by Mike Onotsky, CFP
You’ve heard the words before: Financial Planning, Financial Planner, and Financial Advisor. Have you ever wondered what the difference is between these different terms?
Believe it or not there is a difference between a financial planner and a financial advisor. It’s important to who does what, what qualifications each has, and what they can do for you.
A Financial Advisor is anyone who provides advice surrounding the various financial products they provide as well as advises the client in areas such as retirement, education, risk management (insurance), banking, borrowing, and many other areas of the financial world.
Typically, a financial advisor has one or more licenses in order to sell products and provide related advice. This could include an investment funds license, life insurance license, and other similar proficiencies. In order to sell a product an advisor must hold the required license to do so and, therefore, has completed training in the respective area.
According to the Ontario Securities Commission, a Financial Advisor’s role encompasses the following:
- Setting your goals
- Building an investment plan
- Designing a portfolio
- Choosing suitable investments
- Tracking your progress
As seen by this list, an Advisor’s primary training and focus is on your investments. Financial Advisors are what most advisors would officially be labeled as in banks, insurance companies, and at independent investment advisory companies.
Here is where the confusion lay. Outside of the province of Quebec, anyone can hold themselves out as a “financial planner.” They do not actually need to hold a designation as a financial planner in order to call themselves one. Someone with only an investment fund license, outside of Quebec, could be calling themselves a “financial planner” a month after getting their license.
Even more confusing for the consumer, however, is that there are multiple financial planner designations. There is the PFP (Personal Financial Planner), RFP (Registered Financial Planner…not very common anymore), and CFP (Certified Financial Planner) plus a couple more with very limited recognition or a narrow focus.
The PFP was designed in order to serve mainly the banking industry as it is provided by the CSI, a company that sells courses and licenses mainly to those in banking. While a common designation, this is one you will not often find outside of Canada’s big banks.
The RFP is a designation used by the industry at large, however, there are very few RFPs in Canada relatively speaking.
The CFP designation is an internationally recognized standard used by 18,000 professionals in Canada. The CFP is conferred and managed by the FPSC (Financial Planner Standards Council) which is a non-profit organization that focuses on advocating for the highest standard of advice for the consumer.
Visit this Globe and Mail article, which gives a brief overview of these designations.
The issue at play is that a “financial advisor” may have training only in investments and basic calculations, but not in extensive tax, estate, investment, insurance, and other facets of your financial world.
In order to dig deep into effective long term strategies that will have an impact on your future, you need the advice of a Financial Planner. However, you need to ask the following:
- Do they have a financial planning designation or not?
- Which designation do they hold?
- How long they have been in the industry?
- Do they have experience in all facets of financial planning (tax, estate, insurance, investment, goal coverage, education, etc)?
- Will they provide a documented financial plan or simply a few investment or retirement calculators?
Another often misunderstood term is Financial Plan. Since there are no guidelines as to what can be called a plan, the output varies wildly. When a client often states that their “planner” has provided a “financial plan” for them, it is often nothing more than a two page retirement savings calculator…”save X dollars per month, retire with Y dollars a month”. Often,the “plan” is nothing more than a risk tolerance questionnaire that, after answering a dozen questions or so, determines the kind of investor you are such as balanced or conservative.
An effective financial plan is one that takes a holistic approach and looks at all elements relevant to your personal financial picture such as:
- Budgeting and cash flow
- Net worth analysis
- Risk management
- Goal strategies
- Investment plan
- Estate planning
Everything has an effect on everything else and a plan needs to look at your priorities and goals before recommending strategies.
A properly laid out plan then becomes a basis for annual reviews that measure success and adherence to the previously documented goals and action items. An effective plan is a living document that requires updating as your goals and dreams change.
In the end, planning for your future is one of the most important things you will ever do. Ensure that you are working with the right person for your needs and that they will work with you on YOUR goals, YOUR dreams, and YOUR financial future.
Having an accredited financial planner with multi discipline training and experience who will develop a holistic, multi-faceted financial plan for you is key to peace of mind when it comes to your finances.
Thanks for reading. Have any questions? Please write a comment below.
Want Mike Okotsky to give your financial plan a review? Visit him here or call 800.265.2634.
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