Revealed: The difference between financial advice and financial planning, and how planning helps your clients

Last month, we looked at what our Chartered status means for your clients. We explained how dealing with a Chartered firm means your clients benefit from the peace of mind that they are dealing with a trusted professional, operating to high ethical standards.

One of the regular questions that clients pose to us is: “What’s the difference between a financial adviser and a financial planner?”

As financial planners, it won’t surprise you to know what we believe there are key differences, and that there are valuable benefits for a client to work with a planner rather than an adviser. Read on to find out why.

Financial advice explained

On the face of it, financial advice and financial planning look like much the same thing. Indeed, many people use the terms interchangeably.

Both are highly regulated and are provided by a highly qualified individual with expertise.

Both are services provided to clients looking for help with issues such as protection, pensions, estate planning and investments.

And both require an understanding of a client’s financial situation and objectives.

Financial advice tends to deal with a specific need. A client may want specific advice regarding life insurance, the best ISA to invest a lump sum in, or how much to contribute to a pension. They may have questions such as:

  • What pension should I open?
  • What life insurance or Critical Illness cover do I need?
  • How can I make my investments more tax-efficient?

Financial advice is typically transactional. A client generally walks away with the ‘product’ that an adviser has recommended to meet their needs, having typically searched the market for the most appropriate option.

Of course, financial advice is an important service that adds value to many people.

However, financial planners – like us – believe that there is a better way of approaching a client’s need for guidance.

The benefits of financial planning

Unlike financial advice, financial planning is not a transactional process. A financial planner is much more interested in a client’s aims, objectives, aspirations, and life goals than they are in recommending specific product-based solutions.

Financial planners typically ask questions such as:

  • What matters to you?
  • What do you intend to do in your retirement?
  • What goals and aspirations do you have?
  • What would you like to do with your money?

Only by asking these questions can a financial planner understand what a client needs. Unlike financial advice where the solution might be a product, when a client speaks to a financial planner the solution is the plan itself. Specific products such as pensions and investments are a means to achieve the plan, not an end in themselves.

We call this ‘money with a purpose’. In our six-step process for financial planning, we typically don’t get involved with specific financial products until step five. Before that, we’re more interested in:

  • Establishing a client’s objectives and challenges
  • Assessing the performance of a client’s existing investment and pension portfolios, ensuring the money they have already set aside is working hard for them
  • Using cashflow modelling to provide a clear picture of a client’s financial position now and in the future
  • Assessing the tax efficiency of a client’s existing arrangements
  • Agreeing a financial plan.

If a client leaves a first meeting having talked about their family, their goals, and their concerns then they have met a financial planner. If they leave having talked about their money, they have probably met a financial adviser.

Why it matters that your clients work with a financial planner

It’s important to note here that a financial planner can also do all the things a financial adviser can. Their independence allows them to scour the market for the best pensions, investments, and protection and they can make recommendations.

However, clients benefit from working with a financial planner because it can be genuinely transformative.

Imagine a client seeing a cashflow forecast that tells them they can retire right now. Or that they can gift some money to their children without worrying that they won’t have ‘enough’ in the future.

And, by working with a financial planner, clients will build up a long-term relationship with a trusted partner who understands what is most important to them.

Over years and decades, an expert will constantly review and amend their plan to adapt to changing circumstances and needs, enabling a client to live the life they want with the money they have.

Get in touch

If you have clients that would like to understand the real benefits of financial planning, or you’re interested in how you can work more closely with us, please get in touch. Email or call 01454 416 653.

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