Having experience as both an accountant and financial advisor, I have seen the critical role that both professions play in a client’s financial life. However, a financial advisor and an accountant are two very different professionals, both of which can add significant value to your wealth management strategy. And while both are often necessary to help guide you in financial planning for your future, you’ll find they perform different services. A financial advisor focuses on wealth management and investment strategy, whereas an accountant holds expertise in tax preparation, filing, compliance and bookkeeping.
Oftentimes, the question isn’t which one do you need. Rather, it’s which specific services do you need from each one and how should the professionals collaborate. Find out the key distinctions of a financial advisor versus an accountant so you can assemble the most effective wealth management team.
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A financial advisor provides robust services to help clients manage their wealth and plan for the future. Managing a portfolio is a huge part of that, but it’s not the only one. Here’s an overview of everything you can expect when you work with a firm like Dowling & Yahnke Wealth Advisors.
A financial advisor manages your investment portfolio based on both your short-term and long-term financial goals. A good advisor helps you create a diversified asset allocation based on your goals, time horizon, and current financial situation. The process involves monitoring your portfolio on a regular basis to ensure you stay on track with your target allocation and rebalance when needed. An advisor should also analyze all of the costs involved to cut down on trading cost and expense ratios. This way your balance can grow as much as possible without overpaying because of these fees. Expect an annual check-in with your personal financial advisor, plus ongoing conversations throughout the year, especially if you have a major life change.
Another responsibility of a financial advisor is to uncover relevant tax planning strategies to maximize your investment growth. There are several typical tax planning areas that a financial advisor may consider, including:
Financial planning helps you adjust your strategy as changes occur throughout life. While portfolio management is about the details of investing a portfolio to help you reach your goals, the financial planning process identifies what your financial goals are and how they can best be achieved. For example, if you have a child, you may wish to open a tuition savings plan and update your life insurance policy. As they age, your advisor can help you craft a tax-efficient estate plan to leave an inheritance for your loved ones. Other potential life events, like selling a business, receiving an inheritance, or getting a divorce, may also have financial implications on top of the emotional ones. A financial advisor navigates you through the necessary decisions so you can focus on the more important aspects of life’s curveballs.
Retirement planning is a priority in most people’s wealth management strategy. After working hard for decades, you want to ensure you’re prepared to live a full retirement in whatever manner you choose. Your personal financial advisor is a long-term partner who helps you navigate both the accumulation stage and distribution stage of retirement planning.
Advisors at Dowling & Yahnke don’t just do this by managing your portfolio. They help figure out your goals and how to prioritize your finances to achieve them. In retirement, your advisor gives advice on Social Security, pensions, and Required Minimum Distributions (RMDs).
An accountant also plays a major role in managing your money, but in a very different way. You typically won’t get investment advice from an accountant. Instead, they help with taxes, bookkeeping, and other important tasks. Here is just a sampling of the financial services you could receive from an accountant.
An accountant should help you file your taxes each year, as well as create a strategy to minimize the impact of taxes on your wealth. At the same time, they will understand how to remain in compliance with federal, state, local, and even international tax agencies.
Business owners should look for a CPA who can effectively execute both individual and business taxes. You can also work with a professional who specializes in estates and trusts as well.
An accountant will identify at risk issues and work to mitigate them to help avoid an audit, or to prepare for one if necessary. If you hire household employees, you can get assistance on the employer side of taxes as well.
Managing your finances may become increasingly complicated and time consuming as your wealth grows. You can work with a CPA to create a budget or analyze expenses. They can also help you weigh the pros and cons of a major purchase. You can get help tracking family financial statements, including bookkeeping services to track various expenses and categories.
A full estate plan should include the expertise of an estate attorney, but an accountant plays a role in executing much of the strategy. Your accountant can help estimate estate taxes and work to mitigate that number to preserve as much wealth as possible for your heirs. They will create models and projections and can advise on a range of trusts. These could include charitable remainder trusts, grantor retained annuity trusts, revocable and irrevocable trusts, and more. If you wish to leave a philanthropic legacy, an accountant can help you with tax-smart strategies and gift tax returns.
An accountant is a useful resource for family and closely held businesses. Get advice on capitalization and financing options in addition to standard accounting and assurance services. An accountant can also help you choose the best entity type for your business. In addition, a specialized accountant will help you with compensation and retirement plans while factoring in family dynamics that may not be present in a typical business.
When it comes time for a transition, your accountant will help with ownership transfer, valuations, and merger or acquisition options. It can be especially helpful to have a neutral third party offer input on what could be sensitive topics of discussion when making financial decisions.
In all likelihood, you probably need both a financial advisor and an accountant. When you’re comparing financial advisor versus accountant, you’ll realize they don’t actually provide the same financial services. While areas certainly overlap, like tax planning, each type of professional has different tools at their disposal to help you.
A financial advisor helps you look at the big financial picture, while identifying tax planning or estate planning opportunities. An accountant is in the weeds of all your finances and is most frequently used to prepare tax returns and lower your tax bill as much as possible through deductions and other resources.
You’ll likely have an ongoing conversation with your financial advisor anytime a financial or life change occurs. With an accountant, you’re more likely to consult on specific projects, like taxes or a business analysis. It’s still good to develop a lasting relationship with someone who is familiar with your situation, especially if there are changes in tax laws that could apply to you.
While offering separate services, financial advisors and accountants often collaborate with one another to ensure your financial plan is comprehensive. Successfully preserving your wealth requires a team of experts to make sure each piece of the strategy is working in conjunction with the others.
Building relationships with the right financial advisor and accountant gives confidence in your overall financial plan. Managing your wealth does take some time and effort. But with the right team in place for investments and taxes, you never have to second guess your decisions.
Ready to get started with an experienced financial advisor in San Diego? Reach out to Dowling & Yahnke Advisors today.