A rose by any other name may still be a rose, but is a financial advisor who calls himself a financial planner still a financial advisor? That’s the real question.
The difference between a financial advisor and financial planner is a subject that’s debated in the financial services industry, but to little avail. Part of the problem is there’s no federal regulation over the titles advisors can use.
Unlike the legal or medical industry, anyone can call themselves anything in the financial industry, with the exception of industry certifications. Some of those certifications include a certified financial planner, known as a CFP, or a chartered financial analyst, commonly referred to as a CFA, says Ric Edelman, founder of Edelman Financial Engines.
That said, there are some common differences between a financial advisor and financial planner, including:
— Financial advisors are more likely to focus on investment management, while planners take a more holistic approach.
— Financial advisors tend to take a narrower view when offering financial guidance than financial planners do.
— Financial planners usually form longer-term relationships with investors than financial advisors do.
— Investors tend to view professionals who call themselves planners as more approachable compared with advisors.
Financial Advisor vs. Financial Planner
Just because the difference between financial advisor and financial planner is ill-defined, doesn’t mean advisors should go around calling themselves whatever they please.
As a financial professional, you want to make sure your title accurately projects the services you’re providing to your clients, says John Diehl, managing director of applied insights for Hartford Funds, because when expectations are mismatched, potential misunderstandings and trouble are likely to follow.
“How you market yourself depends on who you want to serve and how you want to serve them,” Edelman says.
The services you provide to clients will often come down to the distinction between two of the most common titles in the industry: the difference between a financial advisor and financial planner. Two terms that have been so overused, “it can be difficult for those interested in joining the industry, as well as those seeking a professional’s services, to understand the difference,” according to Kevin Keller, certified association executive and CEO of the CFP Board. Because of this, he finds financial credentials such as CFP and CFA can help aspiring advisors and consumers tell the difference between professionals.
While the distinction between financial advisor and financial planner may be murky for consumers, many financial professionals have a clear idea of what it means to be an advisor versus a planner. Advisors are often focused on investment management, while planners take a more holistic approach to help clients.
“A financial advisor is probably going to be someone more interested in the markets and securities,” Diehl says. A financial planner would “be more interested in the entire process from gathering personal information to implementing and monitoring a plan.”
Financial planners can manage investments, too, but they do so through a broader lens as opposed to the narrower focus of an advisor. “Financial planners would argue that without attending to these subjects, we can’t effectively offer investment solutions,” Edelman says. “It’d be like a doctor prescribing medication without first doing tests and making a diagnosis.”
He points out that as a result, “many financial planners also serve as investment advisors, but very few investment advisors serve as financial planners.”
Financial professionals may have a clear definition of financial advisor versus planner in mind, but consumers often take a different perspective. “Advisor sounds more official,” says Sarah Johnson, spokeswoman for merchantmaverick.com, a comparison review site for small business software and services. “I’d trust an advisor more than a planner.”
Johnson currently works with a client advisor and says she prefers this title over the other two. “It shows it’s very personal,” she says. “A financial advisor is such a general term. You could be a financial advisor for anything and anyone. But a client advisor sounds like we’re more one-on-one.”
A financial advisor sounds like “someone who deals with higher-net-worth people,” says Jess Todtfeld, a communication trainer and conference speaker in New York City. “A financial planner may be someone who helps people create a budget, get out of debt and plan to help save for college and retirement.”
Others take a different view. “My perception is a financial advisor provides resources and tips on how better to manage my money in the short term versus a financial planner who actually invests and takes action in helping me for long-term, larger investments and opportunities,” says Charn Pennewaert, founder of Media Stream Marketing.
Financial Planner: The Most Misused Title of Them All
Since the financial planner title is overused, it is important to look for an accredited designation after a professional’s name, such as the CFP marks, Keller says. The CFP Board supports the broad-based regulation of titles similar to that in the legal and medical industry.
Presently, the only financial regulation that exists for who can call themselves a financial planner is at the state level. “One example is in Nevada: If you call yourself a financial planner, you have to operate at a fiduciary level,” Keller says.
A lot of the financial advisor versus financial planner debate has centered on if you’re a fiduciary advisor or not, Diehl says. A financial planner probably “has a fiduciary responsibility to put his client’s interests above all else.”
The Department of Labor made an attempt at federally regulated fiduciary financial planners with its fiduciary rule but couldn’t get it past the courts. Financial planners are regulated only in relation to the other services they provide. For instance, an accountant who calls himself a financial planner would be regulated by a state board of accountancy.
Advisor vs. Adviser
From here, the realm of professional titles in the finance industry only gets hazier. If the distinction between advisor and planner weren’t obscure enough, there’s an even more fussy debate around advisor and adviser.
If you were to look these terms up in the dictionary, it would tell you the same thing. Both are defined as “a person who gives advice in a particular field.”
According to the Oxford English Dictionary, “The spellings adviser and advisor are both correct. Adviser is more common, but advisor is also widely used, especially in North America. Adviser may be seen as less formal, while advisor often suggests an official position.”
Google may disagree on their relative popularity. According to its Ngram Viewer, which tracks terms in books, while financial advisor appeared on the literary scene about 50 years after adviser, the -or version surpassed -er in popularity in the 1990s and has since gained traction in modern usage.
For financial advisors, there’s a more important authority than the dictionary: the Investment Advisers Act of 1940. Notice the use of the -er spelling here. It is the only version you will find in the Securities and Exchange Commission’s legal documents.
The Investment Advisers Act of 1940 defined the criteria for an investment adviser. It says anyone who provides investment advice or gives recommendations on investments is an adviser and must register with the SEC, regardless of how you spell the title after your name. This act requires that firms or sole practitioners compensated for advising others about securities investments need to be registered with the SEC.
Where the SEC does draw the line is with misleading titles. The act states, “It shall be unlawful for any registered investment company to adopt as a part of the name or title of such company, or of any securities of which it is the issuer, any word or words that the Commission finds are materially deceptive or misleading.”
Should I Become a Financial Advisor or Financial Planner?
For financial professionals, the difference between a financial advisor and financial planner and which you should call yourself comes back to the clients you want to serve.
Titles are a marketing tool. What you call yourself or your firm calls you sends a message to potential clients about who you are and what you do. In his work as an Atlanta-based communications specialist working primarily with the professional and financial services, Drew Plant often finds himself helping clients “balance the actual and legal meaning of terms with client perceptions.”
“I always counsel that they also would do well to not lose sight of client perceptions of words,” he wrote in an email. “For instance, if a client tends to use financial advisor generically and broadly, but they innately understand that you are in fact a financial planner, you need not struggle and correct.”
Regardless of your title, hopefully by the end of your first meeting with a client, you’ll both have a clear understanding of the services you provide.
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Financial Advisor Versus Financial Planner: What’s the Difference? originally appeared on usnews.com
Update 05/20/21: This story was published at an earlier date and has been updated with new information.