People often confuse the role of a financial planner with other, similar jobs like financial advisors. While there are similarities between these jobs, there are key differences. A financial advisor generally helps people manage their money, while a financial planner develops personalized financial plans for their clients, including estate planning, saving for children's college expenses, and retirement planning.
Key Takeaways
- Financial planners help people manage their money while sorting through their financial matters.
- Finding clients and building a customer base is crucial to experiencing success as a financial planner.
- Becoming a financial planner requires a bachelor's degree, along with courses in investments, taxes, estate planning, and risk management.
- If you're comfortable with sales, are great with people, have excellent analytical and communication skills, and can work independently, financial planning may be right for you.
- There is often a difference between a financial planner and a financial advisor. Financial planners focus on long-term goals while financial advisors take a more narrow view, helping individuals manage their money.
Both professionals may also differ regarding their educational backgrounds and designations. Financial planners may also have a special area of expertise. If you're thinking of becoming a financial planner, there are some key points you need to think about.
Do you have the right education and the skills necessary to be a success? Is this even the right career path for you? Read on to learn more about financial planning, and take our quiz to help you make a more informed decision.
Financial Planners: The Basics
Financial planners help people manage their money while sorting through their financial matters. Like financial advisors, they help their clients develop financial goals for the long term. These professionals assess their clients' stage of life, risk tolerance, and potential investments.
Financial planners also earn a living by helping people sort through and choose investments, insurance, and other financial products. Because many financial planners also specialize in specific areas, they may provide tailored services for their clients. Some of these services include—but aren't limited to—retirement planning, general investment analysis, estate planning, tax planning, and education planning.
Obtaining New Business
Finding clients who need those services and building a customer base is crucial to experiencing success as a financial planner because referrals from satisfied clients are an important source of new business. Whether you find new clients by giving seminars or lectures, through social or business contacts, or simply by cold calling, you must find them.
Having a broad social network is one reason many successful financial planners enter the field after working in a related occupation such as accountant, auditor, insurance sales agent, lawyer or securities, commodities, and financial services sales agent.
Education Requirements
Financial planning employers look for candidates with a bachelor's degree in accounting, finance, economics, business, mathematics, or law. Courses in investments, taxes, estate planning, and risk management are also helpful.
Financial analysts may also seek special designations like certified financial planner (CFP), chartered financial analyst, and chartered financial consultant.
Generally, a license is not required to work as a personal financial advisor, but advisors who sell stocks, bonds, mutual funds, or insurance may need licenses such as Series 6, 7, or 63. These exams are administered by the Financial Industry Regulatory Authority. To take most of these exams, you need sponsorship from a member firm or self-regulatory organization.
Where Do Advisors Work?
More than half of all financial advisors work for finance and insurance companies, including securities and commodity brokers, banks, insurance carriers, and financial investment firms. However, many personal financial advisors are self-employed, operating small investment advisory firms, usually in urban areas.
Financial planners and advisors make money by either charging commissions on the investment products they sell or an annual, hourly, or flat fee for their services.
According to the Bureau of Labor Statistics, the employment of financial advisors is expected to increase by 13% from 2022 to 2032, much faster than the average for all occupations.
This is a result of the increased investment by businesses and individuals, the rising number of self-directed retirement plans, and the growing number of older adults.
Personal financial advisors will benefit even more than financial analysts as baby boomers enter retirement and as a better-educated and wealthier population requires investment advice. In addition, people are living longer and must plan to finance more years of retirement.
Is Financial Planning the Right Career for You?
Take this quiz to help you find out:
Quiz: Is Financial Planning Right For You?
1. How comfortable are you with making sales?
A. I could sell anyone a ticket to a music concert with no guarantee that they'll enjoy the performance.
B. I could sell anyone a music ticket, but I would feel guilty if they didn't like the show.
C. Only a bad person would sell music tickets to someone knowing they would not like the show.
2. At what stage of life are you?
A. I just graduated from college.
B. I've been out of school for a few years.
C. I've been in my line of work for several years, but I'm ready for a change.
3. How much of an extrovert are you?
A. I have been the president of almost every club I have ever joined.
B. I have enough friends to make me happy.
C. A good book, a room to myself, and no interruptions is my idea of heaven.
4. You could be described as:
A. Both analytical and a good communicator.
B. Analytical but not a good communicator, or a good communicator but not analytical.
C. Neither analytical nor a good communicator.
5. At work, I prefer to do my job:
A. Completely independently
B. Somewhat independently.
C. As part of a team.
6. What appeals most to me about becoming a planner is:
A. The challenge of building a client base.
B. The creation of my own business.
C. The analysis of investments.
7. According to the Bureau of Labor Statistics, the median annual income for financial advisors was $95,390 in 2022. How do you feel about that?
A. I've never been average, and I'll earn more than the median.
B. That would work for me.
C. Working for commissions only makes me nervous.
Results
If you answered most questions with “A,” then financial planning could be the right career for you. You're energized, not terrified, by the idea of earning a substantial amount of your compensation through commissions. If you have the right connections and energy to work your networks, you could succeed in this tough career.
If you answered most questions with “B,” you need a backup plan. Financial planning might work, but you're likely to end up among the 80% of planners who, according to William F. Cole's The Complete Financial Advisor, are in the business for less than five years. When sales don't work out, what will you do next and how will you sell yourself to your next employer?
If you answered most with “C,” it's best not to consider financial planning. If you love portfolio analysis, consider working as a financial analyst. If math is your strong suit, you could go into financial engineering or quantitative analysis. You'll make more money without having to sell all day long.
Demographics of the Financial Advisor Profession
According to the U.S. Bureau of Labor Statistics, there were about 283,000 financial advisors in 2022. The lowest 10% earned less than $46,700, and the highest 10% earned more than $239,200. Broken down by gender, male and female financial advisors take home an average of $177,000 and $105,000, respectively.
The locations with the highest paying wages are Washington D.C., Hempstead Town, New York, and North Hempstead Town, New York.
The industries with the highest employment of financial advisors are securities, commodities, funds, trusts, and other financial investments (60.6%), banking and related activities (11.1%), and insurance carriers (6.09%).
How Do You Become a Certified Financial Planner?
To become a certified financial planner, you need to complete the certified financial planner (CFP) certification process and ultimately obtain the CFP certification. You need to complete coursework on financial planning through a CFP board-registered program, have a bachelor's degree, and pass the CFP exam.
What's the Difference Between a Certified Financial Advisor and a Certified Financial Planner?
There are differences between a financial advisor and a financial planner. First, there is no financial advisor certification, but there is one for a financial planner. This is because every financial planner is a financial advisor, but not every financial advisor is a financial planner. Financial planners help individuals and companies achieve their long-term goals. This involves managing money, creating savings plans, helping to buy a home, and helping with planning for retirement. A financial advisor, meanwhile, has a narrower view, which is simply helping you manage your money.
What Should I Major in to Become a Financial Advisor?
Anyone can become a financial advisor, no matter their major. That said, specific majors are more useful for becoming a financial advisor. These include economics, business management, finance, accounting, and statistics.
The Bottom Line
A financial planner can be a rewarding job that helps others financially plan for their life goals. It can also be a demanding job with such responsibilities and the necessary knowledge and skills required to do it well. Before pursuing that career path, it's important to understand if it is the right choice for you by determining if the responsibilities, the nature of the work, the hours, and the education required are worth it.
