CFPs, CPAs, RIAs and More — What Do Each of These Financial Professionals Do for You?
According to Statista, 61% of adults invested in the stock market in 2023. If you’ve started investing your money or are looking into what to do with your savings, you’ve likely considered working with a financial professional to help you navigate.
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While “financial advisor” may sometimes seem vague, various professionals fall under this umbrella. Let’s take a look at notable titles in the financial planning space to determine what each professional can do for you.
What Makes Financial Professionals Different?
A financial advisor can be anyone who works with you on your money management plan.
“The first thing to remember is that anyone can call themselves a financial advisor,” said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth. “Even someone just selling you life insurance can call themselves a financial advisor. What someone does and how they get paid matters.”
You’ll want to know the credentials of the “financial planner” you work with because this could determine what kind of advice they give and how they get paid, impacting their relationship with you.
“Each financial professional has a different focus within their profession, even though sometimes it seems that their duties may overlap with another,” noted Christian Maldonado, COO of Finsult.
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How Different Financial Professionals Can Help You
Maldonado provided a specific example of how the roles of a certified financial planner (CFP), certified public accountant (CPA) and registered investment advisor (RIA) differ based on your situation.
“An example could be your CPA recommending you consider obtaining a retirement strategy such as an IRA or 401(k). Your accountant can’t legally advise you on the best option and then create one on your behalf. You would go to a CFP or RIA to go further down that journey of learning and creating such vehicles/strategies.”
If you’re looking for advice on figuring out your tax situation with your multiple income streams, you likely would go to a CPA for assistance. If you wanted to form a relationship with a financial professional who could help you create a financial plan for your retirement, you likely would want to work with a CFP.
We will break down the roles of each in the next section.
Certified Financial Planner
The first financial professional we should look at is a CFP because this may be the most common.
“A CFP professional is trained in personal financial planning and can help you to create a comprehensive financial plan,” Zigmont explained. “A comprehensive financial plan includes investing, cash flow, insurance, taxes, estate planning and more.”
A CFP focuses on the following tasks:
Asset allocation and investment portfolios
Retirement planning
Estate planning
Risk management and insurance planning.
Certified Public Accountant
The next financial professional we must examine is a CPA.
“CPAs can help you with tax filing, and some also do tax planning,” Zigmont explained. “Additionally, they are experts at understanding finances and may offer auditing services.”
A CPA is different as a financial professional from a CFP because they focus on the following:
Tax advice to help out with planning and filing
Bookkeeping
Auditing services
Business consulting
Registered Investment Advisor
An RIA is a financial professional or a company that provides customized investing advice. It is regulated by the government and registered with the SEC.
Although, as Zigmont pointed out, “Being registered does not imply any level of training.”
Investment Advisor Representative
Someone who works as an IAR is registered with the government to provide you with personalized investing advice, unlike some other financial professionals.
Many CFPs are IARs, but not all IARs are CFPs.
An IAR is different from a CFP as a financial professional because the IAR focuses on the following:
Sharing advice, data and analysis for clients to make informed investments
They have to put your financial interests first with their fiduciary duty.
Terms You Need To Know
While it helps to know the roles of the various financial professionals, you’ll also want to learn about how they’re paid, as this will determine the type of advice they provide.
“A fiduciary is required to put the client’s interest ahead of their own,” Zigmont said. “Always ask if your financial professional is a fiduciary.”
Here are the different payment options for financial professionals.
Fee Only
Clients pay a fee-only financial professional for advice. This person doesn’t receive any extra compensation or commission to promote products. If you’re not the only one paying your advisor, they may have conflicting interests.
Fee Based
Fee-based planners could receive payment from you and commissions or other incentives based on the products they promote.
Flat Fee
This type of financial planner will charge you a set amount for planning and investment advice. You pay a flat rate for their customized financial advice.
AUM Fee
In an Assets Under Management situation, you pay your financial professional a percentage of your investments every year.
Advice Only
In this situation, you pay the financial professional for advice, but the person doesn’t manage your investments. The planner could be paid monthly, hourly or per project.
Choosing a Financial Professional
It may seem overwhelming to consider the various financial professionals available, but you can simplify the process by seeking help based on your situation. If you’re looking for tax advice, you could work with a CPA to learn how to better manage your books and documents. If you’re looking to create a financial retirement plan or begin the estate planning process, you could work with a CFP.
The goal is to find the right financial professional to help you. You’ll want to look into the credentials of the financial professional so you know what type of advice the person can provide and how the person will be compensated.
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This article originally appeared on GOBankingRates.com: CFPs, CPAs, RIAs and More — What Do Each of These Financial Professionals Do for You?
