Should I hire a CPA or a financial advisor?

financial-advisor-or-CPA

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As a small business owner, you want to give your operation the best financial chops you can. And while you’re focused on actually running the business, it’s a good idea to bring in expert advisors who can help round out your plan and unleash your business’s full potential. Some of the most well-known options are financial advisors and CPAs.

But what do they bring to the table, and which one do you need for your business?


The basics

  • Yes, they’re different
  • Financial advisor helps figure out the overall plan and provide guidance
  • CPA provides guidance, but can also handle specific things like tax preparation and strategy
  • What a CPA does is pretty broad overall
  • The key is having a good team: CPA, financial advisor, broker, attorney, etc

What’s a financial advisor?

There’s not really a precise definition for a financial advisor. It’s more of an umbrella term that encompasses many different types of professionals that provide guidance to businesses and individuals on financial decision making.

Many different finance-related professionals can be considered financial advisors, including stockbrokers, insurance agents, investment managers, financial planners, wealth managers, estate planners, and sometimes tax preparers. If they are paid to provide advice on financial matters, they can be considered financial advisors.

However, if they just provide services to the client without also offering any expert guidance, they’re not financial advisors.

Types

“Financial advisor” is, like we mentioned, a wide umbrella that contains a lot of different specialties within it. These specific roles are often certified by various schools and professional organizations to maintain a certain standard. There are dozens of differently accredited financial advisor roles, but some examples include:

  • Certified Financial Planner (CFP): A well-educated and experienced financial planner that is held to a fiduciary standard, meaning that they’re legally obligated to act in the best interests of their client.
  • Chartered Retirement Planning Counselor (CRPC): A financial professional focused on building a “road map to retirement” for their clients.
  • Chartered Financial Analyst (CFA): Requiring a bachelors degree and at least four years of relevant professional experience, the prestigious CFA title demonstrates that its holder can handle everything from portfolio management to risk analysis.

What do they do?

On a basic level, a financial advisor will assess your financial situation and goals and create a customized plan for you to achieve those goals. This can include advising on retirement planning, inheritance, or investments.

If you have a decent chunk of money, chances are a financial advisor can help you figure out how to handle it.

Are they certified/regulated?

With the term “financial advisor” covering such a wide range of roles and services, certification requirements vary between specific types of financial advisor.

Many of these positions are not regulated by the government, but some may have credential requirements like those for Registered Investment Advisors or Certified Financial Planners.

These professionals all have a duty to act in your best interest, but the level of legal compulsion varies.

📌 Note: The Financial Industry Regulatory Authority, or FINRA, may sound like a government agency, but it’s actually what’s known as a self-regulatory organization – a private company that exercises informal authority over a certain profession. They regulate their member firms and arbitrate disputes, but ultimately answer to the United States Securities and Exchange Commission.


What’s a CPA?

CPA stands for Certified Public Accountant, and it is the highest standard of achievement in the accounting profession.

What do they do?

To answer the question of what a CPA does, there’s an old joke in the industry: “A CPA solves a problem you didn’t know you had with a solution you don’t understand.”

Like other accountants, they can prepare and manage financial books and reports, handle budgets, and ensure compliance on legal matters like taxes, but they’re unique in that they can get a lot more involved in the “big picture” than other accountants. CPAs are frequently brought into long term planning and strategy discussions. They’re also qualified to handle more advanced accounting tasks, like audits.

A CPA will often be found working independently, running an accounting firm, or in a high-level position in a company – the CFO, for example.

Are they certified/regulated?

They certainly are! As the name suggests, CPAs have to go through an extensive qualification process.

The requirements to become a CPA vary from state to state. But in general, they need to pass at least 150 credit hours of college-level accounting classes, which means any CPA will have a bachelor’s degree at minimum, and probably a master’s as well. They also have to pass a “crazy hard test” – quote from an actual CPA – that has a pass rate of under 50%.

And if that’s not enough, once they’ve officially earned their CPA status, they typically need another 40 hours a year in continuing education across multiple subjects.

Put that all together and you have a highly skilled accounting professional with tons of knowledge and experience.

Which one do I need?

When you’re deciding between a financial advisor and a CPA, like many finance-related decisions, it’ll come down to the particulars of your situation.

  • If you’re a business owner, and you’re hiring just one of the two, a CPA is a much more versatile choice that can handle a lot of what you need in a small business.
  • If you have tax questions, a CPA is one of the best options when it comes to tax preparation and planning.
  • If you’re looking at investments, you will want to talk to some kind of financial advisor about where to put your money for the best returns.
  • If you’re looking at real estate, there’s a lot of good reasons to talk to both, but a CPA is able to provide much more hands-on help, like assisting with 1031s (a way to postpone taxes on real estate proceeds by re-investing them in similar areas).
  • If you’re starting a business, a CPA can help you get things set up the right way from the very beginning.

Overall, the CPA wins out here as the more versatile choice with more practical benefits (not that we’re biased), but these two roles compliment each other very well. Why choose between them at all?

You need a team

Here’s what this all boils down to: you want different advisors with different specialties – and different priorities – that can all work together.

  1. Start with a CPA and an attorney. These two important advisors do a lot of their best work together, and should be the foundation of this type of team. Ideally you should be working with them both from the beginning (though if you have to pick one to start with, go with a CPA). Every business owner needs to think about their business structure and their tax strategy, and a CPA can handle that and more. And an attorney can handle contracts and other legal documents, as well as any delicate situations that need a lawyer's touch.
  2. Next, hire an insurance broker. Businesses have more advanced insurance needs than private individuals.
  3. Find a stockbroker. You’ll want to invest and keep your money working for you.
  4. Then hire a financial advisor. They can look at the big picture of your finances while the stockbroker is focused on your position in the market.

Build an effective team that plays well together, and they’ll keep you pointed in the right direction.

The bottom line

Financial advisors and CPAs can both be a big help to your small business, but what they actually provide is very different. Financial advisor is a broad category that includes basically anyone who gives financial advice, whereas CPA is a very specific certification level for highly knowledgeable and experienced accountants.

Ideally, what you’re looking for is a team of advisors that can help navigate your business efforts through the many challenges that might require expert knowledge. Financial advisors and CPAs play very well together on that kind of team.

But what if you can only go with one of the options? Well, it depends on your needs (and we’re sort of comparing apples to oranges here) but a CPA is a more versatile choice.

Want to know more about what a CPA can do for you and your small business? Schedule a call with us today!

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