Pam Krueger: Hi everybody, I’m Pam Krueger. I’m the founder of Wealthramp, and I’m joined today by Matt Roberts who’s […]
Managing finances is more than just crunching numbers – it’s about crafting a stable future that can support your dreams and ambitions. Imagine living stress-free, knowing your parents are well-cared for in their twilight years, your kids have a solid footing for their higher education, and your smart investments are creating a legacy.
To achieve this financial peace, a lot of people turn to professionals like a financial advisor or a financial coach. But which one is right for you? Before you can make that decision, there are several important factors to consider before making a hire.
In the past, the finance industry was dominated by brokerage houses like Morgan Stanley, insurance agents selling insurance products, and traditional financial advisers. But recently, there’s been a lot of growth in the financial services industry, with a variety of finance professionals available to help you reach your money goals.
From financial coaches and financial counselors to financial planners and investment advisors, there are a number of different types of professionals you can go to for financial help nowadays. Let’s dive in a bit to see what the differences are and which would be a good fit for you.
A financial advisor is a versatile professional who provides guidance on money management, investments, and more, typically in exchange for a fee. Depending on their licenses, advisors may also handle the buying and selling of securities on your behalf. The fees charged by financial advisors can vary, including flat fees, hourly fees, annual retainers, or a percentage of the assets (AUM) they manage for you.
Financial advisors are known by various titles, such as investment advisors who are registered with the Securities and Exchange Commission (SEC). They offer expert advice on investing in securities such as stocks and bonds, and can even take complete charge of your investment portfolio. On the other hand, Certified Financial Planners (CFPs) specialize in creating personalized financial plans that cover various aspects like asset allocation, retirement planning, debt management, or inheritance management. There are over 150 designations that financial advisors can earn through rigorous schooling and work experience. Something to consider when deciding on which professional is best suited for your financial needs.
It’s also crucial to determine whether a financial advisor is a fiduciary or not. Fiduciaries are legally obligated to make financial recommendations that are solely in the best interest of their clients. This is especially important to ascertain if the advisor earns a commission from the sale of investment products, as such commissions can potentially influence their recommendations. In general, you should always seek out a fee-only, fiduciary financial advisor to ensure that the advice that you are considering is always in your best interest.
A financial coach is more like a personal trainer for your finances. They work with you to develop solid money habits, especially for those struggling with financial management. A financial coach’s goal is to empower you with financial literacy. They aim to improve your self-reliance in making informed financial decisions by focusing on the basic skills required to manage your own finances effectively. You’ll increase your financial education around topics like budgeting, saving for emergencies, and debt elimination. Coaches also serve as accountability partners, providing guidance and support along your financial journey.
Financial coaching usually involves several sessions where coaches help clients understand key differences between various financial products, debt management strategies, and how to plan for specific goals. While there aren’t any formal education requirements, many coaches seek credentials like the Accredited Financial Counselor (AFC) certification to strengthen their credibility.
Managing your finances can be a challenging task, and we all possess our own knowledge, skills, and aspirations. If you are starting from scratch, a financial coach can be the perfect choice as they will guide you through the fundamentals and help you establish healthy money habits. However, if you already have a solid foundation and are focused on long-term wealth creation, a financial advisor will assist you in creating an investment portfolio that aligns with your goals.
The best part is, you don’t have to commit to one option indefinitely. Remember, financial coaches typically have short-term relationships with their clients. You can easily hire the right professional for your current needs and switch to the other later on. It all depends on where you are in your personal finance journey.
This article was co-written by Wealthramp Founder, Pam Krueger and Go From Broke Founder, Natalie Graham. If you’re thinking about working with a financial advisor, Wealthramp is here to help you find a truly qualified advisor that you can trust. With over 200+ fee-only, fiduciary financial advisors in our network, we’ve got you covered.