What Is a Financial Consultant?
What Is a Financial Consultant?
“Financial consultant” is a somewhat antiquated term that’s largely been replaced by the term “financial advisor.” Financial consultants may work for a firm or as a self-employed contractor, and their clients may be companies or individuals.
In short, financial consultants offer personalized advice to help investors build wealth. They may offer financial planning, identify well-suited investments and guide insurance decisions. They often direct the buying and selling of investments, like stocks and bonds, on their clients’ behalf. Some may also sell financial products.
A financial consultant usually meets with clients to assess their financial situation before they make any recommendations. Any time a client experiences a major life change (marriage, job change, retirement), they’ll likely request another meeting.
Consultants also spend time marketing their businesses. They often travel and work outside normal business hours to accommodate their clients’ schedules.
Brief History of Financial Advisor Terms
Originally, the person who did the job described above was referred to as a stockbroker or just a broker. At some firms, they were called account executives or registered representatives. Even retail bankers, insurance agents and accountants offered financial products and advice.
The investing industry went through a re-branding in the 1980s. Many financial professionals changed their titles from stockbroker or account executive to financial consultant. They hoped this would shift their image from transaction-driven salesmen to highly trained financial professionals with valuable investment skills and advice.
The title of “financial consultant” didn’t stick for long though. By the 1990s, people began to refer to the role as a financial advisor. Because a consultant’s advisory skills were chiefly important, this appears to be a natural progression.
Eventually, pressure mounted for these professionals to adhere to fiduciary standards. There previously hadn’t been much coordination or regulation among professionals. Thus, they developed a reputation for giving biased advice to sell more products even if the products didn’t fit the needs or circumstances of the consumer.
Financial Consultant vs. Financial Advisor
The terms financial consultant and financial advisor are almost synonymous. In fact, many financial advisors actually refer to themselves as consultants.
Both financial consultants and financial advisors help others make educated financial decisions, particularly investment decisions. Many are experts in comprehensive financial planning. You’ll likely need to look into financial advisors’ education, experience and certifications to differentiate which one is right for you.
Both consultants and advisors may have studied economics, accounting or finance in college. It isn’t uncommon for them to earn MBAs, and many hold advanced certifications. One of the most highly regarded certifications is the certified financial planner (CFP) designation, but there are many others of value.
For instance, the chartered financial consultant (ChFC) designation was introduced in 1982 as an alternative to CFP. The Institute of Financial Consultants issues ChFC designations after a candidate has completed five online modules, done 20 hours of continuing education and passed an online test.
The core curriculum for the CFP and ChFC designations are the same, but ChFC certifications require a few additional elective courses in financial planning. The consultant designation doesn’t require a comprehensive board exam like the CFP designation does though. Both CFPs and ChFCs are qualified to analyze your financial situation and give advice.
How to Find a Financial Consultant or a Financial Advisor
Everyone has a unique financial situation. Some financial consultants and advisors have a specialty or only work with certain levels of investors. You’ll need to find a financial advisor who works for you. You can use online search tools or ask for referrals from friends and family who are in a similar stage of life and financial circumstance.
Once you have a few options in mind, look them up online and get a sense of their services and experience. Then, prepare a list of questions to ask about their fee structure, account minimums, expertise and certifications and investing philosophy. You’ll want to meet a few options in person before you make a decision.
Bottom Line
Although the terms financial advisor and financial consultant basically mean the same thing, the distinction is important to understand. Gathering as much knowledge as you can about the financial advisor industry will only make your final choice a much safer bet. To figure out what kinds of specializations a financial consultant or financial advisor might have, be sure to pay close attention to their designations.
Tips for Choosing a Financial Advisor
- When searching for a financial advisor to work with, try to stick with advisors bound by fiduciary duty. When an advisor is a fiduciary, they legally must act in their clients’ best interests at all times. To find a fiduciary financial advisor in your area, try SmartAsset’s free financial advisor matching tool. The tool will connect you with up to three local advisors. Get started now.
- Make sure you fully understand a financial advisor’s fee schedule before you agree to work with them. For instance, fee-only financial advisors solely earn money from the fees that their clients pay to them. Fee-based advisors, on the other hand, may also make money from commissions earned from selling insurance or trading securities. This could create potential conflicts of interest.
- You should always look at a firm’s Form ADV, which is the SEC paperwork that all RIAs must fill out. In this two-part report, you can learn everything from how the firm will allocate your investable assets to whether it has an in-house expert on retirement planning.
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