Financial Coach vs Financial Advisor: How To Choose
Dealing with money can be scary, especially if you're unsure which financial professional is best suited to your needs.
The good news is that whether you have a substantial amount to invest or are experiencing financial trouble and have few assets to your name, a financial professional is available to help you.
The two most commonly compared financial professionals are financial coaches and financial advisors. Let's explore both types of professional help to see which is right for you.
What Is a Financial Coach?
Think of a financial coach as someone who helps you play-by-play with your everyday finances and helps you manage money. Financial coaches work with you on your personal finance decisions affecting your daily life.
They do not give specific investment advice; instead, they help you overcome obstacles that prevent you from good financial management and help you learn to save money.
What Does a Financial Coach Do?
Financial coaches tend to be very hands-on in helping with your financial life. They help you with immediate financial problems so you can create positive money habits. A coach can help with things like:
Overspending
Lack of a budget
Not following a created budget
Debt management
Saving money for emergencies
Learning how to save sinking funds for large expenses
A financial coach's overall goal is to help clients manage their personal finances by guiding them to reach their goals. This involves some accountability, teaching, and goal setting.
How Much Do Financial Coaches Charge?
Since financial coaches don't give investment advice, they don't charge commissions. Instead, the financial coach cost is charged per hour or per session. Some also charge a flat fee based on the program you choose.
Who Needs a Financial Coach?
A financial coach is a great fit for people who cannot control their finances. Whether you live paycheck-to-paycheck and can't make ends meet or have plenty of assets but can't meet your financial goals, a coach can help.
Common reasons people choose financial coaching include:
Lack of financial literacy
The need for accountability
Help with creating and sticking to a budget
Support creating a debt management plan
Help with getting you and your spouse on the same financial page
Where To Find a Financial Coach?
Since financial coaches don't need specific certifications to call themselves coaches, it's best to stick to accredited associations to find reputable coaches.
The Association for Financial Counseling and Planning Education and the Financial Therapy Association are both great resources for finding experienced financial coaches with the right coaching accreditation to help you on your financial journey.
If you're looking for financial coaching dedicated to couples, schedule a consultation with Adam today!
Pros and Cons Working With Financial Coaches
As with any decision to work with a professional, it's important to consider the pros and cons of working with a financial coach.
Pros
Provides guidance and accountability on everyday financial decisions
Often more affordable than financial advisors
Provides comprehensive money management services
Cons
Not all coaches have proper credentials
May not be able to provide investment advice
What Is a Financial Advisor?
Like financial coaches, financial advisors provide financial advice, but they focus on your future and larger financial goals, such as retirement planning, education savings, or even short-term goals, like saving for a dream vacation.
Unlike financial coaches, financial advisors can give investment advice and, depending on their credentials, may be able to buy and sell securities for you.
Unlike financial coaches, financial advisors must be certified, but there are many designations they can have. A few examples include:
Series 6: This license allows advisors to sell packaged securities, such as mutual funds.
Series 7: This license allows advisors to sell most securities, including stocks and bonds.
CFP: A Certified Financial Planner helps you with financial planning and orchestrates the steps to achieve them.
What Does a Financial Advisor Do?
Financial advisors provide the assistance needed to create an investment plan. For example, they can give investment advice, help you build an investment portfolio, and even advise on other estate planning things, like life insurance and tax planning.
How Much Does a Financial Advisor Cost?
Financial advisors tend to charge a percentage of your assets under management (AUM). The fee is typically 1% of your assets but can be less for robo-advisors or more for more experienced advisors.
Who Needs a Financial Advisor?
Everyone can use a financial advisor, but the most common reasons to consider one include:
Lack of understanding of investment options
Optimizing an investment portfolio
Saving for specific goals, such as retirement or buying a house
Help optimize your tax planning
Where To Find a Financial Advisor?
You can find financial advisors online for little to no cost. These robo-advisors help create an investment strategy that works with your risk tolerance and helps you reach your financial goals. Popular robo-advisors include Betterment, Robinhood, and Ellevest.
If you prefer working with someone in person or dealing with a human rather than a computer, you can ask friends or family for referrals, ask other professionals, such as your accountant or tax advisor, or consider recommendations made by the National Association of Personal Finance Advisors.
Pros and Cons Working With Financial Advisors
Before choosing a financial advisor, consider the pros and cons of working with one.
Pros
Can provide expert guidance in creating an investment portfolio
May help with the ongoing management of your portfolio
Can provide a hands-off approach to investing, handling the buying and selling for you
Cons
Commissions can be high
Some advisors work on commission, suggesting specific financial products, and don't put your best interests first
Tips for Choosing a Financial Coach vs Financial Advisor
Choosing a financial coach vs financial advisor is a big decision. Here are some tips to consider when comparing your options.
Consider your finances: Don't fall for sales tactics and assume you need all the services an advisor offers. Know what you can afford and choose your advisor accordingly.
Know what you need: A financial coach helps you get back on track financially and make short-term, consistent changes. A financial advisor helps with investments and long-term planning and knows your needs.
Pay attention to commissions: Know the cost structure of either financial professional. Flat fees are easier to understand and budget for, while commissions can be high and unpredictable.
FAQs
Can a Financial Advisor Be a Financial Coach?
Financial advisors can be financial coaches, but coaches cannot be financial advisors. A professional must have the appropriate credentials to be a financial advisor.
Is a CFO a Financial Advisor?
A CFO is responsible for managing a company's financials. While they may have the education and understanding to work as financial advisors, they cannot be financial advisors unless they have the appropriate credentials to handle an individual's investments.
What Makes a Good Financial Coach?
A good financial coach will listen to you, ask the right questions, and help you understand your financial situation.
A good coach will help you control your finances while providing accountability for your decisions. They will also provide financial counseling to help you understand why you make certain financial decisions and how to change bad spending habits.
How Much Money Should I Have Before Hiring a Financial Advisor?
Every financial advisor has different minimum investment requirements. Robo-advisors have the lowest requirement, whereas human advisors have much higher requirements, starting at $20,000 and going up to $200,000+.
Do Financial Advisors Beat the Market?
Financial advisors cannot beat the market or promise to do so. A good financial advisor's goals should be to look at your financial situation holistically and help you achieve your goals by creating a solid investment strategy.
Is a 2% Fee High for a Financial Advisor?
The average advisor charges 1% of AUM, but it depends on the services they provide. Some advisors may charge as much as 2% but offer other services, such as tax optimization or life insurance planning.
Do Banks Offer Financial Coaching?
Some banks, like Capital One and Wells Fargo, offer basic financial coaching. Some credit unions also offer this service. However, a private financial coach may be better if you want a more personal session that holistically focuses on your situation.
Financial Coach vs Financial Advisor: Which One Is Right for You?
Choosing a financial coach or advisor is a big decision. Before choosing, look at the big picture and decide what you need.
If you're looking for someone to point you in the right direction, help you understand your poor financial habits, or help you achieve short-term goals, a financial coach is the right decision.
A financial advisor is right if you want someone to either do your investing for you or guide you with the right strategies. Either way, a financial coach can help you with the play-by-play so you make sound financial decisions and reach your wealth-building goals.
If you're interested in seeing what financial coaching is all about, schedule a consultation today!
Want to level up your game around money in your relationship? My free quiz will help you learn your Couple’s Money Personality Type AND how you can grow from there!
Adam Kol is The Couples Financial Coach. He helps couples go from financial overwhelm or fighting to clarity, teamwork, and peace of mind.
Adam is a Certified Financial Therapist™, Certified Mediator, and Tax Attorney with a Duke Law degree and a Master's in Tax Law from NYU. He is a husband, dad, and musician, as well.
Adam's wisdom has been shared with The Wall Street Journal, the Baltimore Ravens, CNBC, NewsNation, and more.
