Financial planner Vs. Financial Advisor

“Financial planner” is a qualified professional who provides advice and guidance to individuals on managing their finances and achieving their financial goals. They take a holistic view of a client's financial situation and help them create a roadmap for their financial future. It is a fee-based service.

·         A financial planner is like a holistic doctor who assesses your overall health and creates a wellness plan.

When you talk about a doctor who prepares a wellness plan, you're likely referring to a holistic doctor, a functional medicine doctor, or a lifestyle medicine doctor. These medical professionals go beyond just treating symptoms or diseases; they focus on understanding the root causes of health issues and promoting overall well-being. They assess your complete health picture, identify underlying imbalances, create personalized wellness plans, focus on prevention and long-term health and collaborate with other professionals.

"Financial advisor" is a broader, more general term that can encompass a wide range of professionals who offer financial guidance. Generally, it’s a commission/brokerage based service for the products they sell. Typically, this can include Brokers, Mutual fund distributors, Insurance agents, Tax consultants, Bankers, Wealth managers

·         A financial advisor is like a specialist doctor who focuses on any specific issue to be worked upon

Specialist doctors are medical practitioners who have undergone extensive additional training and education in a particular area of medicine beyond their general medical degree. Specialists focus on specific body systems, diseases, patient populations, or medical procedures.

While the terms "financial planner" and "financial advisor" are often used interchangeably, especially in common parlance, there's a nuanced but important difference in their focus and scope, particularly in India.

Let’s understand the Financial planner first.

Scope of Services of a financial planner:

1.       Comprehensive Financial Plan: This typically includes in-depth analysis of your financial situation, goal setting (retirement, education, home, etc.), investment planning, risk management (insurance), tax planning, and sometimes estate planning. This will naturally cost more.

2.       Specific Advice: If you only need advice on a particular area, like investment planning or tax optimization, the charges might be lower.

Fee Structure:

Fee-Only Financial Advisors (SEBI Registered Investment Advisors - RIAs): These advisors are regulated by SEBI and are legally required to act in your best interest. They typically charge a transparent fee and do not earn commissions from selling financial products. Their fees can be structured in a few ways:

1.       Fixed Fee: This is a set amount for a comprehensive financial plan. It can range from ₹15,000 to ₹75,000 or even higher for more complex plans. Some advisors may have annual charges ranging from ₹6,000 to ₹40,000 for ongoing services.

2.       Hourly Rate: Some advisors charge an hourly fee, which can be anywhere from ₹2,000 to ₹10,000 per hour. This is often used for specific consultations or projects.

3.    Asset-Based Fee (Assets Under Advice - AUA): SEBI has capped this at 2.5% per annum of the Assets Under Advice (AUA) per client. However, some argue that even 1% of AUM can be substantial over the long term.

4.       Retainer Fee: This is an annual fee for ongoing advice and reviews, often ranging from ₹10,000 to ₹50,000 per year.

 Financial Planner’s Experience and Qualifications:

1.     Highly experienced and well-reputed Certified Financial Planners (CFPs) or SEBI-registered RIAs often charge higher fees due to their expertise and track record.

2.       Less experienced advisors might charge lower fees to attract clients.

 A commission-Based Financial Advisors (e.g., Mutual Fund Distributors): These advisors earn commissions from the products they sell (mutual funds, insurance, etc.). While you might not pay them directly, the commissions are embedded in the product costs, which can reduce your returns over time. They may appear "free" upfront, but there's an indirect cost.

 Like in a life, we use services of both i.e. a holistic doctor and a specialist doctor, depending upon the situation, we must also think of using services of financial planner and financial advisor. Understanding difference between financial planner and financial advisor empowers you to make informed decisions about whom you trust with your money and your financial future.