What is Financial Planning? When you hear the term what does it first make you think of? For some it’s maybe a budgeting coach,others it’s a broker who gives investment tips, talk to another person and the term signifies a personal Chief Financial Officer. One of the things that makes for the varied opinions is the open architecture of titles in the financial services industry. Firms use a myriad of titles for the representatives that they employ: Financial Advisor, Investment Consultant, Financial Solutions Advisor, Financial Consultant, Wealth Planner and Wealth Advisor are just a few.One of the most recent topics among the financial planning community is the framework to distinguish a financial planner from a financial services representative.
What is a Financial Planner?
A financial planner is a professional who is qualified to assist individuals or corporations reach their long-term financial goals. The means by which they accomplish this is by most importantly getting to know the client(s) they are working with to understand not only what goals they have but why these goals are important to them. By starting with why things are important to who they are working with, understanding any fears, concerns or family/corporate dynamics that come into play the planner and client are able to agree upon what the goals are as well as why they mean so much. As an example,I spoke about my experience in OurStory growing up with a single income household and a disabled parent.Due to that, my definition of retirement may be different because it is important to me that I am able to have financial freedom to provide care should anything happen down the road. This is important to me because I don’t want to put any stress on my wife or my children. However, if retirement as a goal is simply taken on face value it doesn’t get to the core of what I’m looking to achieve or plan for.
What is a Financial Services Representative?
Financial Services Representatives are directly aligned with a brokerage firm or investment bank. As an employee of the institution there is an inherent conflict that can occur when evaluating advice that is being given to the clients that are served. The reason for this is because the investments of the client they serve need to be held at the institution that they represent or an affiliate of the institution for the representative to get paid. Furthermore, when financial decisions such as paying off a house, investing in a business, paying for college or a wedding as well as many others come up there can be a conflict because money leaving the institution can negatively impact the compensation of the representative. These instances can make it more difficult to get objective advice that centers around the best outcome for the client.
What’s the Difference?
Financial Planners who hold a fiduciary obligation will in most cases be compensated for the planning and advice that they give rather than the products or balances that are held. As we had spoken about before, lets take the case of a business owner who comes looking to know what to do with a lump sum of money. The Financial Services Representative will have the conflict of getting that money to be added to investment portfolios with their firm, therefore creating compensation from the interaction; whereas the financial planner has the ability to more objectively weigh out if the risk, return and holistic positioning of that money would be better off going back into the business, paying off debt, winding down a mortgage, securing additional insurance, or keeping it liquid for an emergency fund. In addition, the ability to allow or recommend that investments be held at places outside of their firm is far more likely from a Financial Planner because of the fiduciary duty and compensation coming from the plans/advice that they create rather than your investments themselves. In addition, Financial Planners are well suited to help set the plan for wealth generation as compared to the often thought of “minimum investment” that comes to mind with the more traditional stockbroker or Financial Services Representative. Planners can help navigate how to get to where you want to be; even if you have your investments tied in a company plan, are just starting, or have considerable parts of your financial picture in real estate, businesses, or other illiquid hard assets.
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