Managing your money can sometimes feel like navigating through a maze. There are countless options, advice from every corner, and professionals who promise to guide you to financial success. But how do you know which type of expert is right for you?
Two key players in the world of personal finance are fee-based financial planners and financial managers. Each offers different services, works in unique ways, and has different motivations. Understanding these differences can help you make better financial decisions for your future.
Let’s break it down in simple, everyday terms so that you can take control of your money with confidence.
Before you start looking at a financial planner or a financial manager, take a look at this post from David Safe Investments with High Returns in Canada for Beginners.
Who is a Financial Planner?
A financial planner is like a general contractor for your financial life. Their job is to build a strong foundation for your money management, taking into account your unique needs and goals.
The Role of a Financial Planner
Financial planners help you with the big picture. Think of them as advisors who look at all aspects of your financial health. Whether it’s saving for retirement, planning for your kids’ education, or figuring out how to get rid of debt, their goal is to provide you with a detailed plan that covers all areas of your financial life.
A financial planner won’t typically manage your investments for you. Instead, they give advice on how to manage your money wisely, create a budget, and suggest ways to save. They can also help you figure out how much insurance you need and even plan your estate, so your assets go to the right people when you pass away. (Free Budget Planner Spreadsheet)
How Are Financial Planners Paid?
Most financial planners are paid directly by you, the client. This is called fee-only planning. You either pay a flat fee for a specific service, an hourly rate for their time, or a retainer for ongoing advice. Since they are paid for their time or expertise rather than selling products, their advice tends to be more unbiased.
They won’t push you to buy any particular insurance, mutual funds, or investments, because they don’t get commissions from those products. Instead, they’re focused on your goals and what’s best for your financial situation.
What Services Does a Financial Planner Offer?
- Retirement Planning:
They help you figure out how much money you’ll need for retirement and how to save to meet that goal.
- Tax Optimization:
While they may not do your taxes, they can help you figure out ways to save money through tax-efficient strategies.
- Insurance Planning:
They’ll assess your insurance needs and suggest the right coverage, though they typically won’t sell the insurance themselves.
- Estate Planning:
They can help you plan for what happens to your money and property when you’re no longer around.
- Budgeting and Debt Management:
A financial planner can help you create a budget that works for you and provide strategies to get rid of debt.
Here’s a spreadsheet and a worksheet, if you need help getting rid of debt.
Example of How a Financial Planner Helps
Let’s say you’re a couple in your 30s with two kids and some credit card debt. You’re not sure how much you need to save for retirement or if you should focus on paying down debt. A financial planner could sit down with you, look at your income, debts, savings, and goals, and create a detailed plan. They’ll help you prioritize paying off the debt, guide you on how much to save for retirement, and offer advice on where to put that money. They’ll also give tips on life insurance and maybe suggest ways to save on taxes.
A financial planner won’t actually invest your money for you, but they can guide you on what types of accounts and investments might be good options.
Who is a Financial Manager?
Now, a financial manager (also called an investment manager or portfolio manager) is a bit different. They’re like the mechanic who keeps your investment car running smoothly. Their focus is not on the broad picture but specifically on growing your investments.
The Role of a Financial Manager
A financial manager’s job is to take control of your investments and make decisions about where to put your money. They’ll choose which stocks, bonds, or mutual funds to invest in based on your financial goals, risk tolerance, and the market.
Some financial managers try to outperform the market by picking stocks they think will do better than average. Others might follow a more conservative strategy, investing in safer options like bonds or mutual funds. Either way, their focus is squarely on the investments themselves, rather than your entire financial situation.
How Are Financial Managers Paid?
Most financial managers are paid based on the amount of money they manage for you. They usually charge a percentage of your assets—typically around 1-3% per year. For example, if they’re managing $100,000 for you and their fee is 2%, you’ll pay $2,000 each year for their services.
Some financial managers also earn commissions from the products they sell or recommend. For example, if they recommend a particular mutual fund or insurance product, they might get paid by the company selling that product. This can sometimes create a conflict of interest because the manager might have an incentive to push higher-fee products that aren’t necessarily the best option for you.
What Services Does a Financial Manager Offer?
- Investment Management:
They’ll take charge of your investment portfolio, buying and selling stocks, bonds, and mutual funds.
- Asset Allocation:
Financial Managers decide how much of your money should go into different types of investments based on your goals and risk tolerance.
- Risk Management:
They aim to minimize your losses while maximizing your potential returns.
- Investment Strategy:
Financial Managers create a plan to grow your investments over time.
- Performance Monitoring:
They’ll keep track of your investments and make changes as needed to keep you on track toward your goals.
Example of How a Financial Manager Helps
Imagine you’re nearing retirement and have saved $300,000 in various accounts, but you’re not sure how to invest it to grow your nest egg. A financial manager would take over your portfolio, assess your goals (maybe you want to retire in 10 years), and decide how to allocate your money. They might put some of it into stocks for growth and some into bonds for stability. Over the years, they’d adjust the portfolio as the market changes and as you get closer to retirement.
The Key Differences Between a Financial Planner and a Financial Manager
Understanding the differences between a financial planner and a financial manager is crucial when deciding which professional to hire. Here’s a simple breakdown:
1. Services Offered
- A financial planner
focuses on your overall financial health, helping you with retirement planning, budgeting, insurance needs, and estate planning. They help you organize and plan your finances from a broad perspective.
- A financial manager
concentrates specifically on managing your investments. They handle buying and selling investments, asset allocation, and monitoring your portfolio to grow your wealth.
2. Compensation
- A fee-based financial planner
is paid directly by you, often with a flat fee or hourly rate. They don’t make commissions from the products they recommend, which can make their advice more impartial.
- A financial manager
typically charges a percentage of the assets they manage, usually around 1-3% annually. Some financial managers may also earn commissions from the financial products they sell.
3. Objectivity
- Because fee-based financial planners
don’t sell financial products, their advice may seem more unbiased. They’re not influenced by the potential to earn commissions.
- Financial managers
may have a conflict of interest if they earn commissions from the products they recommend, which could lead to biased advice focused on earning them more money.
Which Professional is Right for You?
So, how do you know which one is right for you?
Choose a Financial Planner if:
- Holistic advice that looks at your entire financial life, not just investments is what you want.
- You need help creating a budget, retirement plan, or tax strategy.
- You want to work with someone who doesn’t sell financial products and is compensated only by you.
Choose a Financial Manager if:
- You want someone to actively manage your investments and make decisions about your portfolio.
- Paying a percentage of your assets for investment management does not make you uncomfortable.
- You’re mainly focused on growing your wealth through a well-managed investment strategy.
Take Control of Your Money
Whether you choose a financial planner or a financial manager, the key is understanding your financial needs and goals. By working with the right professional, you can create a plan for long-term financial success.
Remember, no matter who you hire, you’re in control of your financial future. It’s important to stay informed, ask questions, and understand how your money is being managed. Small changes—like choosing the right financial advisor—can make a big impact on your financial well-being.
For another view on this topic, take a look at – Financial advisor vs. financial planner: What is the difference?
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.
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