What Is a Financial Planner? Different Kinds and What They Do

A financial planner's job is to help people better manage their money and achieve their financial objectives, whether paying off debt, saving for retirement, investing for education, protecting against risk, minimizing taxes, or managing estate distribution. The term is used loosely for a range of financial jobs, but the most reliable are certified financial planners (CFPs), a designation given by an independent board.

"With all the designations and acronyms in the financial services industry, it's not surprising [people] can be confused by these similar-sounding terms," said Scott Bishop, who has his own list of acronyms to follows his name—CPA, PFS, CFP—for his work at Presidio Wealth Partners in Houston. "CFPs mainly give advice to individuals, but some advise small business owners as well. CFPs also help with retirement planning, investing, and other financial planning."

Financial planners may work independently or be employed by financial planning firms, banks, wealth management companies, or nonprofit organizations. They might cover all aspects of personal finance or specialize in specific areas. While most have years of education and experience, there are no universal minimum requirements to use this title.

What Do Financial Planners Do?

The Certified Financial Planner Board of Standards describes financial planning as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.” This reference to "collaboration" is important—this isn't a financial person who tells you what to do but is a trusted professional who is there to help you meet your goals.

Many financial planners help clients with all aspects of their personal finances, although some have a narrower focus. However, as their title suggests, they all plan people’s finances in some form. Many of them, including CFPs, are considered fiduciaries, meaning they’re legally bound to act in their client's best interests.

When shopping around for a financial planner, you'll typically have an in-person or virtual meeting at first where you'll discuss your current finances, objectives, and risk tolerance, while a financial planner will discuss their services, how they can help you meet your goals, and how they charge for their services. This first appointment, often free, is a crucial one where you get to know each other and sense whether this person is right for you.

If you decide to proceed, the planner will draw up a comprehensive plan to address your needs and objectives and then work with you over time to put that plan into action. Future meetings could be regular or sporadic, over the phone or in person.

A lot depends on the type of arrangement you want. Do not feel pushed into working with any particular professional. There are plenty of great CFPs out there; you're bound to find one that fits your needs and finances.

Financial Planner Fees

Financial planner fees depend on their experience, the task at hand, and other factors. The method of calculating the fees isn't uniform, either. You might be billed by the hour, by project, by assets under management (AUM), or potentially indirectly through commissions.

Percentage of Assets Managed

Financial planners commonly charge a percentage of the total assets managed, ranging from about 0.5% to 2%, depending on the services, the amount of money managed, and other factors.

This billing method can be more expensive over the long run (though most planners adjust the percentage lower as your AUM passes specific benchmarks), but it should give you some peace of mind that the planner is working in your best interest: The better your investments perform, the more the planner gets paid.

Hourly Rates

A financial planner may charge by the hour, usually for consultations and shorter-term projects. Hourly rates usually depend on experience and reputation and can range from $120 to $300.

Flat Fees

Billing a flat fee is a more transparent, upfront alternative to charging by the hour. A flat fee is typically charged for specific one-off jobs that don’t require ongoing management, such as writing a financial plan to tackle debt.

However, some financial planners bill this way periodically, say every quarter, for regular management. How much depends on the complexity of the task and various other factors.

Commissions

A handful of financial planners are commission-based. This means companies pay them to sell their products, such as mutual funds or insurance policies, rather than by the client.

Getting someone else to pick up part or all of the bill is an obvious plus. However, there is a significant downside: There might be an incentive to sell you a financial product that puts more money in the planner's pocket than yours.

Types of Financial Planners

Key differentiators among financial planners include the following:

Qualifications

Usually, financial planners need some credentials to practice, although laws vary by state. In most places, licenses are required to advise on and sell certain products, find employment, and attract clients. Financial planners may do the bare minimum to operate or go the extra mile. The best-regarded qualification is the CFP designation.

To qualify as a CFP, the professional must meet the following requirements:

• Education: Candidates must hold a bachelor's degree or higher in any discipline from an accredited college or university and complete coursework on financial planning through a CFP Board Registered Program.
• Experience: Aspiring CFPs must have at least 6,000 hours of professional experience related to financial planning or 4,000 hours in an apprenticeship role.
• Exam: The CFP exam consists of 170 multiple-choice questions covering 100 topics related to financial planning.
• Ethics: Before becoming a CFP, the planner must agree to adhere to high ethical and professional standards and always put their client’s best interests first.

To keep their status, CFPs must abide by the board’s standards and complete 30 hours of continuing education every two years.

Fee-Only, Fee-Based, or Commission-Based

Financial planners can get paid differently and are generally fee-only, fee-based, or commission-based.

Commission-based planners are paid by the companies whose products they sell. They are incentivized to sell products that earn them higher commissions, though they are legally bound to only buy and sell products they believe suit their clients.

Meanwhile, fee-based planners are paid by clients and occasionally through commissions, whereas fee-only planners make their money only from clients. For most people, fee-only planners are the best option as they have fewer potential conflicts of interest.

Jack-of-All-Trades vs. Specialists

Financial planners share similarities with doctors. Some have a narrow specialist focus (such as on investing or insurance), while others help clients with all aspects of their personal finances, including investments, insurance, retirement savings, college savings, debt management, taxes, and estate planning.

In theory, holding a narrower focus should mean being better in the chosen area of expertise than an all-rounder, although that’s not always guaranteed. Some firms have various specialists that cover the different angles you'll need.

The Bottom Line

People go to a financial planner for help managing their money and achieving their long-term financial goals. However, these professionals aren't all the same.

Their qualifications, areas of expertise, and fee structure can differ considerably. Some financial planners cover all areas of personal finances, from investing to taxes and estate planning, while others specialize in particular areas like tax and estate planning. The best financial planners have the highest qualifications and make recommendations based on what they believe is in the client’s best interest.