Financial Planner: Definition, What Financial Planners Do - NerdWallet (2024)

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You’ve got financial questions. The internet’s got answers. So do friends, family members and TikTok influencers.

Financial planners can cut through the noise and provide expert money advice that’s tailored specifically to your needs.

What is a financial planner?

A financial planner is a professional who takes inventory of your finances, then creates a plan to help you meet your current financial needs and long-term goals. That typically means assessing your financial situation, understanding what you want your money to do for you (both now and in the future) and helping create a plan to get you there.

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What does a financial planner do?

Financial planners help their clients meet their money goals, whether that's investing, saving for retirement, paying for college or something else. Financial planners can help you reduce spending, pay off debt, and save and invest for the future.

But financial pros are like doctors: Some are specialists in defined areas, such as taxes or investments. Others, like certified financial planners, are general practitioners, offering advice on budgeting, investing, insurance, retirement planning and more.

When you work with a CFP or an online planning service, you'll begin with a review of where you stand. You’ll be asked about:

  • Your goals. What are your short- and long-term financial priorities?

  • Your current financial picture. How much money comes in and goes out? What do you own, and what do you owe?

  • Your risk tolerance. This series of questions about how queasy stock market gyrations make you informs how much of your portfolio should be in stocks versus other investments like bonds.

An initial meeting with a financial planner is like a first date: It’s the chance to get to know one another and see if you mesh on a personal and philosophical level. Take this opportunity to find out everything you can, including how much you can expect to pay, how the financial plan will be presented and how often to expect ongoing communication. (Here are 10 questions to ask a financial advisor to gather information and see whether you click.)

You can expect any financial planner to be in fairly regular contact with you, though the form that contact takes will vary. Robo-advisors typically send regular emails and account prompts while online planning services and traditional planners will meet with you throughout the year. You should update your planner with any changes to your financial situation.

Do I need a financial planner?

Generally speaking, the more complex your financial situation, the more likely you are to benefit from a financial planner.

If your finances are simple, you may be able to take a DIY approach. But financial planners can provide an objective perspective, and bring expertise to decisions about how you should invest your money, what your financial priorities should be and what sort of insurance coverage and other protections you need. A financial planner can be especially helpful when you're faced with a life change — think marriage, a divorce or an inheritance.

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Types of financial planners

The type of financial planner that is best for you will depend on your needs, life stage and budget. We'll outline a few options below.

Robo-advisors

If you're just starting out, a robo-advisor may be enough to meet your needs. Automation has enabled traditional firms such as Vanguard and Fidelity, as well as online-only companies like Betterment and Wealthfront, to substantially lower the price of portfolio management. These companies are ideal if you need investment management, but not holistic financial planning.

Robo-advisors build and manage a portfolio of low-cost investments suited to your financial goal for a small fee — many top choices charge 0.25% or less of your account balance. The investment mix is determined by a computer algorithm and is automatically adjusted when needed. At the basic account level, you can start investing with $100 or even less.

The low-cost, easy-entry nature of robo-advisors reduces barriers to working toward your financial goals. That's important because avoiding the market can starve your retirement. You can start with a robo-advisor and add a human advisor later on if needed.

» Ready to get started? View our list of the best robo-advisors

Traditional, in-person financial planners

For those with complicated or ongoing planning needs, a traditional, in-person financial planner may be a better fit. A CFP can provide holistic, one-on-one advice for the most complex financial situations. The official CFP designation indicates that a provider has gone through a rigorous formal training and testing process.

A fee-only CFP typically charges by the hour (usually $200 to $400) or by the task (a flat $1,000 to $3,000 fee, for example). Some might charge based on the size of the investment portfolio they are managing for you; this is called an assets-under-management fee and is typically 1% of your portfolio balance per year. The initial consultation to discuss your needs and their services is usually free.

» Learn more about how much a financial advisor costs

Before you enter a relationship, ask whether the person you’re considering is a fiduciary, a term that means they’re obligated to put the client’s best interests first. (Members of the National Association of Personal Financial Advisors, for example, fill both the fiduciary and fee-only requirements.)

Online financial planning services

There are several online planning services that combine computer-driven portfolio management with access to living, breathing financial planners. In many cases, you'll get a dedicated financial planner and a comprehensive financial plan, but you'll meet with that advisor via phone or video conference rather than in person.

Online planning services like this typically charge more than a robo-advisor but less than a traditional financial planner. Examples of companies in this space include Facet Wealth and Empower.

Online financial planners like robo-advisors or online planning services often offer virtual tours, demos and even the chance to test-drive the investment platform before you sign up. With an online planning service, you may be able to meet with your dedicated financial planner before deciding to sign on.

» Compare online advisors: Our picks for the best financial advisors

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Financial Planner: Definition, What Financial Planners Do - NerdWallet (3)

Financial planner vs. financial advisor

Financial advisor (or financial consultant) is a broad term that encompasses many different professionals who help people with their money.

A financial planner is a type of financial advisor who typically focuses on offering holistic financial guidance in addition to services such as investment management. For example, financial planners can help you answer questions like, "How do I save for retirement and my child's college fund at the same time?"

Learn more

  • Why Financial Advisors of Color Matter

  • What Is Halal Investing?

  • How to Find a Black Financial Advisor

  • 4 Ways Women Can Invest in Other Women

Financial Planner: Definition, What Financial Planners Do - NerdWallet (2024)

FAQs

Financial Planner: Definition, What Financial Planners Do - NerdWallet? ›

That typically means assessing your financial situation, understanding what you want your money to do for you (both now and in the future) and helping create a plan to get you there. AD. Get matched with a financial advisor in minutes through NerdWallet Advisors Match. Find a financial advisor.

What does a financial planner actually do? ›

A financial planner is a professional who works with clients to manage their financial affairs, develop financial goals and create strategies to achieve those goals. Financial planners offer expertise and guidance for budgeting, investing, retirement, tax planning, insurance and estate planning.

What are the roles and responsibilities of a financial planner? ›

They advise and assist clients on a variety of matters, from investing and saving for retirement to funding a college education or a new business while preserving wealth. Financial planners must have a thorough knowledge of personal finance, taxes, budgeting, and investing.

What is the main difference between financial planner and financial advisor? ›

While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual's investment portfolios, while financial planners take a look at the entire financial picture and an individual's long-term goals.

What does a financial planner do all day? ›

A Day in the Life of a Financial Planner. Financial planners determine how their clients can meet lifelong financial goals through management of resources. They examine the financial history-past and current-of their client's assets and suggest exactly what steps the client needs to take in the future to meet her goals ...

What are the four main functions of financial planning? ›

The five key areas of financial planning are (1) estate planning, (2) retirement planning, (3) self-protection/risk management, such as insurance, (4) investment planning, and (5) tax planning.

Do financial planners manage money? ›

A financial advisor helps individuals manage their money and map out their financial futures. For example, financial advisors can help you plan for retirement, budget, plan your estate and more. They also help you set your personal financial goals to reach milestones.

What role does financial planning play? ›

Financial planning helps set clear goals, allocate resources effectively, and navigate potential challenges. Starting early can establish a solid financial foundation, make informed decisions, and position your business for long-term success.

What is the primary goal of financial planning? ›

Financial planning is the process of assessing the current financial situation of a business to identify future financial goals and how to achieve them. The financial plan itself is a document that serves as a roadmap for a company's financial growth.

What are the four main 4 types of financial planning? ›

The four main types of financial planning are cash flow planning, tax planning, investment planning, and retirement planning.

What is the most important step in financial planning? ›

1. Setting financial goals. You can't make a financial plan until you know what you want to accomplish with your money—so whether you're creating it yourself or working with a professional, your plan should start with a list of your goals, both big and small, and the time horizons to accomplish them.

What does a financial planner do? ›

Financial planners work with clients to help them manage their finances and make informed spending decisions, saving and investing their money. They may provide personal finance, investing, asset allocation, retirement planning or tax planning services.

Which type of financial planner is best? ›

“The certified financial planner designation is really the gold standard in the financial planning industry,” says Van Voorhis. A CFP designation indicates a financial advisor has passed rigorous industry exams covering real estate, investment and insurance planning, and has years of experience in their field.

Should I hire a financial advisor or a financial planner? ›

Financial planners, on the other hand, are a better fit for someone looking to map out their financial goals and make a long-term plan. Advisors can help with all of your financial needs, though. Ideally, you'd find someone who has experience working with clients in situations similar to your own.

Is it worth paying for a financial planner? ›

A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.

How much money should you have to see a financial planner? ›

Some traditional financial advisors have minimum investment amounts they require to work with clients. These can range from $20,000 to $500,000 or even more. Why? Because their fees need to cover their time and expertise, and managing smaller portfolios may not be cost-effective for them.

Do financial planners have access to your money? ›

Most reputable advisors would never take possession of your money, but providing direct access can make it easier for unscrupulous advisors to misuse or steal funds. It's crucial to carefully consider the potential risks and closely monitor any arrangements that involve granting direct access to funds.

Are financial planners worthwhile? ›

If you're not on track to achieving your goals, an adviser can help you put the right strategies in place. Or assist you to set more realistic goals. Financial advice can be useful at turning points in your life. Like when you're starting a family, being retrenched, planning for retirement or managing an inheritance.

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