Who can help with financial advice? A financial consultant or a financial advisor? Sometimes choosing a financial professional can be a daunting task, and especially when you have no idea which expert is best suited to address your concerns. Today, we get down to the nitty-gritty of financial advisors and financial consultants.
What is a financial advisor?
Financial advisors are professionals who help people clearly understand their current financial situations. Once they do that, they go a step further to help them meet their short-and long-term financial goals. Often, people need the assistance of financial advisors when planning to start an investment, planning for college, retirement, and when they have more capital to meet regular expenses. Rarely will financial advisors see clients who are preparing for things like job transition, divorce, marriage, or the birth of a child.
Some financial advisors are licensed to buy and sell financial products, with some focusing on this as the main hustle. Often, security analysts, bankers, insurance brokers, and other financial experts may call themselves financial advisors, yet they spend less time advising clients.
What is a financial consultant?
In simple terms, financial consultants are professionals who help people build wealth by designing comprehensive, long-term financial strategies. They work closely with their customers (as their personal financial advisors) over the long-term strategizing, and developing actionable plans. The way they look at personal finance is similar to the way analysts look at large financial systems.
Financial consultants can work closely with other experts, such as investment managers and accountants in some projects. Most of them spend time educating their clients, and some offer financial services.
What is the difference between a financial advisor and a financial consultant?
While some people urge there exist no differences between financial advisors and financial consultants, actually, there is a difference between them. One notable difference is based on the length of the relationship they maintain with clients. Advisors work with their clients over a period of years by manging their current finances and helping them plan for the future. That is not the case with consultants. For them, they work with their clients to address specific, time-limited issues. Once they offer solutions, the relationship ends.
As you may have noticed, this explanation may seem to contradict the descriptions above. This is because, in reality, the approach and focus taken by financial advisors and financial consultants vary more between professionals than between roles. That can explain why you are likely to find both advisors and consultants focused on long-term wealth building.
Are financial advisors and financial consultants the same as financial planners?
Some people maintain that financial planners are different because of their certification. What they forget is that there are advisors and consultants with the same certifications. Others will urge financial planners are different because their primary function is to create actionable money management plans tailored to meet long-term financial goals. But does that still sound like what financial advisors and consultants do?
In a nutshell, the approach, education, certifications, and experience of an advisor, planner, or consultant may be different or the same.
Do financial advisors and financial consultants work with the same clients?
While financial advisors and financial consultants work with the same clients, many people assert that the client base of consultants is already there. While this can be true, it is good to note that you can find advisors with more client base than consultants.
Do financial advisors and financial consultants get different degrees?
No! Any bachelor’s or master’s degree in finance is enough for one to become a financial advisor or financial consultant. Some big companies even hire financial advisors and consultants without related finance degree as long as they have extensive knowledge in finance or any other related field.
What is indisputable is that majority of advisors and consultants have graduate degrees in finance.
Are there certifications for financial consultants and financial advisors?
Yes, both roles need the same certifications. The first step is to earn the Chartered Financial Consultant (ChFC) certification and the Certified Financial Planner (CFP) certification. For you to earn the CFP designation, you must complete an education program, pass the certification exam, and have three years of work experience. To maintain the certification, you must abide by the CFP code of ethics and meet continuing education requirements. All certified financial planners must pledge to act in the best interest of their clients at all the time.
To earn the ChFC designation, you must take nine courses focused on insurance, retirement planning, investments, estate planning, and income taxes. Seven of those courses overlap with the CFP education program, making it possible to earn both certifications at once.
Other certifications for financial advisors and consultants include:
- Certified Fund Specialist (CFS) designation
- Certified Investment Management Analyst (CIMA) designation
- Certified Private Wealth Advisor (CPWA) designation
- Certified Public Accountant/Personal Financial Specialist (CPA/PFS) designation
- Chartered Investment Counselor (CIC) designation
- Chartered Market Technician (CMT) designation
- Personal Financial Specialist (PFS) certification
- Retirement Income Certified Professional (RICP) designation
- Retirement Management Analyst (RMA) designation
Note that some financial advisors may be required to get the Financial Industry Regulatory Authority (FINRA) licenses. While advisors don’t need to have FINRA licenses, it is compulsory for those selling annuities and other insurance products.
Financial consultant vs. financial advisor: Who earns more?
As we have seen, financial advisors and consultants have similar qualifications, but who earn more? According to Indeed, the average financial advisor salary is around $67,000, and the average financial consultant salary is roughly $89, 000. So what is the reason for this discrepancy?
One reason for this difference could be because well-paying financial firms prefer hiring financial consultants. That means financial advisors have to work as sole proprietors.
Now considering advisors and consultants get paid in different ways, that could be another reason why the discrepancy exists. For example, consider when an advisor has less base pay but higher bonuses. Basically, in most cases, it will be challenging to tell who earns more unless the focus is on major employers.
Are financial consultant and financial advisor two titles for the same position?
The truth is, these two titles can sometimes be used to refer to the same position, and sometimes they are not. And since there exist no legal definitions for both, they can be used interchangeably because of the similarities of certifications earned. Now given the right certifications and training, a financial expert can work in either position, and that explains why financial advisor and financial consultant are two titles for the same role.