Are you looking for help with taxes and record-keeping, or do you need guidance on how to manage investments, grow personal wealth, plan for retirement or achieve other financial goals? The answer to these question is important for determining which type of personal financial advisor is best for you. You might consider learning more about organizing financial paperwork before you hand all of your files over to a CPA or financial advisor.
Financial advisor is an umbrella term which can cover a wide range of financial professionals. Creating your own financial plan is not easy and having a financial planner to lean on is vital. Financial planners, stockbrokers, insurance agents, tax preparers, investment managers, estate planners, bankers, accountants, and certified public accountants (CPAs) might be included in this category – provided they offer financial advice and advocate for the best interest of their clients over those of their company. (It doesn’t count, for example, if an insurance salesman is trying to sell you one of their policies.)
There are many specialized types of financial advisers, or financial planners. While there is a little bit of overlap in what they do versus what CPAs do, for the most part, these financial professionals focus on distinct areas of the financial arena.
There is one key piece of advice any of them will share. Whether you manage your own finances, hire a single advisor, or an army of specialists, it’s vital to keep your records organized, accessible and secure. More and more individuals are finding that keeping their family’s health, legal and financial records online in a trustworthy document storage system like Pillar is the safest, most convenient, and smartest option out there. It's also important that you learn how long to keep your financial records, so you don't throw out documents you might need in the future.
Is a CPA the Same as a Financial Advisor?
CPAs can act as financial advisors. However, their advice generally is limited to tax-related topics (unless they also have other specialties). CPAs are authorized to advise on ways to minimize business or personal tax liabilities, how to maximize tax returns, and how to structure a business to get the most bang for your buck – in terms of tax benefits, that is.
CPAs can explain the pros and cons of incorporating your business, or the ins and outs of a partnership, for example. CPAs are the perfect professionals to have on your side during a tax audit, and using their services will minimize the chances that you will find yourself facing an audit in the first place.
Can a CPA be a Financial Planner?
In some cases, a CPA can also serve as a financial planner. However, in most cases they don’t. Usually, a CPA holds a more reactive role – reacting to what has happened in the prior year and accurately reporting it – rather than a future-oriented planning role. A CPA is also helpful in figuring out what financial goals should be.
Personal financial planners, on the other hand, are more focused on your financial future. They help manage and grow wealth to meet your financial goals. Financial planners may offer guidance in many financial arenas such as wealth management, estate planning, money market or mutual funds, retirement accounts, investment management and savings strategies.
Once growth plans have been created, financial planners continue to monitor and manage your money, and make adjustments as needed. They will generally meet with clients routinely to review and adjust strategies in response to changing stock markets, for example, or evolving personal situations or goals. A financial planner typically works on commission while a CPA usually charges an hourly rate.
Look for a Financial Adviser with Multiple Certifications
There can be benefits of finding one professional who can serve both purposes, of course. It may be simpler to deal with a single individual rather than multiple people or firms. It also ensures that your financial planner sees your entire financial picture and figuring out what your financial goals are.
Just don’t make the mistake of assuming that any CPA can serve as your financial planner. If you are looking to merge these roles, look for a CPA financial planner - one who offers both CPA and financial planning services, and who is qualified for both roles.
Personal Financial Specialist (PFS) is a special accreditation available to CPAs who have broadened their range of expertise beyond the tax realm into estate finance, retirement savings, investments or insurance matters.
Note that CPAs who are involved in buying or selling of stocks, bonds, mutual funds, annuities or other such investment products must be specifically licensed to do so.
Financial Planner Certifications and Specialities
Certified Financial Planners (CFPs) more or less specialize in everything, and are qualified to offer advice in pretty much any financial area. They are among the few professionals authorized to advise on investments. Financial advisors can also help navigate questions like what happens when you file bankruptcy. To earn a CFP designation, applicants must undergo a rigorous testing and educational process, demonstrate understanding in almost 100 distinct areas of knowledge related to financial planning and adhere to strict code of ethics.
Beyond CFPs, there are several sub-specialties in the financial planning world.
- Certified Retirement Financial Advisors help people plan for retirement.
- Chartered Financial Analysts (CFA) specialize in investments.
- Chartered Financial Consultants (ChFC) advise small business owners and professionals in areas such as income tax, insurance, investments, retirement planning and estate planning.
- Chartered Trust and Estate Planners specialize in trust and estate planning.
- Registered Investment Advisors (RIA) advise high-net-worth clients on investment and portfolio management.
Is the CFP or CPA Harder?
Both certified financial planners (CFPs) and certified public accountants (CPAs) have to work hard for their certifications, but the chartered financial analysts (CFAs) may have to work hardest of all. Less than half of applicants successfully complete the CFA exam series, and often, the applicant must then wait an entire year before retaking the test.
Certified Financial Planner Requirements
To earn CFP certification, an applicant must complete a rigorous certification process overseen by the Certified Financial Planner Board. They must have:
- A bachelor’s degree
- Additional education in insurance, retirement planning, income taxation, estate planning or investing
- At least 3 years, or 4,000 hours, of experience in financial planning
- Passed the complex, 10-hour CFP exam
Certified Public Accountant Requirements
Not all accountants are certified. Accountants who pursue a CPA license must first earn a bachelor’s degree, and then amass relevant work experience. They must then complete the American Institute of Certified Public Accountants’ grueling 14-hour CPA exam to earn their certification. CPA license exam topics include:
- Business environments and concepts
- Financial accounting and reporting
- Audit and attestation
CPAs are responsible for maintaining continuing education hours every year.
Chartered Financial Analyst Requirements
The CFA is essentially equivalent to a master’s degree in finance with a minor in either accounting, economics, statistical analysis or portfolio management.
Chartered financial analysts (CFAs) are specialized investment professionals. They are educated and tested heavily on financial analysis, portfolio management and ethical issues. CFAs are certified by the CFA Institute after:
- Earning a bachelor’s degree
- Completing at least four years of investment experience
- Passing a nightmarish three-level 18 hour examination process
Is CFA or CPA Better?
The CFA and CPA are two of the highest credentials obtainable in the financial field, but neither is necessarily better than the other. Depending on your particular financial situation, one or the other may better suit your needs. Either certification is evidence that this professional knows their stuff, and is held to high ethical expectations.
CFAs tend to specialize in investment analysis and wealth planning, while CPAs usually focus on taxes, audits or accounting. A CFA would be a better choice if you’re seeking advice on investment strategies, or need someone to analyze financial statements or reports. A CPA would be more likely to have compiled or audited those reports in the first place. CPAs tend to be the best choice if you need someone to accurately report business dealings or assist with tax planning strategies.
Regardless of your personal finance planning needs, you’ll need a secure, accessible solution for organizing your business or family’s financial records. Take a closer look at Pillar’s secure online document storage service today or click here to learn more about how to organize your bills and financial records.