Types of Financial Planners
Are you looking for a financial planner or advisor? 🤔 Are you confused about which direction you should take in choosing a financial planner or advisor? Are you wondering if a financial planner and a financial advisor are the same things?
You are not alone. Knowing how to choose the right financial planner can be difficult because there are an array of financial planners to choose from. The services offered by financial planners vary, and the price that you will pay for these services also varies.
Financial advisors and planners are the same things. It mainly depends on which word they choose to call themselves or which word people call them. The name is not nearly as important as how well they perform their job and how they treat their clients and coworkers.
While choosing a financial planner is a little overwhelming, asking yourself these three questions can make the process easier for you.
The First one is what do you want? The second question that you should as yourself is, how do financial planners differ? The last question you want to ask yourself is, what services do I want to pay for?
What Do You Want?
It is imperative to understand what you want from your financial planner. For example, if you have young children and are looking for an advisor to help you plan to pay for their education, you would not want to go to an advisor who deals with insurance and risk management.
You would like to choose the best financial planner that you could find to help you plan to pay for your children’s education. The same would be true if you want to invest or plan for retirement; you do not wish to choose a firm specializing in estate planning.
Services Offered by Financial Planners
Financial planners offer many services to make our lives easier. We all have money matters that we need help with from time to time. Most of us have different financial needs throughout our entire lives.
That is where financial planners come in. They are there to help us plan and manage our money now and in the future.
Some services offered by financial planners are:
- • Budgeting and cash flow management
- • Insurance and risk management
- • Investment and portfolio planning
- • Tax planning
- • Estate planning
- • Education Planning
- • How Do Financial Planners Differ?
It can be hard to know if you are choosing the right financial planner if you don’t understand how they are different.
To understand how financial planners are different, we must look at the different types of financial planners, registration, education, and qualifications. We must also understand different types of firms.
Types of Financial Planners
In Canada, there are three types of financial planners. Technically there are four, but the Professional Financial Planning Course (PFPC) has been discontinued, so we will not be discussing that in helping you to choose a financial planner.
Personal Financial Planners (PFP) are associated with bankers, so we will not be looking at them.
The types that we will be exploring are the Certified Financial Planner (CFP) and the Registered Financial Planner (RFP). These two types of planners work with individuals that need financial services. Choosing the right planner is of utmost importance for you to pay the price you want to pay for the services that you wish to obtain.
For example, If you need a hands-on financial planner to help in, let’s say, estate planning, a Robo planner will not give you the service you need.
For this reason, it is essential to pick a planner that will provide you with the services that you need to fit your needs. Let’s take a look at the two types of financial planners that are of relevance to us.
Certified Financial Planner
The Certified Financial Planner (CFP) is international recognition of excellence in the field of financial planning. Worldwide there are 170,000 CFP’s throughout 26 territories.
CFP’s have extensive education and have passed a national examination process. They are committed to continuing their education to meet the ongoing requirements to continue to have the certification.
Choosing a CFP really gives you peace of mind. You can know that you have selected a professional to handle your finances with the education and experience to provide you with the best financial advice.
Registered Financial Planner
After passing the required exams, a person who becomes a registered financial planner will register at the national level. They also register at the provincial and territorial Securities Commissions.
After passing the required exams, RFP’s can advise Canadians in financial matters. They are full-service financial planners who can advise in all matters of finance.
Registration
A good financial planning practice should be registered with the FSCA-Financial Services Conduct Authority. Such a practice or firm would have an FSP number.
So, these are things for you to look for.: the FSCA certificate should be displayed in their business, and their FSP number should be displayed on all of their promotional material.
Education and Qualification
To be a CFP or an RFP requires both education in the field of finance to gain the certification. Both of the certifications require exams and other requirements such as education and continuing education in the field of finance to keep the certifications. So it would be best if you were confident in choosing either a CFP or an RFP to be your financial planner.
Types of Financial Planning
Do It Yourself
If you are looking for the cheapest way to handle your financial planning, doing it yourself is definitely the most inexpensive. But before you jump into the DIY of financial planning, you need to consider a few things.
First, do you have the knowledge to handle your finances, Second, do you have the time to commit to managing your finances properly, and last, if you DIY and you mess up, it is all on you? Are you willing to take responsibility for having all of your financial decisions and mistakes rest on your shoulders?
With this investment, the fees are low to even free, which is good. But, the good comes with a downside. All of the risks are on you, all of the time is on you, and all of the work is on you.
Robo
If you don’t want to take on all of the hard work of the DIY, then the next cheapest way to have a little financial help is the Robo- planner. If you go this route, you can have all of your investments managed by a low-fee digital asset planner.
It would be best to consider that you still have to do all of the financial planning with this option because you get no financial planning support. What you do get with Robo-planning is money management for a low fee, freeing up some of your time.
Investment/Stockbrocker
Using a Stockbroker may be a step above the Robo- planner because you will use an investment advisor or stockbroker. You still get very little financial planning advice. You are paying a person in hopes that they can make money in the stock market for you.
If you go this route, please understand the fees you will pay and exactly what those fees are for. If you are not getting accurate financial advice, you should not be paying fees for financial advice.
Full-Service/Wealth Management
The most extensive financial planning service is a full service or wealth management service. Full-Service and Wealth Management firms will give you the most comprehensive and in-depth financial advice.
There are still important things to look for when looking for a full-service firm. You will want to choose a firm that at the least has a CFP designation.
You will also want to look into the fee structure and make sure there is no conflict of interest. We will dive into this topic more in the later section of this article, but it is vital to keep this in mind when looking at things to look for when choosing a financial firm.
What Do I want to Pay for?
Financial planners and firms have different pay structures based on what type of fee structure they use. It is essential to understand the fee structure you will charge before choosing a financial planner.
It is also necessary to understand what could cause a conflict of interest with financial planners and how that can impact our money.
Conflict of Interest
Almost all planners want to give you great advice. However, some factors can sometimes get in the way of this or blur the lines. When this happens, it is a conflict of interest resulting from the compensation structure.
Let’s say your financial planner is paid a commission; they may be enticed to persuade you to invest in a way that will earn them the most money.
So, they may get you to make decisions based on their advice that will not help you but will help them make more money. Thankfully, there are different fee structures.
Fee Structure
Fee Structure involves how you will be charged for financial services and how the financial planners make their money from the firms they work for.
How fees are structured is essential because it will determine how much you pay and if there could be a conflict of interest. There are three types of fee structures: Commission, fees-based, and fee for services.
Commission-based
A commission-based financial planner collects all of their pay by receiving a commission on the services they sell, new accounts opened, or combining the two.
This type of pay can be a hot topic. Someone could ask whether the client’s best interest is of utmost importance to the commission-based financial planner?
Fee-Based
A fee-based financial planner collects their pay by either a flat-rate fee or retainer, an hourly rate, or a combination of the two. The costs are typically more expensive than the commission-based, but someone could say that they may not have your best interest in mind.
Fee for Service
Firms that have Fee-based financial planners sometimes charge more than their commission-based counterparts. Some would say that it is worth the extra cost because there would be no conflict of interest with fee-based.
But, ultimately, it is for you to decide. You will need to consider the services provided and the costs that you may pay for those services.
Next Steps
Whether you are just starting to look for a financial planner or looking for a new financial planner, there are many things to consider before you place something as important as your money into the hands of another.
The main thing for you to consider is finding a financial planner that will serve your needs. You will want to choose a financial planner that you can trust, and you want to select a firm who is transparent about its fee scale and how they pay their financial planners.
Hopefully, this article will help you answer those critical questions you should ask yourself before choosing a financial planner. To recap, the first one is what do you want? The second question that you should ask yourself is, how do financial planners differ?
The last question you want to ask yourself is, what services do I want to pay for? Once you find a financial planner that you like, do your research.
Final Thoughts
Once you’ve answered these questions, you should be on the search for a financial planner that fits the bill for your needs. The great thing about choosing a financial planner is that the choice is yours.
Suppose you do not like your choice; feel free to change financial planners as you see fit. You do not have to be stuck with a financial planner that you are not happy with.
Remember they work for you, and if you don’t like how they are handling your finances, then, by all means, shop around.
Find a financial planner that you can be happy with. Because ultimately, you are the one that has to live with the money decisions that you make.