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Why it's time to clear the confusion about financial advisers and financial planners

By David Norton - March 04, 2021

One of my best friends Robert is managing partner of a large international firm of architects.

I call him Bob the Builder…

To wind me up – he just calls me an IFA.

Just as I know that an architect is very different from a builder, an electrical engineer is different from an electrician and an physiotherapist is different from a masseuse; here in the Middle East, there are big differences between an IFA (independent financial adviser) and a financial planner.

Even in well-regulated, developed markets there is on-going confusion and debate amongst consumers about the key differences between the role of the financial adviser and that of a financial planner.

Internationally the challenges are far greater as basic rules, entry-level requirements and disclosure of hidden commissions simply don’t exist.

This article seeks to provide some clarity on the difference between the two.

Typically, a financial adviser will have a product-focussed view of the market, looking at solving money and financial matters with the delivery of a suite of financial products.

A financial planner, by contrast, will take the time to really understand what motivates you and what you want to achieve out of life and then make recommendations that align your finances with your broader life goals.

This could be summarised by saying it’s the difference between seeing the bigger picture or solving the immediate problem.

One is not wrong and the other right – they are simply very different.

There is definitely a place for both services, depending upon who you are and what you might be looking for.

The main differences are summarised below:

Financial adviser vs. financial planner-2

What else is there to consider?

A further complication is that anyone can describe themselves as a financial planner regardless of the professional qualifications they hold...

And even those with degree-level qualifications (such as a Chartered Financial Planner) may act as financial advisers or brokers (however, we would still suggest that you only appoint a firm that employs individuals that hold such credentials).

To become an internationally recognised Chartered Financial Planner, the individual has to demonstrate deep technical competence and the ability to bring all matters together in a comprehensive way that addresses all issues relating to a client’s financial circumstances such as tax, investments, retirement planning, protection planning, philanthropy etc.

The ways things work

The relationship you develop with each professional can be very different.

A financial planner is someone with whom you build a long-term relationship.

They will guide, coach and work with you to determine what is important to you.

You will have regular update meetings with your financial planner to make sure you’re still on track to meet the goals that you have articulated and make any adjustments to your financial plan.

Your relationship with a financial adviser can be quite varied, depending on your specific personal needs.

It is common for a financial adviser to have both long-term clients as well as clients who only need their service once.

The relationship tends to be ‘product’ rather than ‘service’ focussed.

The cost of financial advice & planning

The amount you pay a financial adviser and a financial planner will depend on the service that you require.

This will consider the time involved working on and managing your account, the quantum of the funds being managed and the risk associated with the advice given.

When using the services of an international financial adviser, it’s common to pay a largely hidden commission for the delivery of a product, such as setting up a savings plan or investment bond, a charge on the investments you buy and a fee if you are not careful.

Financial planners will discuss your requirements at the initial meeting.

Every financial planning client is different but as a guide you could expect to pay a fixed or time-based fee for the creation of a plan and a fee based on a percentage of your portfolio. 

As with the delivery of other professional services, the fee agreed will be based on time, risk, complexity and the like.

So, what is the difference between a financial planner and an independent financial adviser?

An international independent adviser can theoretically make recommendations from ‘retail investment products’ from across the whole investment market but in practice are largely restricted.

Restricted advisers, as the name suggests, can only recommend certain types of products or those from a limited number of providers.

Many of the larger financial adviser firms elect to be restricted because it means they can sell their own products and investment funds.

This solution might not be appropriate if you are looking for a long-term strategy unique to you that delivers outcomes aligned to your personal goals.

I hope that clears things up and helps you recognise which financial expert is right for you and your goals.

If you're unsure and want a second opinion of your portfolio of £1 million or more, get in touch.

Our Wealth Advice team would happily give you a call to provide guidance, and see how or if we can help.

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