What Is a Financial Planner and Do I Need One?

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Updated on Tuesday, August 18, 2020

Financial planners are professionals who have the skills and experience to help you map out a healthy financial future and course-correct along the way as needed. They can help you develop a strategic financial plan that takes into account your assets and goals in order to build and maintain your financial health.

When it comes to your finances, just winging it could cost you big time, so a financial planner could prove helpful. Here’s what you need to know about what they offer, how much they cost and how you can find one to work with.

What does a financial planner do?

As their title suggests, financial planners help people develop financial plans. These plans can range from simple budgets to more complex plans that include investments, retirement strategies and beyond. While each financial plan is unique, the goal is the same: to help clients achieve their financial goals both in the short and long term.

Financial planners start by evaluating a client’s current financial situation, helping them set realistic goals and then mapping out strategies to help them achieve those goals. Typically a holistic approach to one’s overall financial health, these plans may involve a variety of components including the following:

  • Budgeting
  • Evaluation of a client’s current financial situation and goals
  • Investment recommendations
  • Debt management
  • Tax advice
  • Insurance advice
  • Estate planning
  • Retirement planning
  • Education planning

While some financial planners can help you with any of these components, not all financial planners have the experience or credentials to provide some services. For example, if you want your plan to include estate or retirement planning, you want to make sure you hire a planner who can adequately guide you in these areas.

Also, not all financial planners can provide investment advice. Only those who have registered with the SEC or their state securities regulator are allowed to do so. To check a financial planner’s background, visit investment.gov.

Do you need a financial planner?

Almost anyone can benefit from working with a financial planner. That being said, the importance of hiring a financial planner can vary depending on a number of factors, including your age, income, assets and level of comfort with handling financial planning yourself.

In general, the older you are and the more assets you have, the more you may want to consider working with a financial planner. On the other hand, the sooner you have a financial plan, the sooner you can start reaching your goals, so it’s never too early to start.

There are also some significant life events that may make financial planning a priority. They include milestones such as:

  • Getting married or going through a divorce
  • Nearing your planned retirement age
  • Inheriting money
  • Planning for the educational expenses of children
  • Buying a home
  • Incurring large debt due to illness, job loss or other circumstances
  • Changing jobs or getting a notable raise

However, there’s essentially nothing that a professional financial planner does that people can’t do themselves — especially with the plethora of free financial advice and online tools widely available today. Of course, doing so requires the time and willingness to learn, but some do it successfully.

In most cases, however, the years of education and experience that professional planners have can offer a valuable advantage to clients, particularly when they have more assets at stake or their circumstances are more complicated.

Financial planner vs. financial advisor: What’s the difference?

The difference between a financial planner and a financial advisor is subtle, but important nonetheless. A financial planner is, in fact, a type of financial advisor — financial planner is just a more-specific designation.

Services offered: In general, a financial advisor focuses primarily on investments, while a financial planner takes on the entire scope of a client’s finances, including components like retirement planning, estate planning, budgeting and more. If you just want to put some money in the stock market or make other investments, then a financial advisor can likely meet your needs, but if you want to take a look at your entire financial picture and map out a course for the future, which may include investments, then you likely want to seek out a financial planner. After a financial planner maps out that course, then you may want to hire a financial advisor to help you navigate the investment portion of the plan or you can choose to do so yourself.

Certifications and licenses: There are also differences in the certifications they hold. While a certified financial planner (CFP) designation is the gold standard for financial planners, financial advisors must have a license through the Financial Industry Regulatory Authority (FINRA) in order to process investments.

It’s important to understand the difference between titles and licenses when it comes to financial professionals. There’s nothing stopping anyone from calling themselves a financial planner. It’s the licenses, however, that tell you how much training they have and the standards to which they’re held. While some licenses are awarded by trade groups or other private entities, there are legal protections that are only afforded to you if your advisor is registered with federal or state authorities.

What qualifications and certifications do financial planners have?

There are several certifications that financial planners can earn, but the CFP certification is the main one to look for when you’re considering financial planners.

Becoming a CFP requires passing a rigorous test and agreeing to continued financial education on an ongoing basis. CFPs are also held to a fiduciary standard, which requires them to put their clients’ best interests before their own.

Aside from the CFP designation, other certifications that financial planners have may include:

  • Chartered financial analyst (CFA)
  • Chartered financial consultant (ChFC)
  • Certified investment management analyst (CIMA)

Each governing organization has its own set of standards that individuals must meet in terms of testing and education to receive their credentials. For a complete list of professional financial designations and what they mean, check out FINRA’s Professional Designations tool.

How much does a financial planner cost?

Average Financial Planner Cost By Fee Type
Fee TypeAverage Rate
A percentage of assets under management0.50% to 1.25%
Fixed fee$1,500 to $7,500
Hourly fee$100 to $400

The cost of professional financial planning can range widely according to the scope and complexity of the services provided.

Some people may just need one-time financial planning services to help them create a plan that they will then execute themselves. In this case, financial planners typically charge either a one-time fixed fee, which can run from $1,500 to $7,500, or an hourly rate ranging from $100 to $400 per hour, depending on the work required.

Other clients may hire a financial planner to provide ongoing support on a limited basis or more extensive support on an ongoing basis. These types of services are typically billed either at an hourly rate or as a percentage of the assets you’re asking them to manage, with the rate usually ranging from 0.50% to 1.25% of assets under management. Some financial planners may receive a commission, typically between 3% and 6% of the price of the financial products they sell or recommend to clients.

Fee-only vs fee-based financial planner

Another key distinction when it comes to financial planners’ fees relates to the ways in which they are compensated. There are two basic camps: Fee-based financial planners and fee-only financial planners.

Fee-only financial planners receive payment in fees only from their clients. Fee-based financial planners, on the other hand, receive payment from their clients as well as from other sources, which may include commissions from products they sell to their clients.

Since fee-based planners are incentivized by commissions, it’s possible for them to encounter conflicts of interest and, potentially, put their own financial gain ahead of their clients’ best interests. For example, fee-based financial advisors may be financially incentivized to recommend a higher-priced product to you to increase their earnings when an equally good, yet less-expensive, product may be available.

How to find a financial planner

Comparison of the Different Types of Financial Planners

Type of financial planner

Typical servicesBest for...
Traditional financial planner Full range of servicesThose who like a more personal experience and have more robust and/or complicated financial needs
Robo-advisorPrimarily handles investmentsThose who are comfortable with technology and don’t need a personalized experience; also for those who want to save on fees
Online financial planningFull range of servicesThose who want a bit of personalization but don’t mind working online

When it comes to choosing a financial planner, you shouldn’t just settle on the first name you come across. Beyond the types of certifications the planners have and how they charge clients, you’ll also want to consider the way in which you want to interact with them. In particular, there are three primary types of financial planning services to consider:

  • Traditional financial planner: A traditional financial planner will typically meet with you in person. They can offer a one-time plan or ongoing support at a level of your preference. They typically offer the most personal experience for those who want a one-on-one relationship and generally charge the steepest fees because of this higher level of service.
  • Robo-advisor: If a personalized experience isn’t as important to you, then a robo-advisor may be an option to consider. While these automated advisors primarily focus on investments, they may also provide some tools to help you develop a financial plan, save for college and more. There’s little to no human involvement in the process, though some may provide access to a human advisor, usually at an extra cost, if you request it. The fees for robo-planners are typically lower than those of traditional planners.
  • Online financial planning: If you don’t need as extensive of guidance as that typically offered by a traditional financial planner, but aren’t quite sure you’re ready to automate all your planning, online financial planning can offer a happy medium. Online financial planning still offers personalized advice as opposed to relying on algorithms, but interactions occur mostly online or over the phone. These planning services are typically less expensive than traditional financial planners but more costly than robo-advisors.

While all three types of financial planners can help you map out your financial future, your unique financial circumstances and personal preferences will help you choose the right one for you. Beyond that, you want to make sure your planner has adequate qualifications and abides by fiduciary duty, and that you understand their means of compensation. Checking these boxes is a good way to ensure you’re working with a financial planner who can help you plan your best financial future.