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What is the Difference Between a Financial Advisor, Coach and Planner?

What is the Difference Between a Financial Advisor, Coach and Planner?

September 01, 2020

Hi everyone! Welcome back to Melissa Making Cents!

What is the Difference Between a Financial Advisor Representative, a Certified Financial Planner, and a Financial Coach?  - This might sound like the beginning of a really bad joke!  But it isn't!   I have an exciting announcement to share with you. My financial coaching program, Making Cents of Your Money, was officially launched on September 1! This new offering has been in the works for a while, and I’m thrilled to see it come to fruition so I can help even more people gain control over their finances.  

What is the Difference Between a Financial Advisor, a Financial Coach and Certified Financial Planner?

Now, if you’ve read my blog or worked with me before, you might be thinking: but Melissa, aren’t you a financial planner, not a coach? What’s with the change in your title? Are financial planners and financial coaches the same thing?

It does sound a little confusing, doesn’t it? I’ve found that many people don’t know the difference between financial coaches, financial advisor representatives, and CERTIFIED FINANCIAL PLANNER™. In fact, the lines between the three can get pretty blurred! So for today’s post, I’m going to break down the differences between these three types of financial professionals, including the services they offer, the fee structures they use, the legal and educational requirements they follow, and which might be best for you depending on your financial situation. And I’ll also let you in on why a financial professional can be more than one of these, and why that’s a huge bonus for clients!

Financial coaches, Financial Advisors representatives, and Certified Financial Planners™ all provide different services and charge different fees.

Financial coaches, financial advisors, and financial planners all play a role in helping their clients manage their money, but each will provide different services. Here’s a basic overview of what each of the three roles can do. 

Financial coaches help clients develop good money habits

A Financial Coach like Melissa Cox CFP, can help you develop healthy financial habits.

Financial coaching  is a relatively new professional niche,  but not a new idea.  Financial coaching is much like personal fitness training for your finances.   They provide the most hands on approach by working with clients who want to develop better financial habits, such as budgeting, saving, managing their debt, and positioning themselves to grow their wealth. Financial coaches usually work independently or with a small company, rather than as part of a large firm. A financial coach will usually start their work with a client by assessing the current state of the client’s finances, and then developing a financial plan that helps them meet their goals (such as building an emergency fund, paying off student loans, or saving a certain percentage of their paycheck for retirement). Financial coaches also meet regularly with their clients, whether in person or through virtual/email check-ins, to help them keep them on track towards on those financial goals. Unlike other types of financial professionals, financial coaches do not provide advice regarding specific investments or other wealth-building strategies, nor do they sell financial products like stocks, bonds, or insurance. Because financial coaches don’t sell products, they will usually work on a fee-based model (such as charging by hour or session) rather than by commission. Clients may work with a financial coach for only a few sessions, for several months, or for a few years, depending on their situation. For more information, check out my recent post about how financial coaching is similar to running a half-marathon.

Financial advisor representatives help clients manage their investments

Financial Advisor representatives mainly help clients manage assets.

Financial advisor representatives usually work with clients who already have some level of savings and a stable financial background, in order to help build wealth through long-term financial planning. Financial advisors may work within a large firm such as Fidelity, Vanguard, Charles Schwab, or Morgan Stanley. They may also choose to work for a small company or as independent consultants. Financial advisors assist clients with goals such as managing existing assets and choosing new investments for their portfolio. They will usually have an initial conversation with a client to understand their financial goals and level of risk tolerance for investing, and then offer an appropriate mix of investment products for their situation. Unlike financial coaches, financial advisor representatives take a more hands-off approach to their relationship with clients, keeping meetings to a minimum (perhaps quarterly, or sometimes annually) in order to provide updates on their investment portfolio. In addition, financial advisors will typically work with their clients long-term. Financial advisors may charge their clients an asset under management (AUM) fee, receive commissions on investment product sales, or earn their compensation through a combination of the two. You can read my blog post explaining the new disclosure regulations for financial advisor representatives

Financial planners take a holistic view of a client’s current finances and long-term goals

Financial planners, Like Melissa Cox CFP, create comprehensive plans to look at big picture finances.

Financial planners combine elements of both financial coaches and financial advisors to provide a comprehensive overview of a client’s financial situation, including their short-term and long-term goals. In fact, some people consider financial planners to be a subset of financial advisors. Financial planners can assist with their clients’ day-to-day financial goals such as basic budgeting and saving, but they also help with managing investments, choosing insurance, college planning, retirement planning, and estate planning. Similar to financial advisors, financial planners may work as independent consultants, or as part of a company. Financial planners may charge on a fee model, a commission-based or asset management fee for investments they manage for you, or a combination of the two. Financial planners can work with clients either long-term or short-term, depending on their needs.

Can a financial professional be a coach, advisor representative, AND planner? 

A financial professional can be a coach, advisor and planner!

Now, there are some financial professionals who fit into more than one of these categories. And that’s a good thing! It’s why I can offer services not only as a CERTIFIED FINANCIAL PLANNER™, but also as a financial coach and financial advisor representative. But it’s always important to understand the relationship with your financial professional up front, so you know what services they can provide you. 

A financial advisor representative must be registered with FINRA and/or the SEC. Financial planners sometimes require registration with these agencies, while financial coaches do not.

Among these three types of financial professionals, financial advisor representatives have the most stringent legal requirements. They must be licensed and registered with the Financial Industry Regulatory Authority (FINRA), and those that sell investment products must also be registered with the Securities and Exchange Commission (SEC). 

By contrast, a CERTIFIED FINANCIAL PLANNER™ (CFP®) only needs to be registered with FINRA and the SEC if they also manage investments. Financial coaches do not currently require any formal registration with a government agency (although it’s always a bonus if financial coaches have been previously registered as CFP®s or financial advisor representatives, because of the experience!).

Financial advisor representatives and financial planners are usually licensed or certified, while financial coaches are not.

Certification and educational requirements also vary for these three types of financial professionals. As with registrations, financial advisor representatives have the most requirements and financial coaches have the fewest.

Not all financial professionals are regulated equally.

Most financial advisor representatives will have a bachelor’s degree in a business-related field such as finance, especially if they work for a large firm. In order to sell investment products, financial advisor representatives must also pass a series of exams in order to obtain the appropriate licenses. There are four main types of exams, and each one enables a financial advisor to sell different types of investments. FINRA administers two of these exams: the Series 6 (which permits advisors to sell packaged securities, like mutual funds) and the Series 7 (which permits advisor representatives to sell stocks, bonds, options, futures, and mutual funds). There are separate licenses required for financial advisor representatives who also wish to sell commodities, real estate, or life insurance. All states also require financial advisor representatives to obtain a Series 63, and advisors who charge based on fees rather than commission must also obtain a Series 65 license. (The Series 66 combines the 63 and the 65). Series 7 is generally considered the most difficult of the exams. When working with a licensed financial advisor representative who has passed the required exams, you can assume that they understand the rules, regulations, and breadth of investment products available for clients.

Financial planners also have the option to become certified by their own regulatory agency, known as the Certified Financial Planner Board of Standards (CFP Board). A CERTIFIED FINANCIAL PLANNER™ (CFP®) must hold at least a bachelor’s degree, have three years of financial planning experience under their belt, take the designated financial planning courses required by the CFP Board, and pass a six-hour certification exam. CERTIFIED FINANCIAL PLANNER™ are also subject to background checks and must adhere to ethical standards and codes of conduct outlined by the CFP Board. Not all financial planners are certified though, so it’s a good idea to ask about certification if you are searching for one.

By contrast, financial coaches are much newer to the financial services scene, so there is no formal certification, education, or regulation in place. You don’t need to have a bachelor’s degree, or even any experience in the financial world to become a financial coach! But that doesn’t mean that financial coaches aren’t useful, or that a financial advisor or certified financial planner is necessarily better. What it does mean is that the onus is on the client to conduct the research into individual financial coaches to better understand their qualifications. If you are interested in working with a financial coach, check their background for relevant experience or education related to financial management. 

So which type of financial professional is best for you?

Well, that all depends on what you’re looking for! Individuals who are just starting out with their wealth-building, or who need some help with developing good money habits, may wish to start off by working with a financial coach. This is also a great option for people who are looking to save more money, manage their debt--or don’t really know where to start! Since financial coaches have the most frequent check-ins with their clients compared to financial advisors and financial planners, this is probably also the way to go if you want someone to hold you accountable as you start working toward your financial goals.  

People who already have some money saved and want to learn how to build their wealth through investing would probably be best served by working with a financial advisor representative. Financial advisor representatives can help your money work for you by recommending investments that are carefully selected based on your level of risk tolerance and goals. A financial advisor is also the perfect choice for clients who don’t want as much hand-holding as with a financial coach, but would like a few meetings throughout the year to review their investment portfolio.

And those who want a more comprehensive look at their finances for immediate goals as well as long-term planning may turn to a CERTIFIED FINANCIAL PLANNER™ instead. This is especially useful for big-ticket financial goals like estate planning, college planning, and retirement. Financial planners offer flexibility in how hands-on they are, and can provide holistic advice for your financial situation. 

What if your financial needs change over time?

You’re human. You’re going to undergo life changes, whether that’s starting a family, changing careers, looking ahead to retirement, caring for an aging parent, or getting ready to send the kids off to college. It’s common for clients to start their financial journey with one type of financial professional, like a financial coach, and then switch to working with another type, like an advisor representative or planner, later on after they’ve developed strong money habits. Just because you start with one type of financial professional now doesn’t mean you’re locked in for life!

There is an additional benefit working with a professional who offers multiple types of financial services, like coaching and planning. Suppose you work with a financial coach who helped you learn how to save money and position yourself for wealth-building opportunities. If that same financial coach also works as a financial planner, then they are already familiar with your financial goals and can help you in the next stages of your financial journey, like investing, saving for retirement, estate planning, or comprehensive college planning. And that’s a big part of what Making Cents of Your Money is looking to achieve.

Melissa Cox CFP developed Making Cents of Your Money to help you become a confident money master

Making Cents of Your Money is also a great opportunity to help your children and grandchildren gain control of their finances to become confident money masters. It gives other generations of your family the ability to begin working with the advisors you have trusted over the years. 

If you want to learn more about my new financial coaching program, or if you need assistance to decide which type of financial professional would best suit your needs, please call or email to schedule an appointment with me. And stay tuned for the launch of Making Cents of Your Money on September 1!

Schedule a call with Melissa Cox CFP®

Until next time...this is Melissa Making Cents!

Melissa Anne Cox CERTIFIED FINANCIAL PLANNER™ is also a College Planning and Student Loan Advisor in Dallas, Texas. And now a Financial Coach!

Read Last Week's Blog Post from Melissa cox CFP: How Form CRS and Regulation BI could affect your Financial plan