Updated: Feb 12
Their end goal is the same, but the approach is entirely different. Read what the differences are between a financial coach and a financial advisor and which one is right for you.
When I initially had the idea of a Financial Coach, I created an anonymous survey and sent it to friends and family to get their feedback on budgeting, money management and growing their wealth. What I found out is that a lot of people thought I was trying to be a Financial Advisor and not a Financial Coach. I want to take the time here to clarify the differences and help you understand which one makes the most sense for you.
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Goal & Purpose
A financial coach and a financial advisor should really have the same end goal: to use their knowledge and experience to help their clients achieve their financial goals. Both are supposed to provide financial education to their client and help them with all aspects of money management, including budgeting, saving, investing and much more. Where they differ is in their approach. Read the other sections to learn what sets these two occupations apart.
A financial coach usually offers financial education on all personal finance topics and can provide 1:1 consultations catered towards you and your specific financial wealth journey. Everyone is unique and in a different place with wealth - the 1:1 allows for more personalized guidance on what your next steps should be.
A financial advisor should also offer financial education and personalized advice, however, they generally also can make investment decisions on behalf of their client. This last piece is generally what people think of when they hear the word "financial advisor." The mistake people make is assuming that a financial coach does the same thing. They do not. A financial coach cannot manage your portfolio or buy a stock, mutual fund, etc on a client's behalf. They can make recommendations on which stocks, funds, etc to look into, but they cannot physically execute a trade for a client. Financial advisors help their clients with retirement planning, estate planning and tax planning as well.
Pricing will vary greatly between a financial coach and a financial advisor. A fee for a financial coach is generally a flat fee per hour and may require a retainer up-front. For example, say a financial coach charges $100 per hour and requires a $500 retainer. What they basically means is that you have to commit to at least 5 hours with this financial coach. You would pay the $500 first and any time that the financial coach spends with you is billed against this hourly rate. If the financial coach spends an hour doing research for you on high interest savings accounts, that time is billed against the retainer. If you meet with your financial coach for one hour this month to review your plan and how you are tracking towards your goals, that time is billed against the retainer. You've utilized 2 hours so far, out of the 5 hours you paid for upfront. You would not pay an additional money until the retainer is fully used up. This is a similar structure to how lawyers bill their clients.
Financial advisors have a completely different fee structure. Most of the time, they charge based on the net amount of assets they manage. The percentage varies, but it is generally around 1-2%. For example, let's say you want to hire a financial advisor to manage your retirement and investments accounts, both of which total to $1M. If their fee is 1% of the total assets managed per year, your financial advisor fees are $10,000 per year. This will of course fluctuate as your portfolio grows or shrinks. That is a hefty price tag and can certainly add up the longer you work with a financial advisor!
Another thing to be cautious of is financial advisors who also earn commissions by recommending or making certain trades. This can be a huge conflict of interest as they are receiving an additional incentive for promoting a product. They may no longer be thinking in your best interest, but in theirs and how they can increase their own wealth by pushing certain investments.
Which one makes sense for me?
Depending where you are in your financial journey, you may want to look for a financial coach rather than a financial advisor. I personally think a financial advisor is for someone who already has a lot of assets and doesn't want to spend time managing it all. When you're growing your financial wealth, it becomes more and more complex. If you have investment properties, multiple companies and a sizeable investment portfolio, you may want to have someone managing your assets so you can focus your efforts elsewhere. After all, time is money.
However, if you are just starting out or you want to make your own financial decisions, a financial coach is the better route to go. You continue to maintain control over your finances, but you have the knowledge and tools to make money decisions. You feel empowered to take control. Plus, I have noticed that financial coaches are generally less pushy when it comes to investments or products compared to financial advisors.