Financial Counseling, Coaching, and Planning: What's the Difference and Why It Matters
When you use the right tool for the job, everyone wins.
Hello Taking About Money Community! Today I am going to give a primer on the difference between financial counseling, coaching, and planning, and why it matters. This post was inspired by the many folks who reach out to me looking for help in living their best financial lives. They recognize that they are stuck; they know that things can get better, but they are having trouble getting themselves from Point A to Point B.
But what they want (and what they need) differs from person to person, and there is no one-size-fits-all for assisting people in solving their problems or achieving their goals.
This post is also for you, members of the community, so that you can reflect on your own practice. After having worked in this space for 20+ years, I know full well that we as a field end to re-brand every decade or so, using nomenclature that the general world does not understand.
Take a walk down memory lane with me for a moment, won’t you?
First we were called financial literacy, but then someone decided that it was pejorative, as if we were calling people financially il-literate, and we didn’t want to infer that people were illiterate.
Then we started using the term financial education, but along the same lines did not want to tell adults who were managing their household finances that they needed to be “educated” in order do better, also acknowledging that there were big systemic barriers that were getting in people’s way.
And then we moved to financial empowerment, this time stressing that if we did more to revamp the structures surrounding our clients, or to empower them, their lives would improve.
We currently call our field financial capability, with the belief that it’s a potent combination of knowledge, skills, and access to financial products and services that improves the lives of working families.
In the midst of these branding exercises, the nonprofit sector also wrestled with what its practitioners should do, that is, whether they should provide services as financial counselors or financial coaches. For years financial counseling was the norm, but then financial coaching made its way into the vernacular, and many financial counselors changed their job titles to financial coaches, and many funders began providing resources for coaching programs over counseling programs, with the belief that coaching was a superior intervention for assisting clients in achieving their goals.
But is it true that coaching is better than counseling? I contend that an intervention should match the client’s needs, and that one approach is not necessarily better than another. I also believe that no matter what type of service you offer, you deserve to experience some rigor in the education you receive to become a financial counselor, coach, or planner.
Let’s look at three credentialing bodies that oversee the fields of counseling, coaching, and planning to learn what these three professions really do.
Financial Counseling: Association for Financial Counseling and Planning Education (AFCPE)
AFCPE is a 50 year-old national nonprofit that certifies 3,000+ Accredited Financial Counselors (AFC®) who work with consumers in all walks of life (Disclaimer: I have my AFC® credential through AFCPE).
According to the AFC® Candidate Handbook, financial counselors:
Educate clients in sound financial principles
Assist clients in the process of overcoming their financial indebtedness
Help clients identify and modify ineffective money management behaviors
Guide clients in developing successful strategies to achieve their financial goals
Support clients as they work through their financial challenges and opportunities
Help clients develop a new perspective on the dynamics of money in relation to family, friends and personal self-esteem
To become an AFC you have various study options ranging from attending a university program to self-study where applicants are provided with various textbooks and related study materials. At the conclusion of study applicants sit for an exam covering aspects of personal finance content knowledge and counseling skills. To attain the designation, professionals must also complete at least 1,000 hours of financial counseling experience. Finally, applicants must commit to adhere to the AFCPE Code of Ethics and submit three letters of reference.
Once professionals receive the AFC® designation they must complete 30 hours of continuing education every two years along with an annual fee.
Professional Coaching: International Coach Federation (ICF)
In this section I am highlighting the International Coach Federation (ICF) for one specific reason: Financial coaching is so new that there is no ICF-accredited training program to date.
ICF itself is 25 years old, and the specialty of financial coaching is far younger. There are, however, a number of ICF-credentialed professionals who are leading the effort nationwide to train newbie financial coaches. When looking for a financial coach (or when looking for training to become a financial coach) it is helpful to ask whether or not the coach adheres to/trains on the ICF Core Competencies.
ICF is a 25 year-old independent credentialing body for approximately 20,000 professional coaches around the world. ICF defines coaching as
“Partnering with clients in a thought-provoking and creative process that inspires them to maximize their personal and professional potential.”
Professional coaches have a responsibility to:
Discover, clarify, and align with what the client wants to achieve
Encourage client self-discovery
Elicit client-generated solutions and strategies
Hold the client responsible and accountable
Work to help clients dramatically improve their outlook on work and life while unlocking their potential
In order to become a credentialed coach through ICF, applicants must complete coach-specific training (including the ICF definition of Coaching, Code of Ethics and Core Competencies), mentor coaching, 100 hours of coaching experience, a performance evaluation, and a knowledge assessment.
Once professional coaches become credentialed they are required to participate in mentor coaching and complete 40 hours of continuing education every three years as well as a renewal fee.
Financial Planning: Certified Financial Planner Board of Standards, Inc. (CFP Board)
Now on to a field that we nonprofit folk don’t tend to work with on the regular: financial planning. I think that it is important for you to familiarize yourself with this field because as your clients start to build wealth, having a referral relationship with one (or more) financial planners will give your clients access to wealth-building tools that will assist them throughout their lives.
In this section I want to introduce you to the CFP Board, a non-profit organization that was founded in 1985 to set and enforce the requirements for Certified Financial Planner™ designation. As of 2019 there were more than 86,000 CFP® professionals, representing about 20% of the financial advisor industry.
A Certified Financial Planner will:
Establish and Define the Client Relationship
Gather Client Data and Goals
Analyze and Evaluate the Client's Financial Status
Develop and Present Financial Planning Recommendations
Implement the Financial Planning Recommendations
Monitor the Financial Planning Recommendations
In order to become a CFP® applicants must complete financial planning coursework, pass a comprehensive exam, complete 6,000 hours of professional experience, sign an ethics declaration, and pass a background check.
[Note: Frequently my financial coaching clients tell me that they don’t think that they can work with a financial planner because they don’t have enough wealth amassed to qualify to work with one. While it is true that many financial advisors will only work with high-wealth households (assets of $100,000+), there are some that will work with you on a fee-only basis, meaning that you can pay them by the hour to create a comprehensive financial plan that you can then execute yourself. The National Association of Personal Financial Advisors features a search tool for fee-only financial advisors near you.]
