If you are reading this, odds are you’ve heard of financial coaching. You might be curious about what it is, or maybe you’re unsure what a financial coach does or what services are offered by a financial advisor.
I’ve been both - a Financial Advisor with Morgan Stanley Smith Barney and a Financial Coach with First United Bank. My goal is to help you know the difference between them, plus the benefits of having both in your counsel so you will have greater success with achieving your financial goals.
A Financial Advisorfocuses on traditional areas of finance, such as financial planning, retirement planning, insurance, estate planning, wealth transfer, taxes, and investments. The Financial Advisor seeks to learn about the clients’ financial goals and future dreams as well as the legacy the client desires to leave. A Financial Advisor works hard to understand the clients’ appetite for risk (aka “risk tolerance”), ensure investments are diversified, and that the client is saving enough money so they will not out-live their wealth, all while helping to minimize tax obligations and risk. A true Financial Advisor should be a well-educated financial professional who works on behalf of the client as opposed to serving the interests of a financial institution.
The specific state and industry licenses that a financial advisor must secure depend on the services they provide. State license requirements differ from state to state, but each license requires the passing of a rather difficult exam. Believe me, it is a hard exam as I took it and passed! I had to study pretty much every day, all day for three months.
Other common requirements that Financial Advisors must compete are payment of a fee, formal application, and background check. In addition, advisors must be licensed by the Financial Industry Regulatory Authority, a self-regulatory organization for the securities industry. Bottom line, the Financial Advising Industry is highly regulated.
An example of the industry’s strict regulation was when I received my first mail at work. I went to open the envelope and it had already been opened and read. Not to mention, my work email and phone calls were also monitored. All of this was a way to ensure that no insider trading or unethical practices were occurring which is standard practice in the securities industry.
A Financial Coach, on the other hand, helps people to get out of debt, save money, improve their credit report, and live within their means so that they will have the money to be able to work with a Financial Advisor.
Financial coaching is about educating, empowering, and being an accountability partner with the client(s). The relationship begins with the basics of personal money management such as creating a spending plan with the long-term goal of creating sustainable behavior change. A financial coach’s job is to provide the client with the knowledge, skills, and behaviors needed to be able to build wealth in the first place, no matter their income level.
A financial coach typically does not have a tie-in with products, and they do not manage investments nor sell insurance. Educating our clients on the basic concepts of insurance, investing, diversification (which isn’t considered giving financial advice) is key, but we do not provide specific recommendations on where or what to invest in. When a client meets his/her goal of achieving a positive net worth and cash flow, they are then referred to a financial advisor.
What license does a Financial Coach need to obtain?
In short, the answer is none. However, there are certifications that are offered to financial coaches. Both Lisa Crawford, AVP, Financial Well-Being, as well as myself, hold the Ramsey Solutions Master Financial Coach certification. There are other organizations that offer certifications for financial coaches and counselors such as the AFCPE®. While the field of financial coaching is not regulated, important features to look for when working with a coach are finding someone who is knowledgeable, puts your best interest at heart, and has some type of training and background with money management. To compare a financial advisor to a financial coach is like comparing a caterpillar to a butterfly. You cannot become a butterfly without first going through the metamorphosis. Each stage has a different goal. I would not say that a financial coach is better for a certain age group as it really does not matter how old you are, but more about where you are financially based on a certain stage in your life. Are you trying to eliminate debt and save money for unexpected things that can and will happen, or is your stage more about wealth building and investing? Based on this answer, it will tell you if a financial coach or a financial advisor is right for you.
I, personally, love to coach and mentor others while teaching new ways of trying things out. Not to mention, I’ve made plenty of money mistakes so I hope to prevent others from making similar slip-ups.
Financial coaching allows me to dive into the emotional, behavioral, and educational side of money. The key things one will gain from working with a coach is establishing an emergency fund, managing debt, and create a spending plan that works. It’s not about forcing a square peg in a round hole, but more about learning what drives the individual while creating a plan he/she can follow. The end-result is teaching a client how to fish for themselves so they can have the nourishment and success they will need to last a lifetime.