Do I Need a Financial Advisor or an Accountant?

When it comes to managing your money or taking any decisions on saving, spending, or investing it, a professional’s opinion can be indispensable. While you may or may hold the required knowledge, understanding, and expertise in money matters, a professional has years of experience, educational qualifications, and aptitude to assist you on these matters. Not only can they elevate your financial planning strategies, but they also save you from making mistakes that can alter the rest of your life.

Financial planning is a broad term that includes several aspects. This can include retirement planning, tax planning, estate planning, succession planning, debt management, spending and savings habits, investment plans, and a lot more. All of these things and more require brainstorming, being up to date with the laws of the country, knowing contributions and withdrawals rules, understanding the limits for tax exemptions, etc. This is where a professional can step in and offer you crisp advice and guidance that allows you to achieve your goals in the fastest and least challenging way. Reach out to a financial advisor who can guide you and come up with a customized plan for you to meet your unique financial needs and goals. Keep in mind though that money management is not just about picking a professional. It is also about picking the right professional who can help you with your distinct needs.

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The world of finance is often feared by most people. This keeps many individuals away from investing and saving their money. This distance from financial acumen and proper understanding of different financial strategies and investment instruments also create negligence about the kind of help you can get to simplify your finances. A personal accountant and a financial advisor are often used interchangeably. This can lead to confusion and incorrect financial planning. Therefore, it is important to understand the difference between these two professionals and know which one is perfect for your needs.

Financial advisor vs accountant

Here are some differences between an accountant and financial advisor:

1. Basic duties, responsibilities, and job description

The word accountant comes from accountancy. Accountants primarily work within the territory of accountancy. This includes auditing financial statements, bookkeeping, maintaining balance sheets, self-assessment of tax, filing and maintaining basic tax forms, and other similar tasks. Their primary areas of work include tax management, such as adopting the right strategies to save tax, filing tax returns, and more. An accountant can work with individuals as well as with businesses.

A financial advisor, on the other hand, offers a more wholesome service. Financial advisors can assist on matters like retirement planning, budgeting, tax saving, health savings, education planning, and more. Their job is to help you manage your money and invest and save it optimally. They focus on wealth creation, capital preservation, debt reduction, and more, depending on what your goals are.

Financial advisors can be considered more of a guide or companion, while accountants may be seen as organizers and managers.

2. Required educational qualifications

A personal accountant would require the certified public accountant (CPA) certification. This requires at least 150 hours of post secondary education. The license can only be earned from the home state of the individual. To get licensed, accountants have to pass the American Institute of Certified Public Accountants (AICPA) Uniform Certified Public Accountant Exam. This is a four part exam that includes the following:

• Auditing and Attestation (AUD)
• Business Environment and Concepts (BEC)
• Financial Accounting and Reporting (FAR)
• Regulation (REG)

A financial advisor, on the other hand, can have different qualifications, licenses and certifications. Considering the vast scope of areas addressed by these professionals, their designations and certifications can differ. Having said that, most financial advisors may be certified financial planners (CFP). To be a certified financial planner, professionals need to have at least a bachelor’s degree from an accredited college or university. The CFP exam can be given before attaining the bachelor’s degree. However, it is important to complete the degree within five years from the date of passing the CFP exam. Other certifications and licenses that a financial advisor can include the following:

• General Securities Representative license also known as Series 7 exam
• Uniform Securities Agent State license also known as Series 63 exam
• Uniform Investment Advisor Law exam also known as Series 65 exam
• Chartered Financial Consultant (ChFC) Certification

3. Remuneration

The method of remuneration for a personal accountant can be different from a financial advisor. Accountants generally work on a fixed salary. They complete the tasks in their job description and get paid as per the employment contract. In some cases, you can also hire an accountant on an hourly basis. A lot of people do this while filing their year-end taxes.

Financial advisors can have a more flexible payment system. They may choose to get remunerated as per the services they offer. Some financial advisors work on a commission basis. They charge a commission on every investment or service they help you with. Some financial advisors may charge on an hourly basis. So, depending on the amount of work and the time taken, you can pay them a consultation fee per hour. Others can charge you a fee based on the AUM or assets under management too. AUM is the market value of all the investments that the financial advisor manages for you. This is usually a fixed percentage that is mentioned on your contract. These days, you can also hire robo advisors. These are offered by online financial firms and work based on algorithms. All you need to do is fill a questionnaire about your financial goals, investment purpose and budget, and risk appetite. The algorithm takes your input into consideration and recommends investments accordingly. Robo advisors may charge lower fees than traditional financial advisors. However, their level of expertise is also limited.

CPA vs financial advisor – Do you need a financial advisor or a personal accountant?

You can make a call depending on your requirements. Both individuals offer different services and have different qualifications. So, the only way to decide the right option is on the basis of your needs. If you are looking for tax advice and management, an accountant can be an ideal choice. Accountants can help you file your tax returns, fill in tax documents, employ tax saving strategies, and more. You can hire them as an individual if you want help in managing your taxes, reducing income tax or estate tax, etc. You can also hire an accountant if you are running a business. The responsibilities of an accountant also include bookkeeping, auditing the company’s financial statements, maintaining balance sheets and profit and loss statements, filling and submitting tax forms and overseeing the company’s tax liabilities.

A financial advisor, on the other hand, can offer a wide range of services. These are:

• Retirement planning: Financial advisors can help you plan for the golden years of your life. This can include advice on investing in mutual funds, exchange traded funds, real estate, and more. They can help you decide on the right retirement account for your needs, risk, and tax situation, such as Roth 401(k), traditional 401(k), Roth individual retirement account, traditional individual retirement account, health savings account, and more. Professionals like a retirement tax advisor can recommend the best strategies to lower your tax liabilities in retirement. A financial advisor can also help with a withdrawal strategy from your savings in retirement to maximize your returns and lower your tax dues. Explore our Retirement Planning Checklist with 6 things that you should consider before retiring.
• Education planning: Financial advisors can help you plan for your children’s higher education expenses. They can recommend ways to save money, such as with a 529 education savings plan or an IRA. They can help you prioritize your savings goals, so you can save for your personal goals along with accumulating funds for your kids’ education.
• Estate planning: Estate planning includes making a will and planning the distribution of your estate among your heirs with other tools like trusts, health care directives, and more. Financial advisors can help you plan the division of your estate with minimal tax liabilities. They help reduce estate and inheritance tax. A professional’s role in estate planning also includes drafting a power of attorney. In addition to this, they ensure that the names of your beneficiaries are correctly updated on all your accounts as well as your will to avoid expensive procedures, such as a probate.
• Succession planning: Succession planning can be instrumental for business owners. The transfer of your business on retirement to your children, employees, or business partner can require a professional’s assistance. Financial advisors can help you do this efficiently.
• Business management: Business owners may also require a financial advisor for business management, managing cash flows, ensuring positive cash flows, and more. Moreover, even a business can invest to create more capital. A financial advisor can assist a company in all these areas.
• Debt management: Overwhelming amounts of debt can impact your credit score negatively. It can also make it hard to save for the future. A financial advisor can help you reduce your debt and use your money more prudently.
• Budgeting: Financial advisors can assist on small money matters like budgeting too. They can help you create a budget for your essential and non-essential expenses, avoid impulse shopping, and save and invest more.
• Portfolio rebalancing and asset allocation: Financial advisors help you build your investment portfolio with the right investments and assets. They can help you decide on a suitable asset allocation strategy based on your risk appetite and age. Asset allocation refers to the composition of different asset classes on your financial portfolio like equity, fixed income securities, and cash. You can work with a financial advisor to choose the apt asset allocation for your financial goals. Financial advisors also rebalance your portfolio from time to time to keep your original asset allocation in check. They can change it depending on your changing needs too. For instance, increasing the percentage of fixed income securities before retirement is often recommended by most financial advisors to keep your risk low and aim for capital preservation over capital appreciation.
• Wealth management: High net worth individuals can hire wealth managers to manage their wealth better. Financial advisors can help these individuals preserve their wealth, reduce taxes by making donations to charities, keep goodwill, and invest more. The risk appetite of high net worth individuals is generally higher than other investors. They can also require more intricate help with taxes, foreign investments, acquiring prized possessions and high value assets, etc. A professional financial advisor can do all this.
• Tax planning: Tax planning is an ongoing process. Right from lowering your income tax to reducing the burden of inheritance tax on your heirs, a financial advisor can oversee all tax related issues. They can help you pick tax saving investments and savings and use exemptions to lower your tax outputs.

CPA vs financial advisor – Are there any similarities between the two?

A personal accountant and a financial advisor have certain similarities. Both these professionals work in the financial domain and can play a vital role in managing your finances. Moreover, accountants and advisors both consult on matters of tax. While an accountant helps you organize and manage your tax, an advisor can help you lower it with the right strategies for tax planning. Financial advisors can also provide more detailed and comprehensive guidance on tax issues.

To conclude

The decision to choose an accountant or a financial advisor ultimately depends on your requirements and purpose. They cannot be hired interchangeably as their duties and responsibilities differ by a great degree. However, they can both be instrumental in steering you towards a brighter financial future. To pick the right candidate, you can assess your needs and goals. You can also take a call depending on whether you are hiring a professional for yourself or your business.

However, if you need advice on exhaustive financial planning that includes retirement planning, estate planning, tax planning, education planning, succession planning, budgeting, debt management, and more, it may be advised to get in touch with a financial advisor.

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