The world of finance and tax can be daunting to just about anyone who isn’t a professional in the field. Those who specialize in one or more areas of the field have usually spent years of dedicated study and practice before becoming competent at what they do. Even then, they are often specialized in one specific aspect of tax and finance.
This is evident in all of the related services that one can find. Accountants, financial planners and advisors, tax planners and advisors, CPAs, etc.
Are these services really different?
What do they do differently?
Which ones do you need?
It can be a lot to wrap your head around. We’ll answer these questions and more in an effort to clear up some of the mystery.
Finance and Tax Questions to Know More About
What Is a Tax Advisor?
A tax advisor is a professional accountant with expert knowledge of U.S. tax code. Tax law can be extremely complex, and this makes expertise in the field highly valuable. There’s some debate on how many pages compile the actual Tax Code, but whether it’s 2,600 pages or 70,000 pages, it’s massive.
Not only is it enormous in volume, but it’s always changing. A tax advisor has spent years studying this mountain of information and continually stays up-to-date with its evolution. Advisors are qualified to navigate it with the best interest of their clients.
Do I Need a Tax Advisor?
The reason anyone might need a tax advisor is that they have an interest in maximizing their assets.
Why pay more in taxes than you are required to? Unfortunately, Tax Code is complicated. There are tons of tax breaks and nuances that are invisible to the untrained eye. This is why a lack of professional guidance when it comes to tax maneuvers means holding on to less of your money.
Of course, a tax advisor can benefit you in many more areas than just your tax return. Financial decisions in business planning, estate planning, retirement, and investment management can all be made in tax-efficient manners with the help of a tax professional.
How Can I Choose the Right Tax Advisor?
You’ve decided that you could benefit from a tax advisor—great! While it may be tempting to grab the first one you come across in a search engine, it’s important to take the time to thoroughly vet your options. The reality is that not all tax advisors are created equal, and it takes more than just claiming to be a tax advisor to make you properly qualified.
Credentials and experience matter. Any qualified advisor should be able to easily provide references and credentials. If they can’t, it’s best to keep looking. It really shouldn’t be understated how important a tax advisor’s experience level is.
As we’ve seen, the relevant Tax Code material in the U.S. is enormous. Having the help of someone who has dealt with the material in practice for many years will offer you a major advantage. You’ll have extra peace of mind knowing that the best possible decisions are being made in your favor. This is one area of your financial life where you want to be aware of all of the options available to you.
What’s a Financial Planner? Is it the Same as an Accountant?
The short answer? No.
It’s worth understanding the difference, though. Some people really only need one or the other, and some need both. The simplest way to classify the two is that accountants are responsible for creating financial reports and financial planners specialize in big-picture wealth management.
Not everyone needs an accountant. Their job is to help with specific tax situations that require accurate monitoring of money. Accountants perform audits, do financial forecasting, and put together financial statements. These are all necessary services for people who own a business, have a high net worth, or have another unique tax situation (large investments, rental properties, inheritances to manage, etc.).
Here’s another way to put it: Accountants do detail-oriented work. They inspect and manage an entity’s financial situation to make sure it is financially healthy and up-to-code.
The world of the financial planner is centered more squarely on wealth management.
There is a range of more specific services that can fall under the umbrella of financial planning. These include tax planning, investment management, retirement planning, and estate planning, to name a few. A financial planner can help with one or more of these services. Some are able to help with many.
The overarching goal of a good financial planner is to help you reach your long-term financial goals. They do this by taking a comprehensive look at your current financial situation and, you guessed it, creating a plan. In order to be as effective as possible, good financial planners will take the time to build a strong relationship with you. This is their way of developing a complete understanding of your needs and goals in order to best serve you.
This service is useful to a wide range of people because it can benefit just about anybody. Whether your investment portfolio needs a check-up or your business is experiencing change, an informed professional’s outside perspective is often the key to more efficient financial progress.
What about a Financial Advisor?
One of the more specific services that fall into the financial planning category is that of a financial advisor.
While a financial planner is someone that deals with at least one of several aspects of wealth management, a financial advisor does something more specific. Most often, it’s offering guidance on investment strategy. A financial advisor can operate in a strictly advisory role or can take a more hands-on approach in managing an investment portfolio.
Outside of investment management, it’s also possible to hire a financial advisor to assist with another specific element of financial planning. This could be retirement planning, estate planning or insurance.
Most people with the money and desire to make investments aren’t stock market professionals. In a similar vein, most people who need to plan for retirement or make sound decisions in estate planning haven’t spent years studying the subject.
In whatever specific way you utilize a financial advisor, having an expert you can trust by your side is invaluable.
I Think I Need a Financial Planner. What Should I Look for?
After deciding that you’re ready to enlist the help of a financial planner, the best thing you can do for your financial life is to take the time to find the right one for you. There is a whole variety of financial planners out there, from the experienced to the newly started.
One great way to decide whether you’ve found the right service is to ask questions.
Questions to ask a financial planner
Here are a few:
What is your experience with clients in similar situations to mine?
It’s wise to search for someone with experience related to your situation. The best financial planners have seen a lot and have likely encountered situations like yours before. Nothing inspires trust like a successful track record in related scenarios.
What kind of credentials do you possess?
This is important! The reason you want a financial planner in the first place is that they are experts at what they do. They should have the credentials to prove it.
What kinds of services do you offer?
Many financial planning entities are qualified to provide several financial services. It may serve you best to find one that fulfills multiple needs.
Do you need help with estate planning?
Make sure your financial planner is equipped with the tools you need.
How are you compensated?
There are two main ways in which financial planners are paid for their services.
They either receive a flat fee from the client, or they make commissions on services they sell. A serious benefit of hiring a financial planner that charges a flat fee in lieu of making a commission is that you can be sure they have your best interest at heart. In other words, you can be sure they are fulfilling their fiduciary duty.
Any financial professional you receive services from should act by putting your financial interest before their own. This means that they won’t make a suggestion to you based on what could benefit them the most.
Instead, they will guide you towards decisions that are the best for you. Having a financial planner that is also a trusted advisor will give you confidence in knowing your financial wellbeing is in good hands.
Get Help from the Experts
There are a lot of financial services out there.
It’s no surprise when you consider the vast range of different financial needs people have. Investment management, retirement planning, estate planning, tax planning, business accounting, and everything in between.
Luckily, there are professionals available whose expertise lies in helping the less knowledgeable. If you take your finances seriously and want to be sure they’re in the right hands, consider seeking professional guidance. Whatever your specific needs are, there’s a service you can benefit from.
Get in touch with us here to find out how we can help your specific financial needs.