Oftentimes when someone finds out that I am a financial coach, they start asking me questions about investing. While I am an active investor, advising people about trading is not part of my role as a financial coach. In fact, I am not legally qualified to do so on a fee basis.
Instead, my role as a financial coach involves financial education and motivation. I help people manage their finances more effectively and give them the encouragement that they need to do so. While this function involves investing to a degree, I am not a financial advisor.
So whenever I get these types of questions, I usually try to help people understand the difference between the two professions as outlined below:
The Role of Financial Coaches
A financial coach assists clients in setting and sticking to measurable financial goals. The role of a coach is to help clients assess their own financial situation from a practical perspective. Thereafter, a financial coach guides clients through the process of creating specific, measurable, and achievable financial goals. During coaching sessions a financial coach typically educates clients about effective money management strategies based on the clients’ individual needs.
Financial coaches are not required to have specific qualifications in order to advise clients, though many do. This is because the role of a financial coach does not entail advising clients about trading specific stocks or funds. Instead, financial coaches educate and encourage clients to implement wealth-building strategies.
Due to the function of this role, your relationship with a financial coach may be short-lived. It typically takes about 1-3 months of coaching to get clients on the right track. Thereafter, they should be able to effectively manage their finances and adequately prepare for the future.
For this reason, good financial coaches do not desire to prolong a fee-based relationship with their clients. Instead, they want to equip their clients in as little time as possible to be financially independent.
Financial coaches are typically paid by the hour or through a fixed-price package. So you know exactly what to expect up-front. The benefits of working with a financial coach is that you receive personalized attention. You also have someone in your corner every step of the way. This is much like working with a personal trainer instead of by yourself. You have an advocate pushing you through the tough beginning stages of your financial improvement journey. Therefore you don’t easily give up when faced with challenges.
The Role of Financial Advisors
A financial advisor can be complementary to the role of a financial coach. An advisor helps you build your wealth once you are on the road to achieving your money management goals. You don’t have to have a ton of money to seek out or benefit from a financial advisor. However, you should be financially fit before you consult with an advisor.
The role of a financial advisor is to help you with your long-term financial planning goals. Advisors tend to be most beneficial to individuals who are interested in investing or otherwise taking high level financial risks. These individuals usually make about $100,000 or more annually and tend to be in their mid-40’s or older. Such individuals often desire personalized, in-depth investing tips and strategies.
For this reason, financial advisors must be licensed and registered with the Financial Industry Regulatory Authority. These individuals often give their clients very detailed investing recommendations and they usually manage their portfolio for them. This is why clients typically have a long-term relationship with their financial advisor. It is fairly common for clients to remain with the same financial advisor throughout their retirement years.
The cost of retaining a financial advisor is typically more expensive than that of a financial coach. Financial advisors are usually paid on a fee or commission basis or a combination of both. They can charge by the hour or they can take a percentage of your investment portfolio. Usually, the more money an advisor manages for you, the more expensive it is to retain the advisor.
These are the main differences between financial coaches and financial advisors. As you see, they both have separate and distinct roles but are definitely supportive of each other. Whichever one you choose, be sure that the services that the professional offers is a good fit for your financial needs.