Financial Consultant vs Financial Advisor: What's the Difference?
March 10, 2021
Some say financial consultants and financial advisors fulfill very different roles. Others say these professionals do the same thing and differ in name only. We dug into each role to find out who's right.
Financial professionals come in lots of different flavors—from financial consultant to financial planner to wealth manager to investment advisor to fiduciaries—and deciding which career to pursue can be difficult. You know you want to work with money and to help people make more of it, but there are so many designations and certifications in finance. The first step involves figuring out what they all mean and what kind of education you'll need to help people and businesses handle a wide range of complete financial situations.
If you think you'd like to work primarily with individuals and families, helping them build wealth and meet specific financial goals, you've probably thought about becoming a financial consultant or a financial advisor. These are catch-all terms for financial professionals who do more than just help clients build and maintain portfolios.
Consultants and advisors may both offer a range of services involving budget creation, saving for college or investment properties, tax planning, investment management, creating tax efficiencies, and helping people make money via strategic investing. Some financial firms and independent professionals maintain, however, that there's a distinct difference between financial consultants and financial advisors. Who's right? Who knows!
Buckle up, because this topic gets confusing. In this article, we look at the difference between financial consultants and financial advisors by addressing the following:
- What is a financial consultant?
- What is a financial advisor?
- What is the difference between a financial consultant and a financial advisor?
- Are financial consultants and financial advisors the same as financial planners?
- Do financial consultants and financial advisors work with the same clients?
- Do financial consultants and financial advisors get different degrees?
- Are there certifications for financial consultants and financial advisors?
- Financial consultant vs financial advisor: who makes more?
- Are financial consultant and financial advisor two titles for the same position?
What is a financial consultant?
Put simply, financial consultants are personal financial advisors that help people build wealth by designing comprehensive, long-term financial strategies. They look at personal finance the same way analysts look at large financial systems, and the work they do involves strategizing, designing action plans, and accountability.
Some financial consultants offer financial planning services, but most are heavily involved in the buying and selling of investments and otherwise turning complicated financial concepts into actionable strategies. This can involve working closely with accountants, investment managers, and other professionals. They also spend a lot of time educating their clients. They may host seminars or events or share relevant news items with clients in a regularly published newsletter. Financial consultants tend to work with clients over the long term, developing and then maintaining relationships.
What is a financial advisor?
Financial advisors help people understand their current financial situation and develop plans that help those people meet their short- and long-term financial goals. People work with financial advisors when they want to figure out how to pay for college, save for retirement, start investing, or have more capital available to meet regular expenses. It's not unusual for financial advisors to see a lot of clients who are preparing for major life changes like marriage, divorce, job transitions, or the birth of a child (all of which can impact individual and household finances).
Many financial advisors are licensed to buy and sell financial products—and in some cases, that may be their main gig. Sometimes bankers, insurance brokers, security analysts, and other financial professionals call themselves financial advisors when they don't actually spend much time advising clients.
What is the difference between a financial consultant and a financial advisor?
The answer depends on whom you ask. Some sources assert that there is absolutely no difference between financial consultants and financial advisors, while others claim these professionals either do very different things or approach financial planning very differently.
For instance, some professionals state that the big difference between financial consultants and financial advisors is the length of relationships they maintain with clients. Clients work with consultants to address very specific, time-limited issues, and once the issues are taken care of, consultants and clients go their separate ways. Advisors, on the other hand, work with people and families over a period of years, managing their finances in the present and helping them plan for the future. Advisors dig deeper into their clients' finances in this model than consultants do.
You may have noticed that the description in this section is almost the reverse of the descriptions of each role above. The reality is that the focus and approach taken by financial consultants and financial advisors probably varies more between professionals than between roles. You can find both consultants and advisors who are laser-focused on long-term wealth building and consultants and advisors who help people meet specific financial goals, like saving for a home or developing an investment strategy.
Are financial consultants and financial advisors the same as financial planners?
Again, there's no conclusive answer to this question. Some people say that what sets financial planners apart are their certifications, but there are plenty of financial consultants and financial advisers who have those same certifications (which we'll outline below). Others say that financial planners are different because their main function is to create actionable money management plans designed to meet long-term financial goals—but that sounds an awful lot like what financial consultants and/or financial advisors do.
In other words, the education, experience, approach, and certifications of a consultant, advisor, or planner may be the same or quite different.
Do financial consultants and financial advisors work with the same clients?
Generally, yes, though they may find them in different ways. One commenter on a thread in the FinancialCareers subreddit said that the biggest differences between the financial consultants and financial advisors at their workplace—Fidelity—was that the former didn't have to find their own clients and the latter could earn more money.
"The client base for financial consultants is already there for the most part," they wrote. "Personally, I'm a financial advisor and I do my own prospecting, client retention and I don't rely on Fidelity to provide me with anyone. I think the benefits of being a financial advisor outweigh the benefits of consulting… I don't think there's anything wrong with a base salary, but I've always liked knowing my earning potential is unlimited as an FA."
Of course, that's at Fidelity. Employers like Schwab or Vanguard may treat these positions very differently.
Do financial consultants and financial advisors get different degrees?
The short answer is no. You can become a financial consultant or a financial advisor with a master's degree in finance or even a bachelor's degree in accounting, business, statistics, economics, or finance. Some firms hire financial consultants and advisors without related finance degrees or any degrees at all, provided they have extensive experience in finance, sales, or entrepreneurship.
Many financial consultants and financial advisors do have graduate degrees, however—often a Master of Science in Finance, an MBA with a finance concentration, or an MBA in financial planning. Some consultants and advisors train as generalists, but it's possible to find Master of Finance degree programs that allow students to specialize in investment management, wealth management, financial management, or retirement planning.
Are there certifications for financial consultants and financial advisors?
Yes, and you'll need the same certifications for both roles. Step one is to earn the Certified Financial Planner (CFP) certification and the Chartered Financial Consultant (ChFC) certification.
To earn the CFP designation, professionals must have three years of work experience, complete an education program, and pass the certification exam. To maintain certification requires meeting continuing education requirements and abiding by the CFP Board’s code of ethics. Certified financial planners must also be fiduciaries, which means they have pledged to act in the best interests of their clients at all times. ChFC candidates take nine courses focused on retirement planning, estate planning, insurance, investments, and income taxes to earn this certification. Seven of these courses overlap with the CFP education program, making it fairly simple to earn both certifications at once.
There are also other certifications for financial consultants and financial advisers, like the:
- Personal Financial Specialist (PFS) certification
- Certified Fund Specialist (CFS) designation
- Certified Investment Management Analyst (CIMA) designation
- Certified Public Accountant/Personal Financial Specialist (CPA/PFS) designation
- Certified Private Wealth Advisor (CPWA) designation
- Chartered Investment Counselor (CIC) designation
- Chartered Market Technician (CMT) designation
- Retirement Management Analyst (RMA) designation
- Retirement Income Certified Professional (RICP) designation
Some personal financial advisors also get Financial Industry Regulatory Authority (FINRA) licenses. Not all firms require consultants and advisors to have FINRA licenses, but if a professional is selling annuities and other insurance-linked products, they'll usually be licensed.
Financial consultant vs financial advisor: who earns more?
This is where things get even more confusing. Financial consultants and financial advisers typically have the same degrees and get the same certifications, but their salaries can differ quite a bit. According to Indeed, the average financial consultant salary is about $89,000 and the average financial advisor salary is about $67,000.
The reason for the discrepancy is unclear. It may be that more large, well-paying financial and brokerage firms hire 'financial consultants' while more 'financial advisors' are sole proprietors or work for small businesses. It could also be that the numbers above represent base pay, and financial advisors are more likely to earn bonuses that comprise a high percentage of their annual pay.
Both financial consultants and financial advisors get paid in a variety of ways. Some get higher base pay and limited bonuses. Others take home the majority of their income in the form of "variable pay" based on how much they earn for a company and overall customer satisfaction. Still others act as fee-only advisors and are paid hourly or on retainer.
Are financial consultant and financial advisor two titles for the same position?
The frustrating answer is that sometimes they are and sometimes they aren't, and whether they are or aren't depends on whom you ask. There are no legal definitions for either term, which means that professionals working independently and marketing directors at brokerage firms are free to use whichever term they think will sound more impressive to potential clients. Schwab employs financial consultants. Vanguard employs financial advisors. Fidelity employs both. Just like some companies employ investment advisers or brokers or wealth managers.
The terms financial consultant and financial advisor don't tell you anything about a professional's approach to finance, licensure, specialty area, practice standards, or legal obligations. Given the right training and certifications, a financial professional can work in either position. And that means that yes, financial consultant and financial advisor are two titles for the same position. Some firms might treat the roles differently internally, but the professionals who wear these hats are doing the same things for their clients.
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