If you’re looking for professional advice on financial matters, it’s best to look for someone that fits your needs and will have your best interest in mind. If you’re young and want to know what to do with the $3,000 in the bank or you’re older and not sure how to deal with an estate of a loved one passing, it can be confusing finding the best help for your situation. The two most commonly confused financial professionals are Financial Advisors/Planners and Financial Counselors/Coaches (I’m going to refer to advisors as planners and counselors as coaches). 

These aren’t the only financial professionals. There’s quite a few more. But, focusing on these two they both help people with their finances and share a lot of similarities. The main differences lie in their education, training and the services they provide. Maybe you’re looking to hire someone to work with or you would like to pursue a career in the field. Let’s explore the differences between the two.

What is a CFP®?

The CFP® (Certified Financial Planner) is the gold standard for the financial planning industry and perhaps you know someone with the certification. In order to receive this designation, you have to pass a difficult exam and work in a related field for three years. CFP’s training specializes in wealth management, tax law, investment risk, and estate planning. If you’re thinking about working with a financial planner, I would only recommend you find one who has this designation.

Keep in mind, you don’t have to be a CFP® to call yourself a financial planner. Any Joe Schmo off the street can sell you financial products and doesn’t need a certification in order to do so. That’s why it’s extremely important that you hire the right person with the proper training. Most financial planners are financial salesmen and they typically sell life insurance, mutual funds, and annuities. You can’t blame a financial planner for the products they sell though, it’s usually the company who creates the products and the financial planners are limited to those. 

Sadly, the financial services industry is laden with dishonest and crooked financial planners that many people have lost trust in. They had no idea they’re paying large commissions or high fees. But when you take into consideration the compounding effect of fees, a 1% difference over 30 years could lead to a triple-digit difference. A single investment portfolio could be enough to fund the financial planner’s entire lifestyle. With that being sad, some fees are worth paying for the service a financial planner could bring you. Just ask yourself frequently if this financial planner is truly bringing you value. 

Not all financial planners are crooks. Not all have their interests in mind over their clients best interest. I know many amazing financial planners who provide a great service. But there are a lot of people who simply cannot afford to work with one. The truth is, 95% of people are underserved. The system is not set up to benefit everyone, only the people who have done well financially. The question financial planners have to ask themselves every time they meet with a prospective client is, “Are you rich enough for me to make money off of you?” This is the financial planning industry as we know it.

Imagine walking into the doctor’s office because you’re sick. You sit on the plastic sheet of paper and the doctor walks in. He says, “before we get too far into this, I want to apologize and let you know that we only specialize in helping people with a BMI between 20 and 25 and who maintain a body fat percentage below 20%.” He tells you to exercise a little more and eat a little less and come back when you’re healthy. We know a doctor would never do that but this is how the financial services industry works.

When should you work with one?

Most financial planners spend time with older people. Why? Because they’re better storytellers? No. Because they have money. Financial planners typically meet with 5% of the wealthiest people. They can’t afford to spend time with millennials or broke people because if they do, they don’t eat or live indoors. This is the disconnect between people who want sound financial advice and those that are willing to pay for it. Most financial planners would like to help the average person but they simply can’t if they want to stay in business. Often financial advisors will charge a percentage of assets under management. If there are no assets, their business model does not allow them to work with that individual. 

“1% of nothing is nothing”

From a financial planning perspective, there are three ways they can go about working with a client. Sell products, work with them until they are rich, or wait until they are rich. This is why the financial services industry has had a bad reputation. People just want help. If you would like someone to manage your investments, learn more about social security benefits, or understand your insurance needs a financial planner would be great to work with. However, my opinion is if you’re more of a DIY person on the path towards financial independence you do not need to work with a financial planner. By learning a few simple steps you can automate your finances, bypass the fees and achieve more in your lifetime. 

How are they compensated?

Financial Planners earn income in a variety of different ways. Earning commissions on selling products, charging assets under management or flat fees. I recommend you work with a financial planner who charges a fee or an hourly rate. 

But what about someone who says they actively manage your portfolio and have consistently been able to beat the market? You’d be surprised to know how often they don’t beat the benchmark. Instead of paying a ton of money to beat the market why not just own the market for a fraction of the cost?

What they don’t do

Financial planners are not trained in a few key areas. Student loans and credit repair. The words student loan are not mentioned one time in the CFP® exam. With the amount of student loan debt on the rise, this is a huge factor to consider when looking at someone’s financial situation and most financial planners have no idea how to address these. Second, a financial planner is not going to help you repair your credit. Lastly, I only know a few financial planners that include in part of their practice helping people make better behavior decisions like budgeting, saving money, using a credit card, etc. They may have some personal experience when it comes to these areas but it’s not something they are educated in. This is where the financial coach comes in who targets helping the other 95% of people. 

What is an AFC®?

There are many self-proclaimed coaches and counselors who help people with their money. You really don’t need a certification to call yourself a coach, so be careful. Certifications do establish credibility. The most common is the (Accredited Financial Counselor®). 

AFCPE (the Association of Financial Counselors and Planning Educators) began in 1984 and is really bringing forward what our country needs. Which is financial literacy, financial education, and actually helping people with the things they need help with.

“What good is a financial plan if it’s not implemented”

An AFC® educates, coaches and tutors their clients on how their money works.

A planner is really good at turning sprinters into marathon runners, but what about the couch to 5K program? A financial coach takes into consideration what the client needs and does not try and sell them anything. They focus on helping people understand their financial situation, set goals, work towards them and implementing a plan.

When should you work with one?

51% of Americans feel they don’t have enough saved to get input from a planner. Realistically, 95% don’t have enough to get help from a financial planner but they’re looking for advice. A financial coach can be a great middle person between a financial planner and a counselor. If you’ve dug yourself into a deep hole with student loans, credit card debt, etc. you should work with a financial coach. If you’re just starting out and you don’t have a lot of cash saved up and you want to make sure you don’t make any big mistakes, work with a financial coach. If you would like to build a long-term relationship with someone that understands money and isn’t going to sell you something, work with a financial coach. 

If you’re in a situation where no one wants to spend time with you because you have too much debt and not enough assets, it may be worth looking into a financial coach that can help get you started on the right path. 

How are they compensated? 

Financial coaches are compensated in two ways. They work for a non-profit organization such as the government, military, university, or hospital or they have their own practice and they charge a flat fee.  

What they don’t do

Financial coaches do not advise on investments. They will not tell you when is a good time to buy into the market or when a company’s stock is on sale nor will they manage your money for you. Many financial coaches have what is call an RIA (Registered Investment Advisor) in which they can provide that information and manage other peoples money. Most do not spend time helping you with your social security benefits, tax law, trusts, estate planning, etc. They will not tell you what to do, they will educate you on the different options and ultimately it is your job to decide what’s best for you. 

We need both professionals today. Hopefully, after discussing the difference between a financial planner and a financial coach you have a better idea of who you should work with. As well as which career path you would like to pursue if financial services is something that interests you. 

I’m sure there are many things that I’ve missed and haven’t included. This is based off of my experience and I welcome any feedback or comments. 

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