Home Personal Finance What Is The Definition of Financial Planning In 2021?

What Is The Definition of Financial Planning In 2021?

The Definition of Financial Planning
The Definition of Financial Planning

Financial planner:

A financial planner is a certified and licensed practitioner who assists companies, businesses, and individuals in meeting their short term or long-term financial goals effectively. A financial planner analyzes his clients’ objectives, financial targets, goals, resources of income, risk endurance, personal life, and corporate activities and makes a comprehensive and customized fitting plan for their investments and incomes.

Financial planners, basically, evaluate a client’s income resources and financial objectives. They provide a financial plan as to how to allocate or use those resources to a maximum effect. It may include how to invest, where to invest, when to invest, and how much to invest in a certain category. They plan to diversify the risk factors attached to investments while optimizing the returns and profits.

Financial planner covers a variety of financial consultancies including retirement plan, investment planning, cash flow management, risk management related to finances, insurance planning, taxation planning, real estate properties planning or succession planning of businesses for business owners. A financial advisor may provide complete or comprehensive services regarding planning without any sort of recommendations while some may offer both transactional services (providing services for a specific transaction or investment) as well as planning services. This means you can get services of a financial planner for a specific activity or a transaction or you can hire a financial planner for devising a complete plan for you.

Financial planners mostly work in the shape of organizations and insurance companies (working as a combined unit) but some work independently as well. However, the nature of services remains the same whether they work as a combined unit or independently.

What does a financial planner do?:

Financial planners ought to have an “authority” to exercise skills that are possessed by a financial planner. Even in your domestic matters, you cannot trust anybody unless you see an authority possessed by them or you can see credibility. Similarly, a financial planner must have the minimum required education, skills, training, and experience in this field in order to be trusted by the clients. He must have a license or some sort of similar authority by a governing or regulatory body handling such matters. A financial planner may choose one or more designations according to skills and abilities.

A financial planner works with different clients such as corporations, businesses, individuals,  and families to help them to increase the understandability of their financial resources and circumstances and how can they reach the desired long term and short term financial goals and targets. Financial planners basically fiduciaries on behalf of their clients. They have a legal obligation to act on behalf of their clients. Working in the best interests of their clients is mandatory for a financial planner and they have no right to get any sort of advantage from managing their client’s assets. They are supposed to manage their client’s assets to give them benefits rather than benefitting their personal interests.

The clients give related financial data during an opening interview, explaining to some questions asked relating to their total yearly earnings, total debts, monthly expenditures that are not linked to their debts, Investments they are holding currently, savings accounts, taxation obligations, and their adopted insurance options. Financial planners then evaluate this provided data and formulate feasible and meaningful suggestions according to the financial circumstances and motives of their clients.

A financial planner generally discusses many topics with his clients that are related to personal financing. Such as managing their debts, their savings goals, and private or family budgeting. They may also discuss their clients’ investing plans, their objectives or plans related to real estate, safety measures through insurance planning, and plans related to their retirement and distribution schemes.

A financial planner may also extend their services for tax efficiency information, but he/she cannot get involved directly with the return filing process. They provide assistance to how their clients can reduce the amount of taxes payable within legalities. A financial planner who works with a firm, business or organizational client may evaluate and guide about topics including cash flows, forecasted income,  employee benefits and managing the debts. Every one of these aspects has an important role in any business’s overall financial effectiveness and wellbeing. So, it is safe to say that a financial planner has a major or defining role in a client’s financial prospects.

How does a financial planner work?:

As mentioned earlier that a financial planner works closely with a client as a fiduciary and he is obligated to work for the benefit of a client. He can not obtain any benefit from managing a client’s investment or portfolio. An example of such a description is a registered investment adviser (RIA). They work as fiduciaries under the “investment advisers act 1940”. State securities regulators or securities exchange commission regulates these RIAs.  

Most RIAs work as fee-only advisers which means they can not sell any kind of investment products that are not in favor of a client’s personal interest. They cannot work off commission either. Financial planners are not necessarily obligated to work under this model either. Financial planners work on the hourly method basis, annual fixed retainer or they make money through a percentage or ratio of investment assets that they are managing for their clients. Financial planners who are working on a commission basis mostly earn money through a commission from those corporations whose investment products are recommended by them to their clients. They also make money by opening accounts for their clients.

There is a process known as prospecting, which involves finding potential clients and this is a vital part of a career of any financial planner. It usually includes linking with other professionals, such as Public Accountants (CPAs) or estate planning attorneys. Financial planners usually also attend and build new links at social or other charitable functions. This process of prospecting helps them exploring new markets and finding new clients as well as building relations as they need to collaborate with other related professionals.

Training and Education:

Any formal higher education is not mandatory for anyone who wishes to make a living as a financial planner. However, a degree of bachelor’s level is highly recommended. While being a graduate in business administration (MBA) can be very helpful for someone who wishes to make a living with this profession but just to be clear, you do not need any formal degree to be a financial planner.

However, there are certain obligations that are attached to this career. Financial planners must have licenses from the regulatory bodies in any country or state to carry out exercise related to this profession. Securities licenses usually consist of the Financial Industry Regulatory Authority (FINRA) Series 7, which examines expertise in the stocks or securities dealings as well as certain transactions related to investments such as selling, options, government securities, variable annuities, municipal bonds, and corporate securities.

A FINRA Series 66 license is also mandatory, which can be obtained after passing the North American Securities Administrators Association (NASAA) exam. Securities licenses mostly include certain requirements such as continuous education related to the field in order to keep good standing with the respective regulatory body.

In addition to that, some other advance level certifications may help to strengthen skills for a career in financial planning such as “certified financial planner” (CFP). The financial industry and other individual clients consider such certification as trustworthy and rank it in higher regard. This certificate is given by a certified financial planner board that works as an NPO (Non-profit organization) that administers the exams for CFP and issue certificates or licenses. A certified financial planner has professional skills to offer consultancies in different areas such as financial planning, taxation, insurance, estate planning, and retirement. Financial planners are then required to take part in annual education programs from the CFP board in order to sustain their certification and skills. 


Other than technical and professional skills, a financial planner must have relationship-building skills to work better with their clients. Building strong relationships with a client is very important for client retention and expanding network. As a financial planner, chances of success and growth are very higher when a financial planner has gripping knowledge about personal finance.

There are different factors that play an important part in building and executing financial plans, and a financial planner should have exquisite skills in financial topics. Moreover, a financial planner must be very good at analyzing data and convert it into meaningful interpretations. High profile financial planners tend to retain and analyze a substantial amount of data. 

How much a financial planner earns?

According to Glassdoor, on average, a financial planner earns almost 57000$ per year. However, a financial planner’s major portion of income is generated from a blend of fee-based services and commissions through selling products of various corporations. Such as annuities, mutual funds or exchange-traded funds, sale of securities, and life insurance. According to a report issued by the Bureau of Labor, the yearly income of the financial planners was ranging from $41,000 to over $200,000 (as of May 2016). 

Mostly, a financial planner who works with an insurance company or larger investment firm might earn a lower commission payout as compared to those who run their own firms. 

Selecting a financial planner:

While choosing a financial planner, some questions must be asked to your financial planner:

  1. What is your qualification, certifications or credentials?
  2. What and how do you charge for your services? Is it fee-only or commission?
  3. What are your particular skills or areas of expertise?
  4. What kind of services can be expected from you?
  5. Are you aware of the rights and responsibilities of fiduciary and willing to act as one?
  6. How can we settle our future disputes?


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