What's the difference between financial advice and financial planning?
Kevin Morgan
July 18, 2023
Financial advice Vs Financial planning
Financial advice and financial planning are two terms that are often used interchangeably, but they are not the same thing. In this article, we will explain what each service entails, how they differ from each other, and how to choose the best option for your financial needs. Whether you are looking for guidance on investing, retirement, insurance, budgeting, debt, or any other aspect of your finances, you will benefit from understanding the difference between financial advice and financial planning.
What is financial advice?
Financial advice is a service that provides you with specific recommendations on how to manage your money. Financial advice can cover a range of topics, such as:
How to invest your money in different assets, such as shares, bonds, property, or funds.
How to plan for your retirement and choose the best superannuation or KiwiSaver scheme for you.
How to protect your income and assets with insurance products, such as life, health, or income protection insurance.
How to save money and create a budget that suits your lifestyle and goals.
How to reduce your debt and improve your credit score.
Financial advice can be either general or personal. General advice is when a financial advisor gives you information or guidance that does not take into account your personal circumstances, goals, or needs. Personal advice is when a financial advisor considers your specific situation and provides you with tailored recommendations that suit your objectives and risk profile.
The benefits of receiving financial advice are:
You can gain access to expert knowledge and experience that can help you make better financial decisions.
You can save time and effort by outsourcing some of the research and analysis to a professional.
You can avoid costly mistakes and pitfalls that could harm your financial future.
You can achieve your financial goals faster and more efficiently by following a clear and realistic plan.
What is financial planning?
Financial planning is a service that provides you with a comprehensive and holistic view of your financial situation. Financial planning involves:
Assessing your current financial position, including your income, expenses, assets, liabilities, and net worth.
Identifying your short-term and long-term financial goals, such as buying a home, saving for education, travelling, or retiring comfortably.
Developing a financial plan that outlines the strategies and actions you need to take to achieve your goals.
Implementing the financial plan and monitoring your progress and performance over time.
Reviewing and adjusting the financial plan as your circumstances, goals, or market conditions change.
Financial planning can cover all aspects of your finances, such as:
Investment planning: how to allocate your money across different asset classes and products to maximise your returns and minimise your risks.
Retirement planning: how to prepare for your retirement and ensure you have enough income and savings to support your desired lifestyle.
Estate planning: how to protect and distribute your wealth to your beneficiaries and minimise taxes and fees.
Tax planning: how to minimise your tax liabilities and take advantage of tax benefits and incentives.
Risk management: how to identify and mitigate the potential risks that could affect your financial well-being, such as inflation, market volatility, or unexpected events.
The benefits of having a financial plan are:
You can have a clear and comprehensive picture of your financial situation and goals.
You can have more confidence and peace of mind about your financial future.
You can have more control and flexibility over your finances and make informed choices that align with your values and priorities.
You can have more accountability and motivation to stick to your plan and achieve your goals.
The difference between financial advice vs financial planning
Financial advice and financial planning are both valuable services that can help you improve your financial situation and achieve your goals. However, they are not the same thing. Here are some of the key differences between them:
Scope: Financial advice is usually more focused and specific, while financial planning is more comprehensive and holistic. Financial advice can address one or more aspects of your finances, while financial planning can cover all aspects of your finances.
Frequency: Financial advice is usually more occasional and reactive, while financial planning is more ongoing and proactive. Financial advice can be sought when you have a particular question or need, while financial planning requires regular reviews and updates.
Relationship: Financial advice is usually more transactional and short-term, while financial planning is more relational and long-term. Financial advice can be provided by different advisors depending on your needs, while financial planning involves building a trusting and lasting relationship with one advisor who understands your situation and goals.
The best service for your needs depends on several factors, such as:
Your financial goals: what are you trying to achieve with your money and how complex are your goals?
Your financial situation: how much money do you have and how stable is your income and expenses?
Your financial knowledge: how confident and comfortable are you with managing your own finances and making financial decisions?
Your financial preferences: how involved do you want to be in your financial affairs and how much guidance do you need or want?
Depending on your answers, you may benefit from either financial advice or financial planning, or a combination of both. For example, you may seek financial advice for a specific issue, such as choosing an investment product, and then engage in financial planning to create a long-term plan for your overall finances.
What is a financial planner?
A financial planner is a professional who advises you on how to plan your finances and achieve your financial goals. A financial planner can help you with different aspects of your finances, such as:
Financial planning: creating a comprehensive and holistic plan that covers your current and future financial situation and goals.
Investment planning: recommending suitable financial products and strategies that match your risk profile and objectives.
Retirement planning: preparing for your retirement and ensuring you have enough income and savings to support your lifestyle.
Estate planning: protecting and distributing your wealth to your beneficiaries and minimising taxes and fees.
Tax planning: reducing your tax liabilities and taking advantage of tax benefits and incentives.
Risk management: identifying and mitigating the potential risks that could affect your financial well-being, such as inflation, market volatility, or unexpected events.
To become a financial planner in New Zealand, you need to have:
A New Zealand Certificate in Financial Services (Level 5), with a strand in one of the following: Investment; Life, Disability, and Health Insurance; General Insurance; Residential Property Lending.
A Financial Advice Provider (FAP) licence or be engaged to operate under a Financial Advice Provider’s licence as a financial adviser or a nominated representative.
The benefits of hiring a financial planner are:
You can access expert knowledge and experience that can help you make better financial decisions.
You can save time and effort by outsourcing some of the research and analysis to a professional.
You can avoid costly mistakes and pitfalls that could harm your financial future.
You can achieve your financial goals faster and more efficiently by following a clear and realistic plan.
If you are looking for a qualified and trustworthy financial planner in New Zealand, you can contact Echo Financial Advisors, who can help you with your financial wellbeing.
Conclusion
In conclusion, financial advice and financial planning are two different services that can help you with your finances. Financial advice provides you with specific recommendations on how to manage your money, while financial planning provides you with a comprehensive and holistic view of your financial situation and goals. Depending on your needs, preferences, and circumstances, you may benefit from either service or a combination of both.
If you are interested in learning more about the difference between financial advice and financial planning, or if you are looking for a qualified and trustworthy financial advisor or financial planner in New Zealand, please contact us today. We would love to hear from you and help you achieve your financial dreams.
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