Financial Consultant versus Bookkeeper: Uncovering the Distinctions
Financial advisors and accountants are both essential professionals in managing personal and business finances. While they share some similarities, their roles and responsibilities are distinct.
Financial advisors help clients build investment portfolios and develop strategies to achieve their financial goals. This may include budgeting, insurance, tax strategy, estate planning, and more. On the other hand, accountants are more involved in instances where the client owns a business, helping prepare financial statements for the business in addition to its tax returns.
Communication and meeting frequencies also differ between the two. Financial advisors communicate and meet with clients year-round, while accountants usually only communicate during tax season, although this can vary.
An accountant can become a financial advisor by obtaining the right certifications and expanding their services to offer broad financial guidance. However, state licensure is required for accountants, but not for financial advisors. A Certified Public Accountant (CPA) can legally represent clients before the IRS, audit companies, and certify financial statements, which an accountant cannot do.
Financial advisors and accountants have different certifications as well. Financial advisors can be certified financial planner (CFP) or chartered financial analyst (CFA), while accountants are certified public accountant (CPA).
Accountants help track and organize financial transactions and often help prepare annual tax filings. They do not typically give investment advice. Financial advisors, on the other hand, are most often associated with retirement planning and help develop a savings and investment strategy that aligns with the client's goals.
The choice between hiring an accountant or a financial advisor depends on individual circumstances. For tax preparation or organizing financial life, an accountant might be more appropriate. In cases of retirement planning, investment management, complex financial situations, or debt paydown strategy, a financial advisor might be more beneficial. If starting or selling a business, making a major purchase such as a home, or having significant wealth and a complex financial situation, it may be beneficial to hire both a financial advisor and an accountant.
It's essential to note that the best financial advisors are fiduciaries, which means they're ethically bound to always act in the best interests of their clients and proactively disclose any potential conflicts of interest. The fiduciary duty for financial advisors with CFP and CFA designations is higher compared to accountants, whose fiduciary duty can vary depending on the services they provide.
Maurie Backman, with over a decade of experience writing about financial topics, specializing in retirement, investing, Social Security, real estate, and credit and debt management, provides valuable insights on these matters. Her work has been published on sites like The Motley Fool, USA Today, U.S. News & World Report, and CNN Underscored.
Bankrate's financial advisor matching tool can help find a financial advisor in your area if you're considering hiring one. This tool takes into account your individual circumstances to provide a tailored recommendation.
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