Highly experienced planners earn 60% above the national average.
CFP® professionals skillful in sales, portfolio management, data analysis, and money management are high earners.
Planners with the above skills earn between 8% and 17% above the national average.
Geographical location also affects earning capacity.
For instance, financial planners in San Francisco earn 36% more than the national average, while those in Atlanta make 14% below the average.
However, not all Planners or Advisors are the same. Let’s see what the various types are in this next section.
Types of Financial Advisors and Planners
Another way to distinguish between an advisor and a planner is to know their types.
The appellation of the “financial advisor” doesn’t connote a specific professional designation or training.
Two features distinguish licensed financial advisors:
- they’re bound by a fiduciary duty to serve in clients’ best interests rather than their selfish interests, and
- clients directly pay them (they operate on a fee-only basis).
The common types of advisors are:
Investment Advisors
They include Registered Investment Advisors (RIAs) primarily concerned with securities.
Investment advisors with over $110 million assets under management must register with the Securities and Exchange Commission (SEC).
This type of financial advisor is filled with experienced professionals.
Those beneath the $110 million benchmarks will register with their respective state regulating bodies.
Broker-Dealers
These individuals trade in stocks, mutual funds, bonds, and other securities.
Apart from enrolling with the SEC, broker-dealers must earn the FINRA license.
The FINRA saves brokers’ details on BrokerCheck, accessible to potential clients.
Portfolio or Investment Managers
The trio of asset, portfolio, and investment managers are concerned with investment management.
However, investment and portfolio managers may render other forms of financial services.
These professionals must register with the SEC or relevant state agencies because they offer investment advice.
Personal Bankers or Wealth Advisors
Advisors under this category mostly work with wealthy citizens to help them map out investment strategies.
In this instance, advisors may delve into financial planners’ roles, such as tax and retirement planning.
Also, many financial planners may delve into a specialty.
The CFP designation remains the “best standard” for financial planning, but there are some other equally good certifications you may explore:
Chartered Financial Consultant (ChFC)
The ChFC is very similar to the CFP, but it requires candidates to take more comprehensive courses before being certified.
You’ll take nine ChFC courses, while you take seven for the CFP with a final comprehensive exam.
Licensees uphold ethical standards by always serving their clients’ best interests.
Similarly, CFPs are bound by the fiduciary standard, which demands that they prioritize clients’ needs in every business deal.
Financial Coach
This is an entry-level position reserved for financial advisor planners who direct clients on planning and managing finances.
They teach clients how to delay gratifications and amass wealth.
Coaches closely monitor their client’s financial life to ensure they make the best decision per time.
Chartered Life Underwriter (CLU)
We may also refer to underwriters as financial planner life insurance agents.
They introduce clients to suitable life insurance options.
Many CFPs also earn the CLU designation to showcase their expertise in life insurance.
Financial Risk Manager (FRM)
FRMs are specialized in risk assessments.
Risk managers usually work in banks, regulatory agencies, insurance outfits, accounting firms, and asset management firms.
Risk managers also help clients make the right credit card decisions.
Education and Certification Requirements
One must have the prerequisite education and on-the-job training before starting as a financial advisor.
A financial advisor hopeful must also earn the proper certification before practicing.
A financial advisor candidate must have a minimum of a bachelor’s degree, preferably in business administration, economics, mathematics, or accounting.
You’ll be in a better position with a master’s degree.
A candidate’s coursework should focus on estate planning, risk management, and taxes.
You must also obtain a license after meeting the education requirements.
According to the NAPFA, one needs a license to trade stocks, insurance policies, and bonds.
A potential advisor must take the FINRA-administered Securities Industry Essentials (SIE) test and a host of other representative exams to earn the license to be a financial advisor.
Perhaps, the rigorous demands of this license are why most financial advisors don’t have CFP licenses.
There are distinct ways to become a CFP® professional.
First, you must earn a bachelor’s degree from an accredited institution in any discipline.
However, having a degree in economics, accounting, mathematics, or finance will give you good foundational knowledge.
Endeavor to earn a master’s degree if you want to occupy an advanced position in the future.
Enroll in a CFP Board-approved program and complete the coursework before taking the final comprehensive exam.
One question CFP candidates often ask is, “Is the CFP exam hard?”
The exam is moderately simple because the pass rate is 62% and 65% for first-time attempters in 2019.
If you can study competently and diligently, the multiple-choice questions will be a walkover to you.
Some alternative certifications to the CFP are the Chartered Financial Analyst (CFA) offered by the CFA Institute and the ChFC.
A certified public accountant (CPA) may also acquire the Personal Financial Specialist (PFS) certification offered by the American Institute of Certified Public Accountants.
Earning multiple certifications helps you provide clients with a wide range of financial planning services.
Skills and Experiences of CFPs and Advisors
Both designations require the same skills to be successful.
Financial advisors and planners need interpersonal communication and analytical skills to meet clients’ needs.
A strong relationship with clients is a warranty for breakthroughs.
The life of a financial advisor or planner will be tedious and frustrating without strong verbal and nonverbal communication skills.
A financial advisor may not need the experience to get started as they’ll undergo long-term on-the-job training, but having relevant experience will fast-track your journey as a CFP.
A potential CFP with a thorough understanding of investment options and financial instruments will easily carve a niche for themselves.
Planners with such experience level can comfortably serve clients across the board.
Clients are consistently searching for the best planners to handle their financial planning needs.
One of their over-flogged questions is, “how do I choose a CFP?”
If you distinguish yourself by garnering the prerequisite experience and certifications, you will become the cynosure of all eyes.
What is a CFP in finance without a practical understanding of clients’ demands?
It’s absolutely nothing!
Work Environment for Financial Planners vs Advisors
As of 2019, there were almost 263,000 financial advisor jobs in the U.S.
The BLS gave a breakdown of the percentage of advisors working in different sectors.
58% of financial planning advisors worked in commodities, securities, and other investment service companies.
However, 19% were self-employed, and 13% were credit intermediation services.
Also, 4% were into insurance-related activities, and 2% were enterprise and corporate management.
Most advisors work full-time from Monday to Friday and meet with clients on weekends or evenings.
As part of their marketing drive, advisors organize seminars, expand their social networks, and travel to scout for clients.
You must be ready to put in the work if you want to grow, especially if you’re self-employed.
The license for financial advisors is only a formal endorsement of your expertise; you must go beyond the license to establish your presence in the market.
On the other hand, financial planners primarily work in banks and investment companies.
However, almost 40% of practicing financial planners are self-employed.
Technological breakthroughs affect financial planning work environments, just like every other profession.
Personal finance service models have evolved to reflect fairness and transparency in pricing systems in recent times.
Millennials prefer subscribing rather than being charged fees for AUM.
The change in fee structure also affects how much a planner can earn.
The introduction of complex financial planning tools ensured the automation of research and analysis.
Planners can now spend valuable time with clients to better understand their needs and devise strategies to resolve them.
Conclusion
Though financial advisor is closely similar to the financial planner certification, we asserted that the former is a broader concept while the latter is more specific, holistic, and definitive.
Why work with a CFP when an advisor is also available?
You should work with a CFP if you need a defined and specific answer to your financial need.
If you wish to become a CFP, you must expand your mind to bear the changes in the work environment.
You should fit into the new technological system to endear yourself to the younger generation!
