Financial planning, money coaching, and financial counselling. These are all terms you’ve probably seen or come across, but the difference between the three roles and when they are applicable is often not obvious. So in this week’s episode I’ll clarify what each of these roles do, and where perhaps they might be applicable in your life.
Now up front I need to acknowledge that when exploring these three roles I’m not exactly an impartial observer. I’m a financial planner, and have been for over 20 years. I’ve seen the role of financial planning and what it means to be a financial planner change enormously. Indeed when I started, there was no such thing as a money coach, that role only evolving as standards improved in the financial planning space.
But even allowing for my strong belief in the value a financial planning relationship can add, I happily recognise that there are times when financial counselling and money coaching services can help, and indeed provide solutions that a financial planner cannot.
The most significant distinction between financial planning, financial counselling, and money coaching, is that financial planners are very highly regulated, whereas the other two roles have minimal government oversight.
The regulations and standards applicable to financial planners have grown considerably, particularly in the last decade. Today to become a licenced financial planner, you need to hold an applicable University degree, or where your degree isn’t specifically financial planning, which is quite common, then you need to do extra units on top of your degree to get you to an equivalent level. You then need to successfully complete a government administered competency exam. Then in your first year providing advice you are required to be supervised by an existing licenced financial planner.
All financial planners are listed on a government register, so that any miss dealings can be tracked and unscrupulous players removed. They also need to register with the Tax Practioners Board given their advice frequently has tax implications.
Financial planners are then required to complete at least 40 hours of ongoing professional development each year and comply with various regulations around the provision of advice, including a legally enforceable code of ethics. At the heart of all this regulation is the concept that a financial planner has a legal obligation to always act in their clients best interests, and by extension, must therefore always put their clients’ interests ahead of their own.
So of the three roles, planning, coaching, and counselling, financial planning is by far the most regulated, therefore giving consumers the most protection. All this regulation, and the compliance that a financial planner and their practise needs to undertake to meet the obligations of this government oversight, does mean that obtaining financial planning services is also the most expensive of the three services.
Financial planners can provide a broad range of services. They will typically develop strategies, often conduct financial modelling and projections, and can recommend specific products so that the strategies and goals can be achieved. In most cases you would work with a financial planner on an ongoing basis, as most goals can’t be achieved in a single interaction, they typically take multiple years, and this is why we normally refer to a financial planning relationship. You are typically trying to find a planner that you can work with on an ongoing basis.
Let’s move now to money coaching. This is a fairly new offering and has largely come about due to the increased regulation in the financial planning space. There are both positives and negatives to this. I certainly know of some financial planners who have become money coaches, simply because they didn’t want to comply with the increased standards and regulations required of financial planning. This is of concern as it presents as people trying to get around the system, and it’s difficult to see how that is in consumer’s best interests.
The flip side however is that there are some financial services that don’t require the complexity of a full financial planning process, nor do they warrant the costs associated with going through that process. Typically this is around cashflow and budgeting advice. If someone is struggling to manage their finances from week to week, then a detailed financial plan costing thousands of dollars is unlikely to be the most appropriate solution. This is where the services of a good money coach may be of value. And because money coaches don’t have the significant compliance obligations of a financial planner, the fees for their services are considerably lower.
Money coaches can’t recommend products. They also can’t provide advice on anything related to financial products so for instance if you wanted to know whether you should be salary sacrificing into superannuation, a money coach cannot advise on that. That requires a licenced financial planner.
The challenge with money coaching is finding someone you can trust. Anybody is able to call themselves a money coach. There is no government regulation, no accreditation. You could call yourself a money coach tomorrow if you like. So that clearly makes it quite challenging as a consumer to know whether the money coach you are engaging actually has relevant knowledge and experience to help you succeed.
Financial counselling is quite different. This is a role that’s been around for a long time, often provided by charitable organisations such as the Salvation Army. Financial counsellors help people in financial trouble. Usually this will relate to significant debts, which the person can no longer afford to pay. Sometimes they might provide assistance to victims of a natural disaster like a bush fire. A financial counsellor might assist in negotiating with your lenders for new terms. In some cases they may assist with you going through a bankruptcy process.
Fortunately the bulk of the population and certainly, I would hope, financial autonomy listeners, will never need the services of a financial counsellor, but if you do find yourself in significant financial distress, then financial counselling services are an important service to help you get your head back above water.
So let’s summarise. Engage the services of a financial planner to help you with achieving your medium and long term financial goals. Consider engaging a money coach if you find you need help with budgeting and cash flow. And though I hope you never need it, remember that the services of a financial counsellor are available should you find yourself in extreme financial difficulty.
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