Financial planning isn’t often taught in school or at home, leaving many of us on our own to figure out how to manage money in adulthood. For those who want guidance on how to budget, manage debt or invest, there are professionals who can help.
Financial coaches and financial advisors both provide advice or education on how you can manage your money. An advisor typically helps you manage, invest, and develop your financial portfolio. In contrast, a coach can educate, give basic advice and suggest ways you can save and invest. They can also help you to become more financially literate and confident in managing your own finances.
Below we discuss what both types of financial professionals do and when one or the other might be right for you.
What is a financial advisor?
Because financial advisors are regulated by the FCA, they are required to have a Diploma for Financial Advisers (DipFA) as a minimum level of qualification.
Financial advisors typically make their money from a management fee. This fee is a percentage of the assets they are managing. The usual charge is a percentage in the range of 0.75-1% of your assets on an annual basis. On top of this, they might charge a separate initial fee. As a result, it’s generally only worth for financial advisors to work with people with £100,000+ to invest in the long term.
What is a financial coach?
Unlike financial advisors, financial coaches don’t need to be regulated by the FCA or require formal qualifications. They can’t, therefore, give you advice about specific products or where exactly to put your money. Instead, they help you by focusing on fundamental financial knowledge and habits.
A financial coach’s aim is to help you change your behaviours and beliefs around money. This could mean reducing your spending, educating you about saving and investing or suggesting ways to reduce your debt. However, these are always general tips rather than specific recommendations. Essentially, a financial coach’s goal is to inform and empower you to feel confident enough to make your own financial decisions.
While financial advisors often charge a fee, financial coaches charge for their time. Their prices vary depending on the experience of the coach and the packages they offer.
Financial coaches can therefore help a wide variety of people, regardless of where they are in their financial journey or how much money they have. It’s common for a coach to help someone to set savings goals, create a budget or begin investing, for instance.
Should I hire a coach or an advisor?
Whether to hire a financial advisor or financial coach depends on your financial goals and needs. Do you want someone else to manage your funds for you? Or do you want to learn how to make well-informed decisions and manage your money yourself?
If you’re looking for someone to help you achieve long-term goals like a sizeable investment portfolio, retirement account or starting a business a financial advisor could be better suited to give you the right advice. An advisor might also be a good idea if you have a financial windfall (such as inheritance or lottery winning) and aren’t sure how to best manage the money.
A financial coach could be a better choice if you want to improve your financial knowledge in order to better manage your own money. A coach can help you if you want guidance to improve your credit to get a mortgage, need accountability to stick to your savings goals or simply want support in making certain money decisions. The support and skills-building aspect of financial coaching aims to uplift and encourage you if you’re feeling discouraged about your financial situation.
If you are still uncertain about where to begin, platforms such as Unbiased provide free financial reviews to kickstart your journey, no matter your financial situation or goals.
Financial coach vs financial advisor: What are the key differences?
To summarise, here are a few things to consider when choosing between a financial coach and a financial advisor:
- A financial advisor is authorised by the FCA to recommend specific financial products. They can answer specific questions, such as which pension you should take out or which funds you should invest in. In contrast, a financial coach provides guidance but not specific product recommendations. For example, they can discuss the pros and cons of various financial products (savings and investment accounts etc.) but can’t recommend a specific one to you.
- Financial advisors generally only work with people who have large sums of money to invest. Financial coaches don’t have minimum wealth requirements and can guide you no matter your financial situation.
- Advisors typically charge a management fee of around 0.75-1% of your assets (with potential initial fees) while coaches tend to charge by the hour.
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