FINANCIAL Planners vs. Financial Brokers: Understanding the Distinctions
Brendan Reilly of Clonmel based financial planning practice Eolas Money is the former chairman and a current board member of Financial Planners of Ireland, an organisation for Certified Financial Planner™ professionals dedicated to promoting the Financial Planning profession in Ireland, sharing best practice and representing the views of its members.
Brendan states that “when it comes to managing your personal finances and planning for the future, you have several financial professionals who can guide you. Two common roles are financial planners and financial brokers/advisors and while they both deal with money, investments, and financial goals, they have distinct roles and responsibilities. In a recent survey from Brokers Ireland, it found that just 38% of respondents had taken the step of contacting a financial professional in advance of making a financial decision.
So, who do you contact to help you make a financial decision: Brendan states that your decision can be made more difficult depending on the status of the individual you are researching. For example tied agents are advisers who only sell financial products from a single or very limited number of providers or multi-agency intermediaries can sell products from a much wider selection of providers. There are also independent advisers who conduct a broader review of the market on your behalf and typically charge a fee for this service.
Defining Financial Planners and Financial Brokers
Let’s start with clear definitions of both roles. Financial planners such as Eolas Money are professionals who help individuals and families create comprehensive financial plans. They assess a client’s current financial situation, goals, and risk tolerance, and then develop a tailored plan to achieve those goals. Financial planners may offer investment advice as part of a broader financial strategy, but their primary focus is on long-term financial planning.
Financial Broker on the other hand, are intermediaries who facilitate transactions at a point in time between buyers and sellers in financial markets. They are typically associated with buying and selling financial products such as mortgages and insurance and savings products.
One of the most significant distinctions between financial planners and financial brokers lies in their primary objectives. The primary objective of financial planners is to help clients achieve their long-term financial goals. This includes retirement planning, saving for education, estate planning, and overall financial well-being. They work with clients to create a comprehensive financial roadmap and often engage in ongoing, holistic financial planning relationships.
Financial brokers are primarily concerned with executing specific financial transactions, such as buying and selling financial products such as a savings plan or insurance products. They typically earn commissions or fees based on the number of transactions they handle.
The way these professionals are remunerated for their services also differs. Financial Planners will typically charge clients a fee for their services, a fee which can be hourly, flat rate per project, or based on a percentage of the assets they manage. The fee structure is generally transparent and agreed upon in advance of commencing work on your behalf.
Financial Brokers will mostly earn commissions on the products they sell, and this compensation structure can sometimes lead to conflicts of interest, as a broker may be motivated to recommend products or transactions that generate higher commissions.
Regulation and Licensing
The financial planning and brokerage industries are subject to various regulations and licensing requirements. Financial planners will typically hold certifications such as Certified Financial Planner (CFP) which is a globally recognised credential representing the highest standards in financial planning and has a growing Irish community of almost 900 CFP professionals. A full list of Irish CFP’s is available on www.fpsb.ie. Certified Financial Planners are generally qualified to a higher standard, especially when they may also be providing specific investment, tax & legal advice.
Financial Brokers should all hold the designation of Qualified Financial Advisor (QFA) which is the professional designation which meets the Central Bank’s Minimum Competency Code (MCC) requirements for anyone working or seeking work in life assurance, credit unions, mortgage lending, pensions or investments and there are over 22,000 QFAs in Ireland.
In summary, while financial planners and financial brokers may seem similar at first glance, their roles and responsibilities, as well as their objectives, differ significantly. When seeking financial guidance, it’s essential to understand which professional is the best fit for your specific needs. If you need comprehensive financial planning, including goal setting, cashflow modelling and investment strategies, a financial planner may be the right choice. If you’re looking for assistance with buying or selling specific financial products, a financial broker may be more suitable.
Remember, the choice between a financial planner and a financial broker should align with your financial goals and the level of guidance and expertise you require to secure your financial future.
This article is provided for general information purposes only and does not amount to financial advice. While every care has been taken in the preparation of the information, we advise you seek professional advice before making any personal financial planning decision. Eolas Money Management Limited, T/A Eolas Money is regulated by the Central Bank of Ireland.