Financial Planning or Financial Guidance: What's the Difference?

One area that many people outside the investment industry struggle with is the jargon and terminology. Part of putting a financial plan in place means knowing what’s right for you – how much or how little planning you need, and how active you want to be in the planning process.

While we can create a plan and provide guidance, you ultimately have to be in charge of the decisions that impact your life and your financial situation. Taking control of those things you can control is an important first step.

What’s the difference between planning and advice or guidance? There are advisors who are planners and planners who act as advisors. There are some who are only providing planning for a fee, and some who are doing only the advisory work – leaving the planning piece for the investor to navigate.

As you decide what’s right for you, there are a few things to understand about planning and guidance.

Financial Planning is often a separately paid fee that focuses on information gathering, understanding your goals and objectives, looking at the entire financial picture (not just investments, but insurance and long-term care, among other components), and then creating a plan that is customized for your situation. Planning should go even deeper and include looking at who you are as a person, why you care about what you do and incorporating goals that are sometimes non-financial in nature.

Financial Guidance is mostly focused on giving guidance and direction on which investments are best for your situation. There are two types of advice: Discretionary and Non-discretionary. “Discretionary” means the advisor retains control, and while they may update the investor, they are making the final investment decisions. “Non-discretionary” means the advisor offers the advice but the investor makes the final buy-and-sell decisions for their own portfolio. The advice most often focuses on risk tolerance and portfolio allocation, and may not take into account other aspects of the investor’s situation.

When both planning and guidance are combined, it is often called comprehensive wealth management. This is where the planning focus and discipline is brought together with the investment acumen and expertise. Of course understanding the investor and listening to your needs and concerns is a key element of the comprehensive approach.

So how do you decide which approach is right for you? Here are some questions you should ask yourself:

  • Are you clear on the “why?” behind the choices you have made to date – do you have a process for deciding which financial decisions will work best for you?
  • Do you want to be actively involved in the investment process?
  • Do you want a sounding board, or an active partner in making investment decisions?
  • Are there many financial decisions you have made in the past that you might do differently if given the chance?
  • Is having a holistic view of your financial picture important?

Extract from article by United Capital


Belinda Frazer