From tax filing to business planning and investing to retiring, accounting needs vary. Certified Public Accountants (CPAs) specialize in all these areas. The best way to find an advisor that aligns with your needs is to assess the duties you need help with and define your goals.
Below, we’ll discuss the differences and similarities between a financial and tax advisor. You’ll better understand who to turn to when you know how different advisors can uniquely assist you with your business and personal finances.
What They Do
Financial Advisors
Financial advisors look at a broad picture of your assets, developing an informed plan to help you better manage your resources. They can set up money-earning and money-saving accounts like a Roth IRA retirement account or an investment account in stocks, bonds, and mutual funds.
Financial advisors boost the health of your wealth through saving, investing, and budgeting. You may grant your advisor access to (but not ownership of) your accounts through a third-party custodian.
Tax Advisors
A tax advisor completes your tax returns, minimizes your tax liabilities, and assists you with tax audits if you get audited. They have the most updated IRS regulation knowledge of any accounting specialty to help you comply with the most current tax rules.
To sum it up, a financial advisor manages your investments. A tax advisor finds the best way to account for those investments on your tax returns.
Education
Financial Advisors
A professional financial advisor with the comprehensive knowledge you need has a Certified Financial Planner (CFP) certification to their name.
CFPs have a bachelor's degree or higher. They must also pass a CFP exam that covers the following:
- Retirement Savings and Income Planning
- Investment Planning
- General Principles of Financial Planning
- Professional Conduct and Regulation
- Tax Planning
- Risk Management and Insurance Planning
- Estate Planning
- Psychology of Financial Planning
When choosing a CFP, look for one that adheres to the stricter “fiduciary” standard. That means they must act in your best interest at all times and fully disclose potential conflicts of interest to you.
Financial advisors without the CFP credential should have passed the following tests: Series 6 or 7, plus Series 63 and 65 or 66.
Tax Advisors
A professional tax advisor likely carries a Certified Public Accountant (CPA) certification, allowing them to offer opinions on financial statements, including the balance sheet, cash flow statements, income statements, and related reports.
A CPA tests in the following areas:
- Auditing and Attestation
- Financial Accounting and Reporting
- Taxation and Regulation
Additionally, they’ll pick one of the following disciplines to test in:
- Business Analysis and Reporting
- Information Systems and Controls
- Tax Compliance and Planning
Note: The discipline a CPA tests in does not have to coincide with their chosen career specialty.*
Use caution with any advisor lacking the above qualifications, as they may be less knowledgeable.
Do You Need a Tax or Financial Advisor?
You’ll probably need both types of advisors in your life and career, especially as you grow your assets. Holistically managing your wealth takes a village. You’ll likely want the assistance of licensed specialists to help you grow your wealth and as well as those adept at helping you avoid additional taxes on it.
Whether you call on a financial or tax advisor depends on your situation. Below are some examples of whom to call in specific situations.
Financial Advisor
- College planning
- Retirement planning
- Investment planning: stocks, bonds, and others
- Overcoming fear of market volatility
Tax Advisor
- Recording and tracking income and expenses
- Understanding how various financial decisions impact your taxes
- Preparing financial statements and tax returns
- Representation during tax audits
Partnering With the Right Advisors
Get the right help right when you need it by knowing who to call on for your particular goals and challenges. Accounting and finance professionals specialize in making your money work harder in unique areas of accounting.
Regardless of which finance professional you need, look for some commonalities to determine if that individual is the right fit for you.
Look for:
- Availability–They’ll prioritize you, and it will show. You won’t have to wait long for a response.
- Communication–They’ll keep you in the loop and be easy to talk to and understand.
- Interest–They’ll listen to your needs and ask questions about your life, such as your values and spending habits.
- Credentials–Registered Investment Advisors or CFPs are professional financial planners who work by the philosophy that their client’s interests come first. On the other hand, Registered Representatives operate according to suitability standards, meaning their advice only has to be suitable but not in your best interest (like if they sell investment products for a specific company).
- Tailored Approach–If you get the impression, they are selling you investments you didn’t ask for, then they aren’t tailoring their services to your unique needs. Find another advisor.
- Trust–They give off a trustworthy impression, and they’ll deliver on time.
Finding Your Financial Tribe
From tax compliance and filing your returns on time to financial planning and investment management for your future, you likely have unique accounting needs. That uniqueness likely calls for a village of accounting and finance professionals looking at your whole financial picture and helping you make wise money moves.
Sure, you can cherry-pick your professionals, interviewing and experimenting with varying personalities and styles until you find the right one. Alternatively, you can find a comprehensive team of advisors under one roof who can care for most of your needs, like growing and guarding your financial health. Look for an all-inclusive tax and accounting firm that can assist with bookkeeping, business growth and strategy, personal wealth planning, taxes, auditing, and assurance services.
