Financial Adviser or Financial Planner: What’s the Difference?

A financial planner explains what to look for when asking someone for help managing your money.

The financial world is full of confusing acronyms and titles, and it seems everyone touting financial advice has a myriad of bewildering designations after their name. One of the most widely used titles is financial adviser. This label is problematic because it is generic and entirely too broad.

Insurance agents, stock brokers, investment advisers, accountants, bankers, and even some attorneys often refer to themselves as financial advisers. The term is so expansive that it typically covers any area of financial assistance. Unfortunately, there is no regulatory guidance or rules for using such a title. So, when you hire a financial adviser, you should also ask about any areas of specialization. You might find that if you want to hire someone who charges a fee for financial advice, your insurance agent — who calls herself a financial adviser — will not be able to help you.

When people ask me what I do for a living, I say, “I am a financial planner.” They typically respond by saying something like, “Oh yes, my financial adviser is with XYZ Company.” This always makes me cringe a bit because I am not just a financial adviser, but I specialize in financial planning. While financial adviser is a broad category, a financial planner — specifically a Certified Financial Planner (CFP) — specializes in providing comprehensive financial planning services (Full disclosure: I am one). Granted, your financial planner may also offer financial products like insurance or investments, but the key difference is he prepares a comprehensive written financial plan.

There are primarily two reasons why hiring a financial planner is important.

1. It minimizes some conflicts of interest. 

Several years ago, a potential client told me I was the third financial adviser he had interviewed. He said the first two said they would provide retirement projections for him at little or no cost. He wondered why I charged a fee for the plan I provide. I asked him one simple question: “How do you think they will be compensated for their time and expertise?” The answer was clear. They had to sell him something in addition to the plan to make the engagement worth their while.

You expect to pay your physician for his advice, and would never go to one who only is compensated if you fill the prescription that he writes. When I deliver a custom financial plan and am paid for my time and expertise, the plan stands on its own. I do not need to sell additional products or services. If the client decides to implement the plan with me, I can certainly help. If, however, he goes elsewhere, it was a fair and profitable engagement for me; I have already been paid for my advice and the client has a working plan.

2. A comprehensive written financial plan can uncover often overlooked but critical financial issues.

Imagine going to your physician with a complaint of chest pain. After the obligatory blood pressure and pulse readings, he places his stethoscope on your chest, listens to your heart and states, “Let’s schedule you for open-heart surgery tomorrow morning.” What would you think? Obviously, you would want some additional testing before jumping to the conclusion that you need open-heart surgery. Just as recommending surgery without a comprehensive medical exam would not be wise, providing investment advice without a full fiscal exam is equally imprudent.

Tax laws are complex, the investment landscape is volatile, and changes in one part of your plan could wreak havoc on another part. You should have a plan that covers all areas of your financial life and clearly shows how each area is impacted by your decisions to implement one or more financial strategies. Just completing a two-page investment questionnaire from your financial adviser is not enough to ensure high-quality financial advice.

[Editor’s note: Knowing your credit score is a key part of understanding your financial health. You can see how you’re doing with our free credit report snapshot, which includes two free credit scores, updated every 14 days.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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3 Great Financial Planning Networks for Millennials

friends millennials young peopleIt’s often said that if customers speak, the market will listen. Well, when it comes to financial planning, millennials have spoken, and they’ve made it clear the planning and advisement services of generations past will not suffice.

And true to form, the market has responded. After years of shunning or altogether shutting out clients in their 20s and 30s, or at best, attempting to force-feed them the same services as their parents, the finance industry is in the midst of an about-face, as a host of new and innovative financial planning networks designed specifically for the younger generation are making waves in the marketplace.

It’s that last point that matters most. Millennials don’t want just any financial planning services. They want services designed specifically for them. So, what exactly does financial planning designed specifically for millennials look like? In keeping with the millennial spirit, there are no official guidelines, but when you build a shortlist of the best financial planning networks for millennials (we’ll do just that momentarily), you notice they generally revolve around a few core principles. For the most part, they’re all:

  • Millennials seem impervious to sales pitches and are highly cognizant of hidden costs. They want to know exactly how much they’re paying and what they’re getting in return. This means fee-based financial services are a must.
  • Inclusive and flexible. The best planning networks for millennials welcome clients regardless of how much they have to invest or where they’re investing it from. In other words, no required minimum deposits, and no geographic restrictions.
  • Education oriented. Millennials aren’t interested in being told what to do. They want financial advisers to be more like coaches — or better still, partners.
  • Digital and social. Suit-and-tie meetings behind the closed doors of a stuffy office are not for millennials. Millennials want to socialize, interact, and share ideas where they feel most comfortable — online and on their smartphones.

In some form or another, the best financial planning networks for millennials connect in ways traditional approaches never could.

Here are three standouts:

Society of Grownups

If you want proof that millennials have caught the eye of the finance industry, look no further than the Society of Grownups, an independent subsidiary of insurance company MassMutual (although you’d hardly be able to tell — they don’t sell any of their products). Heavily focused on providing educational content that’s practical, social, and engaging, Society of Grownups offers a host of classes and events designed to help young adults identify and achieve their financial goals. Everything from spending to investing to paying down debt is covered across a variety of classes, happy hours, group chats, and supper clubs. The organization is based in Brookline, Mass., but does offer free online classes for nonlocals looking to get in on the experience. For those who want to take the next step beyond just education, Society of Grownups has a team of fee-based financial planners. Clients can choose between high-level checkups that cost $20 per appointment (the first one is free), or full financial planning appointments that run $100 per session.

XY Planning Network

The XY Planning Network is a network of fee-only financial advisers who focus specifically on Gen X and Gen Y clients. There are no minimums required to get started as a client, and advisers in the XY Planning Network are not permitted to accept commissions, referral fees, or kickbacks. In other words, no high-pressure sales pitches or hidden agendas. Just practical financial advice doled out at a flat monthly rate. The organization itself is based in North Carolina, but they offer virtual services that enable any client to connect with any adviser regardless of where they reside.

Garrett Planning Network

A national network featuring hundreds of financial planners, the Garrett Planning Network checks many key boxes for millennials. All members of the Garrett Planning Network charge for their services by the hour on a fee-only basis. They do not accept commissions, and clients pay only for the time spent working with their adviser. Just as important for millennials, advisers in the Garrett Planning Network require no income or investment account minimums for their hourly services.

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5 Money Truths Smart People Forget

We’ve all been there: You’re thinking so hard about how to solve a problem that you don’t notice the solution is right in front of you. Smart people do this all the time, sometimes overcomplicating their personal finances.

By overlooking simple financial truths, otherwise intelligent people can make a mess of their finances.

Take a look at some of these simple financial truths. Which ones deserve more of your attention?

1. Behavior Significantly Affects the Results of Financial Plans

Even the most intricate financial plans are not immune to human behavior.

Unfortunately, it’s really easy to be rational and reasonable on paper, but it’s another story to be rational and reasonable in practice.

Financial planners understand this, as they have experienced firsthand how clients will often drift from the path laid before them — many times capsizing their lives.

Our desire for instant gratification and quick solutions can overshadow long-term plans. For example:

Desperate actions are often followed by sharp consequences.

Never avoid the simple financial truth that, even though you have a financial plan, you must use significant self control to see positive results.

2. Even the Wealthy Need a Budget

Smart people are often good at making a living — a great living.

But that doesn’t mean they don’t need a budget. Sometimes they think they don’t, but they’re wrong. Well, that is, unless they want to be severely ineffective with their funds.

Wealth brings with it a great deal of responsibility. Making big mistakes with few assets results in few losses. Making big mistakes with many assets results in huge losses.

Many wealthy people don’t feel the need to create a budget because they are able to “out pay” their financial negligence. But that comes at a high cost.

Instead, if you’re wealthy, you should truly consider the long-term benefits of creating a budget. By doing so, you should be able to identify several areas where you can save some money, which you could turn around and invest. You’ll also have the opportunity to prioritize your spending so you can make the most of your awesome income.

The smart thing to do is get on a budget — regardless of your financial status.

3. Money Isn’t What Matters Most in Life

Smart people are great at calculations. But sometimes they get wrapped up in finance so much they forget the simple financial truth that money isn’t what matters most.

Money is simply a means to achieve certain financial goals. It can’t buy everything, and it certainly can’t buy the most important things in life.

Think about your family. Think about the meaning behind your work. Think about your friendships and the way you help others. These are all more important than money.

However, money certainly can help your family. It can also enable you to embark on a new career path. And, it can help you go out to have a good time with friends or give to others in need.

Money can certainly help you in many ways. But it isn’t the full story. Money never buys the best relationships or the most meaningful work. That’s because money is a tool. But there’s something deeper that allows the most important things in life to be realized.

4. Flexibility Is As Important As Structure

This might sound somewhat counterintuitive, but when it comes to finance, flexibility is as important as structure.

Imagine, for a moment, that you receive a medical bill in the mail. You open it up, take a look, and gasp as you read the total: $2,150. You don’t have an emergency fund to cover this, and no category in your budget is relevant to this expense.

What should you do? You have a few options:

  1. Don’t pay the bill because it wasn’t in your budget. While this is the strictest way of handling the situation, and while you’d technically be sticking to your budget, there are legal and moral consequences for not paying a bill you rightfully owe. (Not to mention the credit score damage a late payment can have.)
  2. Give up on your budget entirely because it didn’t work and pay the bill. This is the most flexible option, although it destroys your future budget in the process. However, it does meet your legal and moral obligations.
  3. Move some money from a few categories to another and pay the bill. This is a flexible method, but it’s also one that involves some structure. This meets your moral and legal obligation while ensuring that you pay less money for something else while you’re paying more toward something you didn’t expect.

As you can see, the third option is the most reasonable. Going forward, you can also make sure to budget for medical bills. The extremes of absolute structure and absolute flexibility are dangerous extremes.

5. Some People Have to Learn About Money the Hard Way

Smart people often do a face-palm when they see someone else who is about to make a financial mistake. They will often try to prevent them from making the mistake, and rightfully so. The problem is, it doesn’t always work.

If you’re savvy with your finances, don’t be discouraged when those around you make financial mistakes against your better advice. It happens. Some people just have to learn about money the hard way.

As a financial adviser, I see people make financial mistakes all the time. The best thing I can do is keep on proclaiming my message. If they take it, great. If not, I’ll keep trying. You shouldn’t give up either.

Being smart is fantastic. Just don’t forget about the simple financial truths that allow apply your intelligence in practical situations.

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How to Do a Background Check on Your Financial Adviser

Deciding to hire someone to help manage your money requires a lot of trust, and not all people in the industry deserve yours.

About 7% of financial advisers have been disciplined for misconduct or fraud, though that rate is much higher at some firms, according to a working paper from the University of Chicago. Of those who have been disciplined, 38% are repeat offenders.

The Financial Industry Regulatory Authority (FINRA) requires people registered to sell securities or give investment advice to “disclose customer complaints and arbitrations, regulatory actions, employment terminations, bankruptcy filings and criminal or judicial proceedings.”

There are 23 categories of disclosures, and while disclosures don’t necessarily indicate misconduct, they’re good to know about if you’re considering giving that person significant control over your finances. Of those 23, the University of Chicago researchers focused on six that indicate misconduct, including customer disputes that end in favor of the customer, regulatory action and employment separation after an allegation.

The paper, “The Market for Financial Adviser Misconduct,” evaluated data from BrokerCheck, a public tool managed by FINRA, which allows people to see disclosure history for an individual adviser or a firm.

You can also see how long the person has been in the industry and previous firms they have been registered with. It’s a straightforward search tool, allowing you to look up advisers by name, Central Registration Depository (CRD) number, firm or location. Say you’re looking for an adviser within 5 miles of your ZIP code: You’ll likely get a long list people you could potentially work with, but going through the records could help you identify someone you may not want to hire.

Research is crucial whenever you’re making a significant financial decision, whether that’s applying for a credit card, saving for retirement or hiring an investment adviser. To minimize the chances you run into problems in the future, take your time getting as much information as possible so you feel confident whenever you make your decision.

You can monitor your financial goals (like building good credit) for free on Credit.com.

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Social Security Is Changing Soon. Here’s What You Need to Know

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There has been much buzz about Social Security recently—and with good reason.

Section 831 of the Bipartisan Budget Act contains the first major change to Social Security claiming rules since the Senior Citizen Freedom to Work Act in 2000. Finding out who is affected and what they need to do is a challenge. The Social Security Administration sent an emergency message to its field offices in February explaining how its employees should implement the changes. The staff in SSA field offices are still trying to get up to speed. Adding to their confusion is the fact that Social Security policy prohibits its agents from giving advice on claiming strategies.

What’s Changing?

The Budget Act was signed into law in November 2014 but has a six-month grace period during which certain folks can still take advantage of the old rules. Social Security has not firmed up these dates, but the best information available suggests that effective April 30, it will no longer be possible to file for benefits and immediately suspend those benefits — a strategy commonly referred to as “file and suspend.” (More on that strategy later.)

The other strategy being eliminated is “restricted application.” This will no longer be an option for beneficiaries born after Jan. 1, 1954. In short, this strategy involves claiming a spousal benefit between ages 66 and 70, thereby allowing your benefit to grow until age 70. At 70, you switch to your own benefit.

If you were born on or before April 30, 1950, you are still eligible to file and suspend. If you already have a suspended benefit, you will not be affected by the change. There are a few reasons why you may want to take advantage of this before April 30.

How These Strategies Work

First, filing and suspending allows your monthly income to grow by a certain amount every year. This is referred to as Delayed Retirement Credits. The kicker with the file and suspend strategy is that if you decide at any point between your full retirement age (FRA) and 70 that delaying your benefits was a bad move, you can request a lump sum of the benefits you missed out on by not claiming at your FRA. This may make sense if you were planning on working until 70, but were unexpectedly laid off and suddenly need that income. Second, filing for a benefit allows eligible beneficiaries to claim a spousal benefit.

Let’s say you want to continue to work, but your spouse didn’t work long enough (10 years or 40 quarters) to qualify for his/her own benefit. You can file and suspend, which would allow you to continue to work, earn delayed retirement credits, and enable your spouse to take half of your full retirement age benefit (PIA). This can also be a nifty strategy for those 66 or older who have minor children because filing and suspending will allow those children to claim a benefit until they turn 18.

The restricted application is often used in conjunction with the file and suspend strategy. It usually makes sense for couples with similar benefits, as illustrated by the following example:

  • John and Jane are married.
  • John: Age: 66
  • SS Benefit (PIA): $1,500/m
  • Jane: Age: 64
  • SS Benefit (PIA): $1,000/m

In this scenario, Jane could file a restricted application for spousal benefits in two years at age 66 and would receive $750/month (half of John’s PIA). This would allow her benefit to grow by 8% over the four years that she collects a spousal benefit. At 70, she would switch back to her benefits based on her own earning record. At that point, she would receive $1,320/month (8% growth every year for four years = $1,000 x 1.32). Here is the catch: John would have to file for benefits in order for Jane to take advantage of this strategy. If John, too, wants to let his benefit grow until age 70, he can file and suspend, but must do it before April 30.

Considering Your Options

The restricted application and file and suspend claiming strategies are now being called “unintended loopholes” by the Social Security Administration, exploited by financial planners and attorneys and the clients they represent. As one of the former, I can confirm that we do use these strategies for most of our clients. By the way, anyone — regardless of his or her wealth — can put these strategies to work.

At this point we are scrambling to make sure that our clients are considering this advice. At our most recent class, a client told us that it took her three months to get an appointment at her local SSA office. The good news is that these strategies can be implemented by phone, at SSA.gov, or in your local office.

Prior to these changes, there were 567 (not a typo) different ways to claim Social Security benefits. There is no way in this column to cover every scenario or even touch on everyone affected. If you think you may be impacted and don’t know what to do, you can contact your financial planner. If you don’t have a financial planner or he or she doesn’t offer Social Security advice, you can consider seeking out one who does. You can ask a planner run the optimal scenario and give you the language to take to SSA.

[Editor’s Note: You can monitor your financial goals (like building good credit) for free on Credit.com.]

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