Financial Advisor vs CPA Which Is Best For You?
Last Updated: January 10, 2023 • 5 min read
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What professional do you need in your current financial situation? Is it a financial advisor, a Certified Public Accountant (CPA), or both? A financial advisor and a CPA are similar in a way that they both help you manage and understand your financial flow. However, they may not be interchangeable regarding expertise, functions, scope, and experience. The type of finance professional you need depends on the services and tasks they offer. Although some financial advisors could be CPAs and vice versa, there are professionals whose expertise is focused on just one field of knowledge.
This article will present various financial-related matters and will identify the best professional that could help you in managing or handling a particular aspect. Financial professionals, with both a CPA license and financial advisor credentials, could do all of these functions. However, the depth and breadth of help you could get depends on their expertise, years of experience, and exposure to a particular finance matter or field.
What is a financial advisor?
A financial advisor is a licensed finance professional with expertise in investment and financial planning. They could be an investment manager, a consultant, or a certified financial planner. They are registered with the Financial Industry Regulatory Authority, or the SEC. They are those who passed the series 7, 65, or 66 qualifications and the Certified Financial Planner board exam. Also, they are those who have completed the continuing requirements.
What is a Certified Public Accountant?
This is a person who has completed a bachelor's degree in accounting, has at least two-year experience in public accounting, has passed the Uniform CPA exam, and has met his/her continuing education requirements. One U.S. non-profit organization that handles CPAs and CPA firms is the American Institute of Certified Public Accountants.
When Do You Need a Financial Advisor?
Financial Plan
Financial advisors are proficient in comprehensive financial planning. They could help analyze your financial management plans and decisions; that is why they are known as wealth managers. They are inclined to coach or provide financial advice, budgeting, and retirement planning. For instance, if you are in severe debt or in a situation where you are in trouble with how to handle your budget and finances, hiring a financial advisor is the best option.
Investment Strategy
One type of financial advisor is the investment adviser. They are usually registered with SEC-registered investment advisory firms. Individuals with large investments hire financial advisors to help them in their investment planning. Investment advisors are highly beneficial in terms of helping you set up your investment portfolio, managing your assets, and providing any investment advice. If you are new in the investment industry, hiring a financial advisor who could help you set your principles in achieving investment and financial goals is highly recommended. They can guide you in choosing the best investment strategy, and individual financial security and in enhancing or evaluating your financial plans in connection to your strategy. In this case, you would lessen the risk of implementing an unsuccessful investment strategy.
Household Finances
Financial advisors could help track household expenses, set a monthly budget, save, and invest in financial products.
When Do You Need a CPA?
Tax Preparation
Certified Public Accountants have in-depth knowledge about calculating and evaluating taxes. Thus, if you need help planning and preparing your tax returns, you need to hire a public accountant.
Tax Implications and Advice
Some financial advisors could give you some tax advice for general information. However, if you need an answer to more specific information and complex and detailed questions about tax strategies and tax issues, what you need is a CPA. CPAs could greatly help in understanding tax implications in various financial aspects. Also, since they are more knowledgeable about laws related to taxes, they are of great help in providing legal advice.
When Do You Need Both a Financial Advisor and a Certified Public Accountant?
We recommend you get both a financial advisor and a certified public accountant if you are entering into something that involves financial plans and taxes, such as:
- Starting your own business. The business world is quite complicated, confusing, and cunning. Thus, hire a financial advisor to avoid risking your business to a significant loss. In starting a business, a financial advisor would help design your financial plan, budget management, risk management, investment, and future growth. They can help in the flow of your financial assets and financial needs. It would help if you also had a CPA to fully understand your annual business tax returns.
- Planning for retirement. Both professionals could work together to help you set your retirement plan and how to manage it for financial growth.
- Buying a home. Financial advisors could help you choose a home, considering necessary mortgage products. At the same time, CPA could help you with tax exclusion, deduction, exemption, or credit that could lessen your expenses and save you money.
A financial advisor and a certified public accountant are both helpful; however, make sure to hire those who have the same goal as you. For instance, hire someone who is qualified by checking their credentials and experience. Hire someone whose aim is to teach and provide the right advice, not to lead you into monetary losses. Though both are trained to provide the best interest of their clients, the best way to avoid risk is to be cautious in choosing your partners in handling your finances.