a hand using a calculator next to a laptop

When it comes to your financial future, are you just “winging it”? According to a report by CNBC, that’s what 75% of Americans are doing by managing their finances on their own. And while more than half of adults feel confident about their ability to save for the future, study upon study has shown they are falling short.

There are plenty of online resources out there to help you DIY with your finances, but the complexity of such finance topics as investing, retirement planning, and taxes may require more practice than reading a bunch of blog posts and articles. Even more so, online resources and services won’t hold you accountable, help you change unhealthy money behaviors, remove the emotion from your finances, or make a plan specific to your own situation. Sometimes your financial future could use the help of an experienced professional.

Instead of improvising your financial planning, it may be better to turn to a financial coach or a financial advisor. While both of these financial professionals provide assistance in reaching your financial goals, they are not the same. To determine what option is best for you, consider what a financial coach and financial advisor do, how they differ, and the pros and cons of working with either one.

What Is a Financial Coach?

A financial coach is someone who will help you understand the basics of personal finance and help you develop and maintain healthy financial habits. Their main job is to empower their clients to reach their financial goals and learn how to handle their finances responsibly. They typically work with clients who want to save money, create a budget, pay off debt or just improve their financial literacy in general.

Just like a coach for a sports team, a financial coach teaches you the knowledge and skills you need to play the game, helps you create healthy habits that improve your performance and then encourages you from the sidelines. Same idea, much different game.

What Is a Financial Advisor?

A financial advisor is someone who helps you build wealth and prepare for your future through long-term financial planning. While they can advise in all facets of personal finance, they tend to focus on comprehensive financial goals that last throughout your lifetime and beyond. They usually work with clients who want to manage their assets, build an investment portfolio, and plan for their retirement. A financial advisor also helps with taxes, estate planning, health care and long-term care planning.

What Is the Difference Between a Financial Coach and a Financial Advisor?

In simplest terms, financial advisors work to manage and build on wealth that already exists while financial coaches provide information that helps put clients in the best position to create that initial wealth. Aside from their job duties, a financial coach and financial advisor differ in many ways, including in their qualifications, how they work with their clientand their cost.

Qualifications

Financial coaching is a relatively new field and, as such, is not bound by any regulatory standards. That means financial coaches do not necessarily need any formal education or training to become coaches, nor do they need to be certified or licensed. In fact, anyone can become a financial coach if they so choose. It’s up to the client to do their due diligence in making sure they are working with someone who is knowledgeable and competent in personal finance matters. Coaches do have the option to receive formal training, participate in educational programsand earn certification. When working with someone on something as important as your money, you’ll want to work with someone who knows what they’re doing and has experience in setting people up for success.

While anyone can be a financial coach, not everyone can be a financial advisor. In order to be a financial advisor, you must be licensed and registered with the Financial Industry Regulatory Authority (FINRA), which regulates the financial services industry. Financial advisors obtain this licensing by passing exams based on the advice and services they want to offer. While it is not required for financial advisors to have a degree, the majority of them will have a bachelor’s degree in finance or a related field. That’s because most firms require their advisors to have at least a bachelor’s degree from an accredited college or university.

Working with Clients

Since financial coaches are not licensed, they legally cannot give you advice nor make recommendations on how or what to do with your money. For example, a financial coach cannot give you specific advice about investing, nor make a recommendation on what stock to buy. Instead, they can teach you about investing, covering basic investment topics like what the stock market is and how it works. This is one of the most important differences between a financial coach and a financial advisor as it affects the kind of services they’ll offer and the type of working relationship you’ll have.

Financial coaches tend to focus on fundamental financial needs and usually take a more personal, hands-on approach to working with clients. In the beginning, you’ll lay out your financial goals and work together as a team to create a plan that helps you meet them. As you work through the plan, your financial coach is there as a resource for any questions you have or encouragement you need. That may mean you’ll have more communication throughout your time together than with a financial advisor.

While a financial coach works with you as a partner, you are ultimately responsible for your success. And once you reach success, chances are you won’t need to work with a financial coach anymore. The purpose of a financial coach is to get you started in finance – to learn more about what it involves and to develop healthy money habits. Most of the goals you make with your coach are short term goals. Eventually, you’ll be ready to venture out into the world of finance on your own. Or, even better, you’ll be ready for the next step – investing and managing the wealth you’ve accumulated. At that point, you’ll want to work with a financial advisor.

A financial advisor can work with you on all stages of your financial life, but most people work with them on investments and future planning. With more of a focus on managing your assets and planning long term, financial advisors tend to take a more strategic, analytical approach in their work. When you first meet with your advisor, you’ll discuss your present-day financial health, your future goals, your risk tolerance, and your investment preferences, if you have any. Don’t feel intimidated if you don’t know how much risk you are willing to take or what kind of investments you prefer. Your financial advisor will help you understand more about these topics and help gauge your comfort level in terms of investing. You may also fill out a financial questionnaire that provides even more insight into your current situation and future projections.

From your initial conversation and questionnaire, your advisor will create a comprehensive financial plan that is custom fit for your specific needs and goals. It may include investment assistance, retirement and estate planning, and insurance coverage, among other recommendations. Once you review and approve the plan, your advisor will begin managing your investment portfolio by moving your assets into different stocks, bonds, real estate, and cash equivalents. Exactly how your financial advisor allocates your assets is based on a number of factors including your age, your risk tolerance and how fast you want your money to grow.

Your working relationship with your financial advisor may not include as much communication as with a financial coach, but your advisor should still check in with you throughout the year, providing monthly or quarterly performance reports at the very least. You should also have access to your account, so you can regularly monitor your assets, trading activity and fees.

Remember, a financial advisor can cover everything a financial coach can, and also has the ability to make financial recommendations, provide financial advice, and manage your money. So why wouldn’t you just work with a financial advisor? Cost may play a role in the decision, along with what exactly your goals are.

Cost

Since financial coaching is not regulated and anyone can be a coach, pricing will vary greatly. Certified or highly-trained coaches, or ones who are in high demand, may charge more than a novice coach or one who is just starting out and trying to build their clientele. On average, financial coaching costs anywhere from $75 – $600 per one-hour session. Often times, coaches will offer pricing on a per-session basis or bundle sessions into a package that may include a certain number of one-on-one sessions along with unlimited email support and such bonus materials as wealth building strategies, debt elimination plans, accountability partnerships and free worksheets.

Financial advisor price structures work a little differently. There are three ways financial advisors charge for their services:

  • Fee-only: The advisor charges by the hour or they charge a percent of your assets they manage, typically around 1%. For example, if your advisor manages $500,000 of assets for you, you may pay around $5,000 that year. If the amount of your assets increases, so will the charge.
  • Commission-based: Investment providers pay the advisor a percentage of the investments you buy from them. While the amount is paid by the investment provider, it is still coming out of your account.
  • Fee- and commission-based: A combination of the two, the advisor charges a flat fee and earns a commission on the investments you buy.

Financial coaching tends to be cheaper than financial advising, but it depends on the kind of coach or advisor you choose and the type of plan you want. While cost can play a factor in who you decide to work with, whether you choose a financial coach or a financial advisor really depends on the state of your finances and your current financial goals.

Should I Work with a Financial Coach or Financial Advisor?

If you’re still not sure whether to work with a financial coach or a financial advisor, ask yourself a few questions. What are your financial goals? Where are you on your money journey? Are you trying to pay off debt and save money or are you ready to invest? Are you intimidated by money? What are you looking for, advice or accountability.

When to Work with a Financial Coach

If you are just starting out managing your finances and don’t know where to begin, a financial coach may be a good option for you. They are helpful for someone who wants to become proficient in the basics of finance, from learning how to budget or save money to building an emergency fund or creating a plan for paying off debt. If you have short-term money goals, like saving for a big purchase or just practicing better money habits, a financial coach can help you reach them by working with you to create a plan and holding you accountable.  

Pros and Cons of Working with a Financial Coach

A financial coach can have a positive impact on your financial wellbeing and your life in a number of ways:

  • Financial coaches see the bigger picture of how you relate to money. They can help you develop better habits, resulting in positive personal growth.
  • By providing education and encouragement, they can reduce financial stress, confusion, and what it is about money that overwhelms you.
  • Through accountability and support, they can help you accomplish your goals and help you feel more confident in your finances.

However, hiring a financial coach can have its drawbacks. Consider these risks of working with a financial coach before you hire one:

  • Anyone can become a financial coach, meaning they do not need to go through proper training before working with you. If you do choose to work with a financial coach, choose one who is at least certified.
  • Since you are ultimately responsible for your success, it can be difficult to blame the coach if you don’t see any improvements. Depending on your agreement, you may not get a refund. In that case, you risk wasting money that you already can’t afford to lose.
  • Coaches vary in their expertise, so it can be difficult to find the right one for you.
  • Coaches cannot provide recommendations or advice and do not focus on complex financial issues. If that is what you need, work with a financial advisor.

When to Work with a Financial Advisor

Many people think that financial advisors are only for the wealthy, but anyone can work with a financial advisor. And it doesn’t matter where they are on their financial journey. When it comes to any major financial decisions, like taking out a personal loan, starting a business, refinancing your home or drawing from social security, it is best to consult a financial advisor. They are licensed to give you advice and can provide an unbiased opinion when you need it.

When you’re ready to invest but feel overwhelmed or don’t know where to start, consider working with a financial advisor. If you have investments, but you aren’t increasing your net worth or, worse, you’re consistently losing money, a financial advisor can figure out what is going on and help you improve your strategy. They are also helpful for someone who wants to plan their financial future, including how to save for retirement and how to put together an estate plan.

Pros and Cons of a Financial Advisor

Working with a financial advisor can pay off in the short term and in the long term. Here are some benefits you can expect from hiring a financial advisor:

  • Financial advisors are licensed professionals and may have a deeper understanding of money management. As such, they can provide fact- and experience-based recommendations.
  • By offering unbiased, strategic advice, they help you plan for your financial future without emotions getting in the way. That means they can help you from making impulsive decisions when the market is volatile.
  • Financial advisors who manage your portfolio can save you time and reduce your stress by handling this part of your life for you. However, it is important to stay updated and check in with your advisor throughout the year.

Of course, with any service that involves your money, there are a few risks to consider when working with a financial advisor.These may include:

  • Conflicts of interest may arise when working with a financial advisor who makes a commission. While financial advisors are supposed to have your best interest in mind, they could try to sell you certain products or services that make them money but may not be needed for your situation. You may want to look into working with a fee-based advisor or a fiduciary financial advisor, who is legally required to act in your best interest.
  • If you’re only investing a small amount of money or only working with an advisor on non-investment issues, you may not get a return on the money you spend for their services.
  • If your advisor is only doing the bare minimum or, even worse, giving you bad advice, you could end up paying more than what their services are worth or lose money.

To help prevent a costly experience, make sure you do the work to find the right financial advisor or financial coach for your situation. Shop around and interview potential advisors and coaches before choosing one. Tell them what you expect from your working relationship from the get-go and ask them about their experience and qualifications. Learn more about how they will work with you and compare prices. Once you begin working with someone, don’t be afraid to ask how they came up with your individual plan and why they are making the recommendations they are making. Always monitor your progress or investments to make sure you’re getting the results you paid for.

Have you worked with a financial advisor or financial coach? Tell us about your experience.

This Post Has 2 Comments

  1. Excellent description, Lauren. I like the breakdown, then scenarios when each would work. This is ideal for me to share with potential money coach clients.

Leave a Reply

Your email address will not be published. Required fields are marked *