The difference between financial planners and stockbrokers
Financial services often share and have overlapping roles. After all, many have a similar job description: assisting people in managing their money and reaching their financial goals.
A typical example is the confusion between financial planners and stockbrokers. Both professionals may work in the same industry, but each has a different responsibility.
Financial planners help people understand and manage their finances and assets, while stockbrokers manage investors’ stocks and portfolios.
However, these responsibilities aren’t set-in-stone, as financial planners can manage stocks and vice versa. As such, it’s easy to see why some people may confuse them with each other.
With that, let’s take a closer look into their differences to help you determine which can help your financial situation.
Related: 11 tips for personal finance management
Financial Planner vs. Stockbroker: 5 Key Differences
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Services
The most evident difference between financial planners and stockbrokers is the type of service they provide.
Financial planners help individuals and organizations manage their money through informed and well-rounded financial advice.
Their offers can range from retirement and tax planning to investment management.
Meanwhile, stockbrokers primarily focus on managing investments by trading stocks on behalf of their clients.
Brokers also stay informed on stock market trends and economic conditions to implement updated and competitive strategies.
As mentioned, both services may overlap. Some brokers may provide investment advice. Please pay attention to the quality of online brokerage services you’re looking for. We recommend you always make your deep research before making any financial decision.
Meanwhile, financial advisors can also manage investments using their comprehensive market knowledge to bolster their client’s portfolios.
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Scope
Financial planners and stockbrokers differ in how long their plans and strategies support clients.
Financial planners generally focus on their clients’ long-term financial health rather than short-term returns.
As such, they often work with clients for several years, sometimes decades, to constantly improve and adjust their strategies. It’s why financial planners are crucial to building a comprehensive retirement plan.
On the other hand, stockbrokers deal with stocks and other volatile investment instruments.
Their primary purpose is to help investors achieve short-term yet significant gains. Their strategies aim to maximize immediate returns rather than improve their clients’ financial health.
Related: 3 personal loan eligibility requirements to deal with emergency
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Compensation
Both professionals also vary depending on their services’ compensation.
Again, financial planners usually handle clients for years, which means they receive fee-based payments.
For example, some planners charge a percentage of their client’s assets under management annually. However, others opt for flat or hourly fees regardless of asset valuation.
Stockbrokers differ in that they often charge a commission. Also known as the brokerage fee, their compensation comes from a percentage of a successful transaction’s price.
Due to this, you may have to pay hefty brokerage fees for significant or multiple trades.
Brokers who offer investment advisory services may also charge an hourly fee on top of their commission.
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Regulation
While financial planners and stockbrokers can manage finances effectively, their specific services mean they have varying regulatory bodies overseeing their operations.
Capital financial planners offer multiple services, from general financial guidance to investment advice. As such, they have different regulatory bodies depending on their services.
For instance, each state’s Board of Accountancy regulates accountants providing financial plans.
However, the Securities and Exchange Commission (SEC) handles those offering investment advice, whether as a primary or secondary service.
Meanwhile, the membership-based Financial Industry Regulatory Authority (FINRA) is the agency regulating stockbrokers.
This regulating body operates under SEC and is responsible for creating rules based on federal financial laws. It’s also responsible for testing and licensing professionals looking to sell securities.
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Standard
Financial planners’ and stockbrokers’ services also have different legal and ethical obligations they must adhere to.
Financial planners must follow fiduciary standards, which means they must always act in their client’s best interests instead of their own.
Moreover, their strategies must align with the client’s goals and objectives. In other words, they must ensure unbiased advice that promotes trust, transparency, and accountability.
On the other hand, stockbrokers operate according to suitability standards. They can implement strategies that may not be necessarily advantageous to their clients but are suitable for their needs and circumstances.
For instance, a broker may recommend a stock that meets the client’s goals and situation but pays a higher commission, even if another is more cost-effective.
Related: App-based trading: investing in stock market
Choose the Professional that Fits the Bill
Some financial services may have similar and overlapping roles. However, it’s still important to learn their distinctions.
Different services will have varying priorities and strategies for managing finances and assets, and understanding which meets your needs is beneficial in the long run.
Investors seeking comprehensive financial and investment advice are better off working with a financial planner.
However, a stockbroker may be the better option if you’re looking for an expert in managing and trading securities. They have more experience with analytical skills to maximize your returns.
Researching and asking questions to ensure their qualifications and standards is crucial regardless of which professional you choose. So, pick the right financial professional to help you make more informed decisions and achieve your goals.
Author Bio
Darrell Armuth founded Sensible in 1994. Since then, he has served hundreds of clients. Darrell is a Certified Public Accountant certified by the state of Nevada.
