What’s the difference between financial advice and financial planning?

I’ve decided that I would like to get some help with my finances but am not sure whether I need a financial adviser or a financial planner.

I have more than £100,000 in cash savings accounts and another £40,000 in Premium Bonds but only £25,000 invested in stocks and shares Isa and am looking for some help investing it.

I also have a work pension, which both my employer and I pay into, and I’m happy with that building up in the background.

What I really want is some advice on making my savings work harder – and what kind of thing I should invest in. I’d also like to get a bit of a plan together on how to sort out my finances so that I can step back from working full-time in my early to mid-50s (I’m about to turn 40 now).

I’ve looked at some options and some places talk about financial advice and others about financial planning, what is the difference and what sort of help should I look for? I don’t want to pay a small fortune in fees for stuff I could do myself once it is set up.

Financial advisers can help you navigate the often confusing world of investment and offer specialist advice on how to manage your money 

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Angharad Carrick of This Is Money says: Investing is a daunting topic if you have little financial knowledge. The sheer amount of information out there can be overwhelming.

Given the amount you have saved, you may want to consider some form of advice or planning, whether as a one-off bit of help or on a longer-term basis.

Often you may see the terms financial adviser and financial planner used interchangeably, but there are some differences.

Financial advisers provide specialist advice on how to manage your money, including investments, pensions, tax planning, and insurance. They tend to focus on a particular issue or a one-off need for help, while planners look at the bigger picture and help you plot out a path to reach your financial goals in life.

So, for example, if you simply want to work out what you should do with your £140,000 and invest some or all of the money then financial advice may be the answer, but if you want someone to help you build a plan to achieve your life goal of stepping back from full-time employment in your early to mid-50s, then financial planning may right for you.

Mark Hutchinson, membership director of the Personal Finance Society, explains: ‘Any regulated financial adviser will be able to understand your attitude to investment risk and make recommendations accordingly.

‘Where financial planning can come into its own is by helping coach you to understand and achieve your broader goals; i.e. Why do you want to retire early? What will be your plans in retirement and how much money will you need to lead the life you want? etc.

‘Have a commitment-free chat with a few advisers and see if you think you could work together.’

Josh Butten, certified financial planner and director of Boosst Financial replies:

A good financial adviser will typically help you to address a single need.

As both financial planners and advisers are regulated, they share the same duty to ensure that their product recommendations are suitable for you when it comes to pensions and investments.

The recommendations that a financial adviser makes in the single area you are focused on, in this case investing some of your £140,000, will be considered and appropriate for your needs.

A good financial planner will start with the same question ‘What should I do with my £140,000?; but will not answer it straight away.

A financial planner will be more interested in your wider finances, your goals, your objectives, and your dreams.

They will ask you questions about your life journey – like ‘how did you get to here?’, ‘what is most important to you and your family?’ and ‘what do you want to achieve, to feel you have lived a great life?’.

These questions can sometimes be unsettling or unexpected… especially when you just wanted investment advice!

The purpose of those added questions is to really get to know you and understand you.

When it comes to the end recommendation of products, risks, and portfolios – a financial adviser will typically give the same recommendation to 10 people who each want to invest £140,000.

A financial planner is quite likely to give the 10 different investors 10 different solutions and has built a more detailed understanding of what they want to achieve.

What should I expect?

Josh Butten replies: A financial planner typically does three things:

Part 1: Exploratory conversations, to discover and learn more about you, your family, your goals, and your dreams. They will ask open-ended questions, encourage you to think hard and self-reflect and listen to your honest answers.

Part 2: Construct a financial plan using software that builds a cash flow projection of your life. This enables you to build a deep understanding of your finances today, and the financial position you are on track for in the future.

They will add their own advice to the planning, having listened to your objectives and dreams in part 1. A key benefit of Financial Planning is understanding the impact of your important decisions before you commit to them; such as moving home, helping children through university, and deciding when you can stop working.

Part 3: Documenting and sharing regulated advice to improve your financial position. This is often related to pension or investments but can also include advice on personal insurances, such as critical illness and private medical.

The key difference is that a financial adviser will focus on part 3 ‘providing the regulated advice’ and doesn’t lead with parts 1 or 2.

How do you spot the difference?

Josh Butten replies: We need to address an elephant in the room. 100% of financial planners describe themselves as financial planners.

However, a portion of financial advisers also describe themselves as financial planners – and it is very hard for a consumer to know the difference until you are in the room and starting on the journey.

Angharad Carrick, This Is Money, says: There are two types of advisers – independent and restricted – and both must be registered with the regulator, the Financial Conduct Authority.

Independent financial advisers, or IFAs, will offer advice on a range of investment products based on your scenario.

A restricted service, like that offered by St James’s Place or Quilter, may only use their own investments to create your portfolio or those from a panel of providers.

To check if an adviser is authorized by the Financial Conduct Authority you can check its register, and you should also look at its warning list to make sure there are no red flags against their name.

If you are looking for a planner you can use the CISI’s Wayfinder tool to find an Accredited Financial Planning Firm (APFP) and identify a planner who has passed the Certified Financial Planner (CFP) certification.

You should note that both advisers and planners charge fees.

Planners tend not to charge for exploratory conservations but will typically charge a fixed fee between £1,000 and £3,000 to build a financial plan, which builds a cash flow projection of your life.

Advisers do not undertake either of these steps, instead focusing on providing regulated advice. Costs for advisers tend to be between 0.5 percent and 1 percent of sums invested, which must be added to the charges of the funds in your portfolio.

Should you get an adviser or planner?

Josh Butten replies: If you simply seek to arrange an investment, it is absolutely possible to self-teach the basics and navigate the investment world without paying for professional guidance.

There are more options available for this today than there ever have been and many platforms and self-trade brokers would love to arrange your investment – without needing advice.

If you want to have the reassurance that comes from paying a professional to do a professional job of establishing an investment for you, i.e. considering the risks, building a portfolio, considering tax wrappers, and giving you ongoing guidance on rebalances and maintenance – a financial adviser is a good option.

If you prefer to plan for the long term – with the benefit of an unbiased financially-qualified friend alongside you – who understands your goals and dreams… then a financial planner is the best option.