What Is a Certified Financial Planner and Do You Need One?
A Certified Financial Planner, or CFP, is a financial planning professional with the education, training, certification and experience to help you strategize about how to meet your financial goals. Whether you need help budgeting for everyday expenses or want someone to manage your retirement account, hiring a CFP could be money well spent.
What Is a Certified Financial Planner?
To become a CFP, you must meet a stringent set of requirements for certification. Those requirements include:
- A bachelor’s degree plus coursework in financial planning, including classes in Professional Conduct and Regulation, General Principles of Financial Planning, Education Planning, Risk Management and Insurance Planning, Investment Planning, Tax Planning, Retirement Savings and Income Planning, Estate Planning, and Financial Plan Development
- Passing an exam that covers all aspects of financial planning advice
- A minimum of 6,000 hours of experience in the financial planning process or 4,000 hours of apprenticeship experience in financial planning
- Abiding by strict ethical standards and putting the interests of their clients first
It takes about 18 to 24 months to become a CFP after you have earned a bachelor’s degree.
Who Certifies a CFP?
By definition, a CFP is certified by the Certified Financial Planner Board of Standards. Since 1995, the CFP Board of Standards has itself been certified by the National Commission for Certifying Agencies, which makes sure the agency meets legal testing requirements.
The CFP Board of Standards creates and enforces the requirements for earning and keeping the CFP designation. The goal is to ensure that planners are competent and ethical for the good of their clients.
After completing their initial certification, Certified Financial Planners must meet the continuing education requirements for 30 hours of approved coursework every two years. The coursework must include:
- 2 hours of ethics training
- 28 hours in one or more principal knowledge topics, which are the financial planning areas covered on the CFP exam.
Coursework must focus on content that helps CFPs provide clients with current, accurate guidance on financial planning. Classes that focus on issues such as running a practice or leadership skills don’t count toward the continuing education requirement.
The requirement that really sets professional Certified Financial Planners apart from other financial advisors is the commitment to acting as a fiduciary. As such, CFPs must always act in the best interest of their clients. For example, a fiduciary won’t steer you toward an investment that would result in a larger commission for them over an investment that better matches your financial goals.
What Does a Certified Financial Planner Do?
A CFP works with you on a savings and investment roadmap that can help you reach your financial goals. Certified Financial Planners provide guidance in areas such as:
- Tax planning
- Retirement savings
- Investment planning
- Estate planning
- Budgeting and saving for educational expenses.
CFPs can also help with risk management and insurance needs. Different planners may specialize in different areas.
To do their jobs properly, CFPs must first learn about your current financial situation, including the value of your current investments and how much you owe on your home and other loans. The CFP will ask about your financial goals, determine how comfortable you are with investment risks and make sure you have adequate insurance.
Once the CFP understands your current situation and future goals, they will develop recommendations designed to help you reach your financial goals in the desired time frame. Your personal financial situation and comfort level handling your own finances are the biggest factors in determining whether you should hire a Certified Financial Planner.
Is a Certified Financial Planner Worth It?
The main advantage of working with a CFP is that you get expert advice from a highly trained professional who can look at your personal finances objectively. A CFP can point out the pros and cons of various options and offer alternatives you might not have thought of.
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Certified Financial Planner Fees
There are costs to consider when you work with a certified financial planner. Below is a breakdown of the different types of fee structures. When working with a CFP, be aware of how they are compensated and that you are clear on the details before they begin working with you.
- Flat Fee: Also known as fixed fee, this payment plan charges a set fee for individual services.
- Hourly Fee: An hourly fee is what it sounds like: You pay a certain rate for every hour you require the CFP’s services. This gives you a little more control over your budget. The downside is, you might be paying for meetings or phone calls that last longer than expected.
- Percentage of Assets Under Management: Under this plan, the CFP charges a percentage of the total value of the investments being managed for you, including stocks, bonds and retirement accounts. For example, if the planner charges 1% a year and is managing $250,000 in investments for you, the annual fee would be $2,500.
When To Use a Certified Financial Planner
Certified financial planners can help you plan at all stages of life, whether you’re just starting out in your career or are retired and doing estate planning.
Some common scenarios where a CFP can be helpful include:
- When you’re getting married and combining households and accounts, or getting divorced and need advice on how to get by on a single income
- When you have children and need to plan for life insurance and college expenses
- When you’ve had a change in employment status, either through a new or higher-paying job or after being downsized out of a job
- When you want to maximize retirement savings
- When you inherit a sizeable sum and want to make the most of the windfall
What Is the Difference Between a Financial Advisor and a Certified Financial Planner?
Financial advisor is a broad term that applies to people who offer advice on a variety of topics, ranging from estate planning to stocks and bonds. A CFP is a certified financial advisor who specializes in helping clients strategize on specific financial goals. Their specialty is coming up with an overall plan for meeting your goals.
Because CFPs must meet specific educational and experience requirements that aren’t required of all financial advisors, they can usually offer more expertise and a greater wealth of knowledge. CFPs are also committed to the fiduciary standard, which requires putting the client’s interests above their own. Not all financial advisors uphold the fiduciary standard.
How To Find a Certified Financial Planner
The Certified Financial Planner Board of Standards has a search function on its website to help you find a CFP located nearby.
When selecting a CFP, interview a few planners to find one that you’re comfortable working with and who has expertise in the areas where you want help. Be sure to ask these questions:
- What is the planner’s fee structure for the services you want?
- Does the planner have experience in working with people like you? For example, a planner who primarily works with millionaire boomers isn’t a good fit for a millennial planning to buy their first house.
- Does the planner have relevant expertise? If you need an estate planner, an expert in saving for college isn’t the best choice.
It’s important to do your due diligence while searching for a certified financial planner. You may find that a CFP is a good choice to guide you in setting and achieving your financial goals.
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- Certified Financial Planner Board of Standards, Inc. "The Certification Process."
- Certified Financial Planner Board of Standards, Inc. "Continuing Education Requirements."
- Forbes. 2020. "How To Choose A Financial Advisor."
- Certified Financial Planner Board of Standards, Inc. "Why Choose a CFP Professional."