While physical health and happiness are the most important cornerstones of a successful life, you should also pay attention to your financial health and well-being.
After all, getting in good financial shape can make life considerably less stressful.
Of course, you also want to be able to afford things like braces for your kids, college tuition, and family vacations you’ll always remember.
Unfortunately, not enough people take actionable steps to improve their finances, and the statistics prove it. A 2021 report from Experian shows that the average credit card balance worked out to $5,525 that year, and that the average person had over $25,000 in non-mortgage debt.
Average retirement savings are also downright depressing, with those between ages 40 to 44 having just $101,899.22 saved for retirement, and individuals ages 55 to 59 having just $223,493.56 according to 2019-2020 Federal Reserve SCF data.
The fact is, many Americans desperately need to make some changes with their finances, but not enough people take steps to do it. This is true even though financial professionals are easy to find, both online and within nearly any community across the United States.
But, that could be a big part of the problem. Not only are there a plethora of financial advisors to choose from, but there are financial coaches offering services as well. Many consumers don’t know the difference, and they may get stuck in a situation where “analysis paralysis” takes over.
If you’re hoping to turn your finances around and looking for professional advice and help, you may be wondering why you would turn to a financial advisor, a financial coach, or potentially even both. Read on to learn how financial advisors and financial coaches differ and what you should consider before you use either one.
A financial advisor is a trained financial professional who helps clients invest for the long-term , usually for retirement. Financial advisors assist their clients when it comes to building portfolios of investments that make sense for their investment timeline and goals, and they advise them on planning for life’s big milestones such as buying a home or paying for college. Not only that, but financial advisors are the professionals you want to work with if you need help with complex financial matters like estate planning and charitable giving.
Some financial advisors charge a flat fee for their services, yet others charge fees based on assets under management (AUM). Others earn a living via commissions they earn when they sell investments like mutual funds and annuities. Also note that the best financial advisors are a fiduciary, meaning they are legally obligated to act in your best interests.
It’s also worth recognizing that technology and the internet have made it possible to hire an online financial advisor, which some may refer to as a robo-advisor. With a robo-advisor like Personal Capital or Betterment, you can get access to a professional financial advisor online, and with the help of technology and tools. Online financial advisors also tend to be less expensive than traditional advisors, so that’s worth considering as you decide which person or company you want to work with.
Related: How to Pick a Financial Advisor
While anyone can call themselves a financial coach, becoming a financial advisor takes several more steps. For starters, financial advisors are licensed and registered with the Financial Industry Regulatory Authority (FINRA), which oversees the industry at large. Most financial advisors also have a bachelor’s degree, although this is not always the case.
Some financial advisors also take additional steps to become a Certified Financial Planner (CFP). Becoming a CFP requires a bachelor’s degree plus additional courses, on-the-job training, and the passage of the CFP exam. All said, becoming a CFP requires 12 to 18 months after the completion of a bachelor’s degree.
Make sure to check out my guide to How to Become a CFP if you want a more in-depth explanation of the process.
Financial advisors can also work to become a RIA (Registered Investment Advisor), which requires passing the Series 65 Exam, registering with the state of the Securities and Exchange Commission (SEC), and more.
There are many pros and cons that can come with working with a financial advisor, although some of them depend on the individual advisor you select. Here are the main advantages and disadvantages to be aware of.
Ads by Money. We may be compensated if you click this ad. Ad
Online Financial Advisors are ready to provide you with quality economic planning and investment management.
Have your finances undergone a big change? An advisor can put crucial information within your reach for better financial health. Click below today!
While financial advisors are expertly trained to help you invest for the long run, financial coaches focus on the day-to-day aspects of your personal finances. Coaches help their clients build better financial habits, such as paying themselves first and avoiding long-term debt.
While many financial coaches work full-time, it’s also important to note that it’s possible to become a part-time financial coach. This path is often pursued by financial professionals who want to keep working in their own industry as well, whether that’s accounting or traditional advising of clients.
If you’re interested in becoming a part-time financial coach, you can watch more on my video here:
Either way, financial coaches typically work with clients who need help figuring out how to save money or how to pay off student loans or credit card debt.
Also note that financial coaches are legally prohibited from giving specific investment advice, so this type of professional is not the right option if that’s what you need most.
Financial coaches cannot give specific investment advice.
Examples of popular financial coaches you can find online include:
Unlike traditional financial advisors, financial coaches are not required to have any formal education or training since they are not held to official regulatory standards. Many financial coaches also get their start after being in debt themselves and figuring out how to improve their financial situation and their own lives over time.
However, many financial coaches do have professional degrees in finance or a related field such as accounting. Also note that there are some training opportunities for financial coaches, and it can make sense to seek out professionals who have achieved these milestones.
For example, financial coaches can participate in training with the Association for Financial Counseling Planning Education (AFCPE) to earn their Accredited Financial Counselor® (AFC®) certification.
Dave Ramsey’s Ramsey Solutions also offers training and a path to certification for financial coaches. This program lets individuals who are passionate about personal finance become a Ramsey Solutions Master Financial Coach who is expertly trained to offer advice on saving money, paying off debt, budgeting for the future, and more.
Using a financial coach can make a ton of sense if you’re trying to get a handle on your finances but can’t seem to make any headway. However, there are advantages and disadvantages that come with working with a financial coach, which you should know about ahead of time.
At the end of the day, the decision to work with a financial advisor or a financial coach is a very personal one. After all, both types of professionals can help you get where you want to be in a financial sense, and either one might work for you depending on where you’re at with your financial goals.
That said, there are some situations where a financial advisor could make more sense than a financial coach and vice versa.
Whether you decide to go with a financial advisor or a financial coach, there are some common factors to consider before you hire someone. For example, you should look for a financial professional who is certified in their field, whether you decide to go with a CFP or an RIA, or with a financial coach who has completed some official training.
Also make sure to ask about pricing upfront, and steer clear of any financial professional who cannot explain their fees or how they get paid. While financial coaches likely have an upfront payment schedule they can hand you and fee-based advisors can clearly explain their charges, beware of financial advisors who get paid on commissions and may not have your best interests at heart.
Also look for a financial professional who has plenty of experience and a passion for helping others. As you compare all your options, make sure to ask for any references they can give from former or past clients. If they do a good job, people who have worked with them should be more than happy to tell you all about it.
Finally, make sure your financial planner or financial coach is someone you like talking to and spending time with. Choose a financial professional based on their credentials and experience, but make sure you actually like the person, too.