Paradigm Norton have, as a central part of their company vision, a goal of ‘Establishing the global profession of Financial Planning’. There is however on-going confusion and debate amongst consumers about the key differences between the role of the Financial Adviser and that of a Financial Planner. This article seeks to provide some clarity on the difference between the two.
Typically, a Financial Adviser will have a product focused view of the market, looking at solving money and financial matters with the delivery of a suite of financial products. A Financial Planner, by contrast, will take the time to really understand what motivates you and what you want to achieve out of life and then make recommendations that align your finances with your broader life goals. This could be summarised by saying that it’s the difference between seeing the bigger picture or solving the immediate problem. One is not wrong and the other right – they are simply ‘different’.
There is definitely a place for both services, depending upon what you might be looking for. This article aims to explain the service you can expect to receive, how much you may pay and helps you identify what you specifically require. The main differences are summarised below:
|Financial Adviser||Financial Planner|
|Core Service||Looks to solve your immediate financial issue, often with the delivery of a financial product or suite of products e.g. setting up a monthly pension plan. Advice is typically ‘focused’ and is of limited scope.||Considers your overall financial situation and makes recommendations to help you reach your broader life goals and aspirations. What might financial success look like in 25 years-time is a question frequently asked?|
|Breadth of Services||Depending on their level of qualifications, financial advisers can advise and recommend financial products such as Pension plans, Mortgages, Insurance policies, Equity Release plans, Savings & Investment vehicles.||A financial planner will offer advice in all areas and will consider the linkages between income & expenditure, debt, savings & investments and tax. If a financial planner does have a ‘product’ then it would be the creation of a detailed cash flow plan. Such a plan helps clients envision their financial future and at what point they run out of money, if in fact this is the case.|
|Can manage your investments & buy and sell investment funds.||Will buy and sell investment funds which will be linked to a cash flow plan showing your income and expenditure over your lifetime.|
|Product focused or life goal focused advice?||A Financial Adviser will find the best ‘off the shelf’ product solution for your immediate situation.||Proactive financial planning considers all life stages & typically takes account of the longer term.|
|The focus of the conversation – money or life?||Conversations and interactions will be typically focused on financial matters.||Conversations with a Financial Planner will focus on seeking to understand your life goals and how your finances support the achievement of these.|
|Your interaction with a Financial Adviser may not necessitate future interactions and maybe more of a ‘one-off’ discussion.||A Financial Planner will wish to meet with you regularly to make adjustments to your financial plan as your personal circumstances change.|
|Product or Service?||Financial Advice can typically be seen as the delivery of a product.||Financial Planning is typically described as an ongoing ‘service’ which is paid for as a client pays any other professional service – on a fee basis.|
|Remuneration for the firm or individual||A fee is set for the establishment of a product.||A service level agreement is signed annually, and a professional fee set to encompass the breadth of services delivered in the review period.|
|The two ‘services’ address different needs||Which pension plan/product is most suitable for me?||Will I have sufficient funds to buy a second home and still support my current lifestyle?|
What else is there to consider?
A further complication is that anyone can describe themselves as Financial Planner regardless of the professional qualifications that they hold. Certified Financial Planner (CFP) or Chartered Financial Planner are however the typical designations that are held by most regulated professionals. We would suggest that you only appoint a firm that employs individuals that hold such credentials. To become an internationally recognised ‘Certified Financial Planner’, the individual has to demonstrate deep technical competence and the ability to bring all matters together in a comprehensive way that addresses all issues relating to a client’s financial circumstances such as tax, investments, retirement planning, protection planning, philanthropy etc.
The ways things work
The relationship you develop with each professional can be very different. A Financial Planner is someone with whom you build a long-term relationship. They will guide, coach & work with you to determine what is important to you. You will have regular update meetings with your Financial Planner to make sure you’re still on track to meet the goals that you have articulated and make any adjustments to your financial plan.
Your relationship with a financial adviser can be quite varied, depending on your specific personal needs. It is common for a financial adviser to have both long-term clients as well as clients who only need their service once. The relationship tends to be ‘product’ rather than ‘service’ focused.
The cost of financial advice & planning
The amount you pay a Financial Adviser and a Financial Planner will depend on the service that you require. This will consider the time involved working on and managing your account, the quantum of the funds being managed, and the risk associated with the advice given.
When using the services of a financial adviser, it’s common to pay an advice fee for the delivery of a product, such as setting up an annuity. Most commonly this will be based on a percentage of the funds being managed.
Financial Planners will discuss your requirements at the initial meeting. Every financial planning client is different, and the fees and method of payment will vary. As a guide you could expect to pay a fee based on a percentage of your portfolio, or a fixed fee or a time-based fee. As with the delivery of other professional services, the fee agreed will be based on time, risk, complexity and the like.
So, what is the difference between a Financial Adviser and an Independent Financial Adviser?
Financial Advisers fall into two distinct categories — independent and restricted. An independent adviser can make recommendations from ‘retail investment products’ from across the whole investment market. Restricted advisers however, as the name suggests, can only recommend certain types of products or those from a limited number of providers. Most of the larger financial advisory businesses give restricted advice, with St James’s Place being a more well-known ‘restricted’ adviser firm. Many of the larger financial adviser firms elect to be restricted because it means they can sell their own products and investment funds. This solution might not be appropriate if you are looking for a long-term strategy unique to you that delivers outcomes aligned to your personal goals.