By Samantha Lamas, Senior Behavioural Researcher
The difference between a financial coach and financial advisor can be a bit confusing. In short, financial advisors can also act as financial coaches, but financial coaches cannot also be financial advisors. Confusing, right?
The primary, and most important, difference between the two is that a financial coach cannot give investment advice. There is also much less oversight regarding who can be considered a financial coach, as there is no required license or coursework, and they are not held to the fiduciary standard. (However, there are some trainings and certification programs available for financial coaches.)
Financial coaches also tend to adhere to a fee-based system, allowing them to serve a wider swath of individuals as they provide different levels of service at different costs. Financial coachinglike programs also seem to be a popular tactic for “finfluencers”—even personalities like Ramit Sethi (author of I Will Teach You to Be Rich), who is notorious for disliking financial advisors, offer such programs.
Whereas financial advisors tend to focus more on traditional topics like retirement, taxes, and investments, financial coaches focus on things like paying down debt, optimizing financial behaviors, goal discovery, and financial education.
Although there has historically been a distinction between the two professions, the role of a financial coach can be encapsulated by a financial advisor if the advisor is able to devote ample time to the softer side of financial planning. Moreover, given the advances in technology and changing investor demands, more advisors may feel pushed in this direction.
As a financial planner, you can speak to this shift in investor demands by providing comprehensive planning for investors. The Certified Financial Planning program even incorporates some material on the psychology of financial planning and debt management techniques. Even so, there are still differences between financial coaches and financial planners.
Financial Advisors Have No Choice But to Evolve
Given our research, it may be time for the roles of a financial advisor, financial planner, and financial coach to officially be morphed into one.
When we looked at what investors value in a financial advisor, strictly investment topics did not steal the show. Instead, many investors sought out services that sounded more like a combination of roles.
For example, investors didn’t only want someone to help them develop a plan to reach their financial goals, but they also wanted someone to help them define their goals, stick to those goals, and provide reassurance and encouragement along the way. For investors, it isn’t enough just to provide investment advice. It also isn’t enough just to provide reassurance and encourage adherence to a financial goal. Instead, investors wanted it all.
It’s as if advances in technology and investing tools have prompted investors to demand more from their financial advisors, where advisors must wear the hats of a financial advisor, planner, and coach.
Wrapping Up
Our research doesn’t give a definite answer on the future of financial advice, but it does suggest that it may be time for the roles of a financial advisor, financial planner, and financial coach to become one.
That said, each investor is unique and may demand a different level of service. For example, some advisors have found success using models that do not include asset management, instead only providing clients with guidance that the client can then implement. Models like this seem to give investors an à la carte service, allowing them to choose what services they need and what level of service they are interested in.
There is clearly much happening in the financial advice industry. But one thing is certain: What investors expect from human financial advisors is changing. The question is if the industry will be able to keep up with these demands.
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