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Finance is a broad and intimidating subject. Because there is such a wide range of financial professionals, it can be unclear who you should be looking to for advice regarding your personal finances.
Almost all of us will need accounting and financial planning help at some point in our lives.
This guide will help clarify the differences between an accountant and a financial advisor, where they overlap, and how their efforts can support each other as part of a broader comprehensive financial planning effort.
Both professionals offer important services that can help you achieve your financial goals. While their functions can appear similar at times, there are some key differences between them that you should understand before making a decision.
Financial advisors offer a variety of services, including (but not limited to) investment advice, insurance consulting, retirement planning, estate planning, budgeting, cashflow management, and wealth management.
The term "financial advisor" typically covers professionals who are licensed and regulated by State or federal regulatory agencies - think Securities and Exchange Commission (SEC). These professionals offer investment advice and financial advice in exchange for a fee.
The gold standard of financial advisor qualifications are the Certified Financial Planner (CFP) and the Chartered Financial Consultant (ChFC) designations.
Both require 6+ college level courses along with a capstone project, final exam, and between 4,000 - 6,000 hours of work experience before being able to claim the designation.
Certified Financial Planners are your go-to resources if you'd like to develop a comprehensive financial plan that covers retirement planning, estate planning, succession planning, and investment portfolio.
At Peak Financial Planning we are Fee-Only Fiduciary Certified Financial Planners specializing in comprehensive financial planning. If you'd like to learn more about working with us to help develop your retirement plan, click here to watch my free masterclass training video.
Accountants give their clients advice regarding current year tax minimization strategies and help clients get and stay organized with all of the documentation required to file their tax return.
In addition, an accountant may assist in preparing financial statements, provide tax advice, clarify tax laws, and may even offer business management services such as cutting checks or paying bills on behalf of a business.
This can make it difficult to understand whom under the accounting umbrella you really need.
A Certified Public Accountant (CPA) is the highest level of accountant.
Similar to a Certified Financial Planner, a CPA will complete rigorous coursework & testing, complete significant professional hour requirement, and be required to complete biannual continuing education in order to maintain their CPA designation.
Also similar to the certified financial planner, both CPA's and CFP's are held to a fiduciary standard and required to give financial and tax advice that are in the best interest of the client.
Most individuals and small businesses will not require auditing services and therefore may not need a CPA. Using a staff accountant or even a registered agent may be sufficient for the average person's needs.
Quick Tip: An accountant and financial advisor each support different elements of an individuals financial life. However, in many cases both are part of an individual's financial team.
Whether it’s filing your current year tax return, discussing the tax implications of a current year charitable gift, or discussing current year cash flows - the common thread is that accountants generally focus on a shorter time horizon.
If you're looking for current year help with filing your income tax return, you will need a CPA or an accountant.
Whether you're 5, 10, 15, or even 30 years out from retirement, creating a successful retirement plan requires long term planning and vision.
There will be a focus on investing for the long term, planning for a withdrawal strategy that may be 15 years away, creating asset allocation models for different phases of your retirement plan.
If you're looking for longer term help developing a financial plan, you will want to find a CFP or financial advisor.
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Financial advisors are proactive and prescriptive in nature. When working with a financial advisor, you will discuss your goals, your actions, and where you’d like to be, and then build a proactive roadmap and set of actions that will get you there.
Financial advisors also educate and support your investing and wealth building efforts. They will help you identify the proper investment accounts, types of investments, investment strategies and allocations, as well as how to take income from your retirement portfolio.
Accountants are reactive in nature. You provide an accountant with a list of the activities or action you took that year, and the accountant will tell you how much tax you owe.
To be specific: Accountants are tax specialists and really only work in the area of tax. Financial advisors are generalists who can help with things like cashflow, budgeting, financial modeling, investment allocations, investment selection, insurance review, as well as estate planning.
Pairing a good financial advisor and accountant is the optimal framework.
Yes - accountants can give financial advice as it relates to taxes.
For example, say you want to understand the tax implications of gifting a house to your child.
You would need to understand how it would affect current year taxes, how it might affect your child's taxes, what tax saving strategies to employ for this, but also what forms and paperwork would be required to be filed with the internal revenue service (IRS).
These are all things your accountant would advise you on.
However, you will ALSO need to understand the long-term consequences of gifting that property. How does it affect your net worth? Your future withdrawal strategy? Is gifting it premature? Is it better to pass it down as part of your estate?
Having an eye on your future financial success is critical as well.
These are all things your financial advisor would advise you on.
As you can see there are reasons to consult with both.
Again, the answer is yes.
As a part of their financial planning efforts, many financial advisors will create proactive tax planning strategies for their clients.
This could be via estate planning, retirement account contribution strategies, or planning ahead for large financial decisions.
Even so, taxes are a complicated matter. Most Financial advisors will consult or recommend consulting an accountant in conjunction with the advisor's opinion on your tax situation.
In some cases, this may be possible.
Some financial advisors may also be CPA's, enrolled agents, or accountants themselves.
In addition, some accounting firms may also be financial planning firms and vice versa.
If you're someone who wants their financial planning and tax planning to all be done under one roof combining the experience of a CFP and a CPA, you may prefer a hybrid firm.
In some cases this may even save money on the fees you would have paid to two separate professionals that can now all be done under one roof.
No this is typically not the case.
Accountants are usually much more narrowly focused on tax matters.
Taxes are so complex that this is often required to be the case.
To be an excellent accountant one must stay up to date on the nuances and complexity of changing tax law - especially since the accountant will actually be doing the tax filing.
An accountant will almost always be a part of the financial team that a financial advisor relies on for the financial plan you will build together.
The same does not apply in reverse - most accountants can carry out the scope of their work for you without needing to refer to or consult with a financial advisor...
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