- A Certified Financial Planner (CFP) is a trade-industry designation for advisors and other professionals in the financial field.
- To gain the CFP credential, planners must have a certain amount of experience, pass a rigorous exam, and commit to ongoing financial education.
- While not a legal license, the CFP indicates that a planner will bring a higher level of financial expertise and ethical behavior to their advice and management of a client's finances and investments.
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When you're seeking advice on money matters, navigating the waters of wealth managers, financial planners, and other advisors can be downright confusing. Who should you trust in a field that's largely unregulated, but chock full of professionals with an alphabet soup of initials after their names?
"CFP," which stands for Certified Financial Planner, is one of the most common and respected types of financial advisor you'll come across. Generally speaking, individuals designated as CFPs hold some of the strictest certifications for financial planning, as established by the CFP Board, the nonprofit trade organization that aims to set the bar for trust, ethics, and expertise within the financial planning industry.
The CFP Board believes that "every single American deserves competent and ethical financial advice from qualified professionals who are required to act as fiduciaries," says CFP Board CEO Kevin R. Keller, adding that the organization's role is "to set and uphold the Certified Financial Planner certification for more than 87,000 professionals in the United States. We exist, in part, to set standards that go further than the minimum requirements of the law, for the benefit of the public and the profession."
Wondering if hiring a CFP is right for you? Here's everything you need to know about them.
What is a Certified Financial Planner (CFP)?
First, it's important to understand what a CFP is not. Unlike the CPA (certified public accountant), the CFP is not a state-sanctioned license to practice. Nor does it indicate registration with a federal or federal-sanctioned agency, like the SEC or FINRA, which oversees stockbrokers.
Instead, the CFP is a professional credential set and enforced by the CFP Board. It offers those in the financial industry the opportunity to develop their skills, specialize, and continue their education to earn and maintain a prestigious designation.
It's also important to understand the difference between the general term "financial planner" and the Certified Financial Planner designation. Anyone can hang out a shingle and call themselves a financial planner, but it takes a lot of time and effort to become a CFP.
How to become a CFP
Earning a CFP begins with education. Candidates must have a bachelor's or graduate degree from an accredited college or university.
They'll also complete additional CFP Board-approved coursework for certification at one of 200 educational institutions. These classes span 72 financial planning specialties, such as investments, retirement planning, risk management, insurance, taxes, and estate planning.
When ready, candidates have to pass an intensive exam asking them to apply their financial knowledge to real-life situations.
Additionally, they have to complete either 6,000 hours of unsupervised financial planning services to the public or 4,000 hours of apprenticeship work with a professional firm, either before or after taking the exam.
Finally, they will have to agree to and conduct business according to the CFP Board's ethical standards, which include acting as a fiduciary.
Once they receive the CFP, they have to continue to meet annual requirements for ongoing certification.
What do CFPs do?
A good financial planner helps organize and offers guidance on every aspect of your financial life, including saving for retirement or college, guiding your investment strategies; planning for big shorter-term expenses, like buying a house; everyday budgeting and spending; tax strategies; insurance and estate planning.
"A financial professional or financial planner is the person who asks you meaningful questions, allows you to answer, and then provides a framework for you to make decisions about your future," says Julie Genjac, Managing Director of Applied Insights at Hartford Funds. "They educate you and connect you to resources, even outside of your financial life. They are your impartial sounding board, and can share stories of others who have experienced similar situations."
Often, professionals in a related field choose to earn CFP certification in addition to their main practice. You'll find CPAs, attorneys, insurance agents, and other legal, financial, or business professionals with CFP certification.
Others work solely as financial planners, wealth management advisers, analysts, or investment and portfolio managers. They often actively help you to invest or buy products, such as mutual funds and insurance.
How are CFPs different from other planners and advisors?
What makes CFPs different is the education, ongoing certification requirements, and practical experience they have acquired. They are also held to a high standard of ethics and expected to act as a fiduciary for their clients — which means they are ethically bound to deliver advice and take action that is in the client's best interest — and will back up that promise in writing.
Not all financial professionals are held to these standards. Professionals working for brokerages and financial services companies, for example, are often held to a lesser "suitability standard," which only mandates that they recommend appropriate products and strategies.
How much do CFPs cost?
Pay scales for CFPs vary. Some work on a commission basis, meaning they get a percentage of the investment and insurance products they sell you.
Fee-only financial planners generally charge an hourly rate or a retainer, which is usually a small percentage of the value of the assets they manage on your behalf. Some may have a fixed fee for specific services. According to a 2019 Kitces Research Study on Financial Planning, the average professional charges $2,361 to create a client's written financial plan, for example.
You may also find planners that get compensated in a combination of ways: They charge fees for certain services and reap commissions for certain products. In fact, in 2019, the CFP Board changed guidance in its ethical standards to include fee-only, fee-and-commission, and commission-based compensation models.
Some feel the fee-only approach best fits with a planner's fiduciary ethos. Working on commission isn't necessarily a bad thing, though, as long as the planner is transparent about receiving them — and in what amount for which product or company. Those compensated via commission argue it keeps client costs down.
Working with a CFP may cost more than if you chose another type of financial advisor — not just because they tend to be fee-based, but because of the specialized education and increased experience CFPs offer.
How do you find a CFP?
Professionals who hold the credential use the CFP or CERTIFIED FINANCIAL PLANNER trademark as a way of identifying themselves, displaying it after their names. In addition:
- All CFPs are issued a certification number that can be verified through the CFP Board website.
- The CFP Board's consumer website, LetsMakeAPlan.org, lets you locate actively practicing CFPs. You can search by geography, specialty, language, and other criteria.
- The National Association of Personal Financial Advisers (NAPFA) website also offers a tool that allows you to search for professionals based on geography. This group requires members to be fee-only planners.
The financial takeaway
CFPs have to complete years of education, thousands of hours of practical experience, and ongoing adherence to high ethical standards and certification requirements. As fiduciaries, they are ethically bound to put their clients' financial interests above their own. They also take a holistic approach to financial planning, looking at both long-term and short-term goals.
That said, though CFPs are held to a high standard, non-CFP financial planners and advisers can also provide you with the same level of ethics and professionalism.
What's most important of all: whether or not you can really connect with your advisor. This is often a long-term relationship and one that deals with very personal matters. So you should feel comfortable with who they are and how they work with you, regardless of the letters that are trailing after their name.
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