Looking to cross the financial finish line a winner – with your life goals met and out of debt? Having some financial difficulties and worrying constantly about your personal finances? The world is abuzz with swarms of ads for a variety of people who can help, but which one is right for you: a financial coach, a financial advisor, a financial planner, or a financial therapist? What are the differences, and who will be better able to help you? Allow me to be a “financial definer” and help you on your way!
The Coach
A financial coach is someone
who will help you to understand the basics of personal finance, create goals
that fit your needs, and develop and maintain healthy financial habits. The coach’s
main goal is to give an individual, a couple, or a family the ability to reach
their financial goals and learn how to handle their finances responsibly.
Just as a sports coach is key
to ensuring that the individual players on the team practice and hone their
skills and then come together to be successful, a financial coach teaches you
the drills and skills you need to play the money game and be successful at it.
These skills include healthy money habits (although many individuals only go to
a coach when they or struggling financially or are in debt). A coach helps
clients develop and practice healthy financial habits that improve their
personal monetary game. While monitoring their progress, they cheer their
clients from the sidelines and encourage them throughout the process. Of
course, your family’s “monetary game” is played for higher stakes than a
pick-up game of basketball on the local court so “winning” is crucial.
Financial coaching is a
relatively new field. Coaches are not bound by regulatory standards, do not
need any formal education, and do not need to be certified or licensed. Anyone
can become a financial coach or simply call themselves one so beware. It is up
to the client to do due diligence and make sure that they are working with someone
who is knowledgeable and competent in personal finance matters as well as
ethics. As a client you will want to work with someone who has experience in
setting their clients up for success.
Advisors and Planners
What do financial advisors do?
Financial advisors focus on helping their clients build wealth by guiding them
through long-term financial planning. A financial advisor helps a client
understand what is involved in meeting future goals and provides the education
to help them reach those goals. They work with them to develop strategies to
manage their assets, build an investment portfolio, and plan for retirement.
They also guide their clients in estate planning, taxes, and assist with health
care and long-term care planning. These plans include savings, budgeting,
insurance, and tax strategies as well. A good advisor will take the time to
check-in with his or her clients on a regular basis to re-evaluate their
current situation and readjust their plans according to future goals. This in
turn helps the client make informed decisions about their future. Most
financial advisors do not charge outright for their services; instead, they
earn money by taking a percentage of the funds their clients have
invested.
Financial planners are similar
to financial advisors in that they help clients meet their current money needs
and long-term financial goals. They use a structured process to guide clients
toward sensible financial decisions in order to maximize their potential for
meeting their life goals. Using their knowledge of personal finance, taxes,
budgeting, and investments, financial planners make recommendations that help
clients make informed decisions. Financial planners advise and assist clients
on a variety of tasks, including investing and saving for retirement, funding
their children’s educations, or starting a new business.
The terms financial advisor and
financial planner often overlap. Financial planners help their clients achieve
their long-term goals, relying on allocation of investments and making sure
that returns and risk tolerance are in balance. A financial planner often has a
particular area of expertise such as investments, retirement, estate planning,
or taxation.
Financial advisors have a broader scope; they
not only help with long-term planning but may also provide life insurance, real
estate, or accounting services or even help place short-term trades and/or
provide banking accounts.
Advisors and planners hold
different official certifications and licenses. Financial advisors must be licensed
and registered with the Financial Industry Regulatory Authority (FINRA), which
is a private organization that regulates and oversees the financial services
industry. A financial planner may hold various licenses, such as Certified
Financial Planner (CFP), Chartered Financial Analyst (CFA) or Chartered
Financial Consultant (ChFC). To obtain these, the financial planner must
complete a different set of education, examination, and work history
requirements.
Financial
advisors and financial planners perform similar functions. The difference
between them is nuanced, and a clear delineation between the two is very blurry.
The Therapist
The
Financial Therapy Association defines financial therapy as “a process informed
by both therapeutic and financial competencies that helps people think, feel,
and behave differently with money to improve overall well-being through
evidence-based practices and interventions.” An individual may seek out a
financial therapist for several reasons. They may have unhealthy financial
routines, including unhealthy spending habits (think compulsive shopping or
gambling), hoarding money, avoiding financial issues that must be dealt with
(such as paying their bills or filing taxes), or even hiding finances from
their spouse. These bad habits of spending and saving may be masking symptoms
of other mental health issues.
A financial therapist combines
the services of a therapist with that of a financial planner. It is a
relatively new field, which began less than 15 years ago. Simply said,
financial therapists merge financial guidance with emotional support to help
their clients deal with financial stress. They help their clients make logical
monetary decisions and deal with financial issues they might be facing. The
advantage to this form of counseling is that it can help individuals change the
way they think and feel about money. More importantly, it may change their
negative behaviors, anxiety, trauma, and stress when dealing with money,
spending, financial planning, and the like. It gets to the heart of financial
attitudes. Although a regular therapist can discuss money with his or her
client, the vast majority of them do not have the additional training on the
psychology of money that will make them useful in this area. One thing to be
aware of is that financial “therapy” is not covered by insurance, so all money
paid to the therapist is out of pocket. However, depending on the diagnostic
codes the therapist uses, some of the monies may be reimbursed by your
insurance company. (Call your insurance company or broker to check.)
Financial therapists, at the
minimum, have a degree in counseling, social work, or psychology. The Financial
Therapy Association requires a financial or mental health background for those
seeking to become a Certified Financial Therapist. They must meet specific
education and experience requirements in financial therapy, financial planning,
and financial counseling. In addition they must have required therapeutic
competencies, and they must pass a comprehensive CFT certification exam.
Financial therapists are able
to aid their clients to develop a detailed financial plan and promote the
implementation of a comprehensive spending plan. A financial coach, financial
advisor, or financial planner can help you manage your money but not manage
your feelings and emotions about money. Financial therapists can help their
clients explore and get to the root of why they can’t stop living paycheck to
paycheck, why they keep getting deeper into debt, why they keep making the same
financial mistakes, and – if money is a major source of personal or family
conflict – why it creates turmoil and generates extreme emotions. If these
difficulties are part and parcel of your issues, a financial therapist may be
for you.
Which type of financial
assistance will best meet your needs? Only you can make that decision.
Hopefully, though, I’ve done my small part in making your decision a little
easier by laying out your options.
Rivka
Resnik has developed a Life Skills curriculum for high school
students. For more information on curriculum, coaching, or the Kosher
Money Podcast, please contact info@livingsmarterjewish.org.
