The Most Important Read On Financial Advisors (Brokers) Vs Fee-Based Financial Planners

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What is the difference between a financial planner and a financial advisor?

Creating a financial plan is an important part of every adult’s life. If you have decided that you would like some help managing your financial situation (money, stock market investments, insurance plans). You may find that there is a broad spectrum of financial professionals ready to assist you. These professionals may call themselves either ‘financial advisors’ or ‘financial planners.;

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There is a number of different licenses a financial planner needs to possess in order to do their job effectively. These may include: Series 6, which is commonly referred to as the securities license. Series 63 and series 65 licenses. Long-term care insurance certificate, a real estate license and more.

All financial planners are in essence financial advisors. They need to study and pass exams to obtain their licenses. However a person who calls himself or herself a financial advisor may not necessarily be a financial planner.

Financial advisors may not possess the necessary licenses; and are more focused on investments rather than helping you create a comprehensive plan which takes into consideration your long- term needs.

You are better off going with the individuals who call themselves a financial planner. That being said, a consumer should always perform their due diligence before they entrust the management of their money to any kind of financial planner to make sure that they have the necessary expertise and a trustworthy track record.

Differences between Financial Planning Professionals 

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  • financial planner is a type of financial advisor. Planners help individuals and companies meet their long-term goals by creating customized programs. Financial planners usually hold various licenses. To obtain these licenses they must study for and pass various exams and have relevant work history. Financial planners usually specialize in various areas such as: taxes, retirement, stock market and other investments, estate planning, extended care planning, retirement and education planning, risk management and insurance; and more.
  • Financial advisor is a broader term for an individual who helps you manage your money. They mostly focus on helping people with investments as well as purchasing and selling in the stock market. This broad term includes various groups of people whose work is connected to managing money.

Some of these groups are: stock brokers, insurance agents, bankers, money managers and others. Imagine a metaphorical funnel. In this funnel financial advisors would be at the top in the broader category, whereas financial planners would be closer to the neck of the funnel in the specialized category.

Due to the proliferation within the financial industry. Nowadays some professionals who call themselves financial planners and financial advisors may do the same things.

However if we had to narrow down the differences between these professionals to just a few key aspects this is what we would end up with.

So before you hire one or the other, do your research and make sure that your financial advisor or preferably financial planner has enough experience in the field of your interest. Your finance professional must  have the right track – record, most notably experience; and team to help you meet your specific long-term goals. According to experts, individuals who call themselves financial advisors and financial planners may come from different backgrounds, hold many different kinds of licenses and have a varying work experience.

What do the licenses mean?

The series 65 is the uniform investment advisors law examination. It is required for any fee-based financial planner to pass this test or the equivalent, which is the Certified Financial Planner Designation.

The series 65 allows a financial professional to be an expert in compliance required to run his or her own firm, as well as in the fiduciary standard of care for clients.

In addition, a series 65 licensee is able to transact nearly all securities transactions.

The series 63 is a mutual fund license. The licensee thereby is only allowed to process mutual funds for clients.

The series 6 is the introduction to securities, and focuses on the laws of any investment professional with a focus on how the regulatory environment came to be, and what the main areas are to watch out for in it.

The series 7 is the stockbroker license. Like the mutual fund license, it allows a professional to only transact stocks.

The series 7 like the 63 are typically brokerage licenses, which are often financial advisors since they are paid on commission.

The series 65 is a fee-based planning license that encompasses everything the 63 and 7 does, as well as the higher standard fiduciary level of care.

Is there a difference in the cost? 

Before you hire a planner make sure to understand exactly what you are paying for. Since the services planners provide differ from customer to customer it is logical that the fees they charge vary as well.

Fee-based financial planners charge you based solely on the services they provide. They are paid regardless if you invest or not; and they are paid the same across all investments.

Financial advisors are paid by commission based on the sale of specific services or products. Their commission amounts can change – and they can be dramatically different based on the type of financial strategy they sell. This inherently causes a conflict of interest.

You can tell if someone is a financial advisor or financial planner based upon their registration. A professional licensed as a broker is a financial advisor, if they do not have a broker license, and call themselves a financial planner, then they are a true fee-based financial planner because they don’t have an arrangement for compensation dependent on anything else.

Please note: there are planners who charge a percentage of the assets that they manage, and some who call themselves planners when they are not a fee-based planner thus they are more like a financial advisor.

It’s important you have a contract that outlines the type of arrangement you have with your financial professional. For example, when they provide an initial recommendation or an ongoing service or hourly fee.

Whatever the case, make sure to discuss the payment structure and the amount with your potential planner in advance, and trust is paramount to everything. Trust but verify is also important because fee-based planners definitely have higher standards of care.

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