It is more common to know you need financial help than it is to seek that help. One reason consumers may be reluctant to seek financial help is the myriad confusing choices of financial professionals and what each may or may not be able to do.
There are two main categories of financial practitioners: financial coach and financial advisor. Compounding the complexity of these roles is that they lack formal definition, and financial advisors, in particular, come under many titles.
Here is a top-level view:
A financial coach works with clients to address the client’s behavioral relationship with money. They often help with issues of money management and budgeting and are often sought out for help with short-term goals, especially when there are money management issues involved. For example, if you’re looking for guidance on what you need to do to qualify for a mortgage and have some credit issues to work out, a financial coach is the person you’re looking for.
You don’t need to have financial problems to work with a coach, but financial problems may be an indication that you should work with a coach. Spending habits, credit and debt issues, building an emergency fund, and dealing with financial challenges are all within the scope of most financial coaches.
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Oftentimes it is an individual’s attitudes and relationships with money that keeps them from doing the best they can for themselves. Financial coaches can help here. And they can provide the ongoing support, accountability, and encouragement to help build and maintain healthy money habits.
Financial coaches are not regulated, and there is no set standard or exam to become one. They tend to be less expensive than financial advisors, but not always. Nor do they just work with people starting their financial journeys or those in financial difficulties. There are coaches who work with high–net worth and high-income individuals as well.
Financial advisors are regulated by the Financial Industry Regulatory Authority. What specific licenses an advisor needs depends on what they do with clients. Though there is no education requirement, most major financial institutions require a bachelor’s degree to get a job — although they don’t generally care what the degree is in, just that you have one.
Financial advisors may use titles of “financial consultant” or “financial planner,” as well. There are no specific license or education requirements for the title; you need to have licenses to provide certain advice or to sell certain investment products. Advisors may also be subject to state licensing requirements and insurance licensing requirements, which are state-specific.
The general realm of the financial advisor is wealth accumulation and management. As such, their services may include managing and investing for long-term goals; giving consideration to tax and estate issues as well. Note that there is a wide range of services financial advisors offer, from product specific advice, such as provided by many brokers, and comprehensive financial advice that includes all aspects of a person’s financial situation.
There is one distinction that consumers should be aware of, often expressed as the fiduciary role.
Financial advisors are generally associate with broker-dealers or with registered investment advisors (RIAs). Those affiliated with broker-dealers are required to provide advice suitable for their clients; those affiliated with RIAs have a fiduciary responsibility to do what’s in their client’s best interest.
There is a plethora of advice steering consumers to work exclusively with fiduciary advisors. The logic behind the advice is that the advisor will give better advice; because they are legally obligated to do what is in your best interest. Of course, if your fiduciary were a crook, the law won’t make a difference; crooks don’t follow the law, or else they wouldn’t be crooks. My opinion is that there are good and bad advisors who are not fiduciaries, and there are good and bad advisors who are fiduciaries. Consumers should give consideration to an advisor’s publicly available records and any other information, especially recommendations from trusted friends.
The classification of financial therapist also bears mention. Financial therapists are less common, but serve a valuable role. Financial therapists provide coaching and support around money issues, oftentimes helping their clients deal with financial stress.
Robo-advisors also bear note. A robo-advisor can perform many of the technical functions of a financial advisor at a lower cost. The advice will typically be less individual, and more limited in scope, but may be exactly what some people are looking for and are convenient and easy to use.
The Bottom Line
There are many people who could benefit from professional financial help but have not reached out for that help. The overwhelming number of titles and relationships may make it confusing for people to determine who best meets their needs. In many cases, a financial coach or advisor will be appropriate, depending on the consumer’s goals and circumstances.
Many people work with advisors on an ongoing basis, so it makes sense to find a good fit; someone who takes the time to understand your needs and help you to get what you want financially, not just meets their own needs.
It’s important to figure out what you want from money, which a coach or advisor can help you do. And it’s important to have a plan to make that happen; it’s unlikely to simply happen on its own. A coach or advisor, or a therapist, could make the difference in achieving what you want to in your financial life. There is help available, it’s up to you to decide if you need and want that help.