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Updated on Monday, August 17, 2020
A certified financial planner (CFP) can help clients to navigate nearly every aspect of financial planning, including estate planning, dealing with tax issues and planning for retirement. Earning a CFP designation requires meeting rigorous requirements, from reaching a certain number of years of experience to passing an exam.
We cover what they do, as well as who might benefit from working with a CFP and how to find one.
- What is a CFP?
- What does a CFP do?
- What are the requirements to become a CFP?
- What is the difference between a CFP and a CFA?
- Who should consider working with a CFP?
- How to find a CFP
What is a CFP?
A financial professional who has earned the CFP designation often specializes in helping clients to develop comprehensive financial plans to meet short- and long-term goals.
Although the Financial Industry Regulatory Authority (FINRA) doesn’t approve or endorse any professional credential or designation, it recognizes CFP certification. The CFP is offered and overseen by the Certified Financial Planner Board of Standards Inc. In addition, CFPs have accreditation through the National Commission for Certifying Agencies (NCCA), which is used to certify credentialing in a wide range of industries and imposes certification standards designed to ensure the health, welfare and safety of the public.
To earn the CFP designation, you must meet a number of requirements in terms of experience, coursework and ongoing education. CFPs also are held to an ethical code and are required to act as fiduciaries, which means that, among other things, they must put their client’s best interests ahead of their own.
Financial planners commonly earn the CFP designation, but other professionals who also might hold it include wealth advisors, estate-planning specialists, trading and research associates and branch managers at financial firms.
What does a CFP do?
CFPs help clients to achieve financial goals by developing personalized and holistic strategies and plans that are unique to the client’s financial situation. Typically, when you meet with a CFP, you can expect to dive deep into the current state of your finances and the financial goals you hope to achieve.
Specific steps that your CFP will take to develop your plan will depend on your goals, but in general, CFPs might analyze your assets, liabilities, cash flow, insurance, investments and tax strategies. CFPs provide a wide range of services, including:
- Balancing your budget
- Managing student debt
- Merging finances
- Selecting healthcare coverage
- Purchasing a home or car
- Establishing and maintaining healthy credit
- Planning for educational expenses
- Saving money
- Planning for retirement
- Selecting life insurance
- Determining tax strategies
- Estate planning
- Managing retirement income
- Planning for long-term care
Although CFPs also can provide basic investment planning services, such as building a portfolio, they typically focus more on holistic financial planning.
What are the requirements to become a CFP?
CFPs are sought-after financial advisors because of the rigorous requirements associated with their certification. A CFP must meet several educational and professional requirements, outlined below.
|Requirements to Earn CFP Certification|
|Education||Complete a CFP-board registered program, or hold one of the following credentials:
|Exam type||170 multiple-choice questions during two, 3-hour sessions in a single day|
|Continuing-education requirements||30 hours every two years|
What is the difference between a CFP and a CFA?
An alphabet soup of acronyms make up all of the different designations that financial professionals can hold, and two of the most commonly confused are certified financial planners and certified financial analysts (CFAs). Both are prestigious designations that can signal a financial professional’s expertise, but they’re different in terms of what type of financial professional typically acquires them and how they do so.
In a nutshell, CFAs place more emphasis on investment management than holistic financial planning. CFP certification is granted by the CFP Board; CFA accreditation is administered by the CFA Institute.
There also is a difference in whom each advisor serves and how. CFPs generally work with individual clients to develop personalized, comprehensive strategies to reach their financial goals, while CFAs might have institutional clients, such as pension plans and foundations, and focus on investment analysis. CFAs are likely to be portfolio managers, research analysts, consultants, risk managers, financial analysts and investment-banking analysts.
The table below hashes out the core differences between a CFP and a CFA. Note that it’s possible to hold both designations.
|Clientele||Individuals and families||Individual and institutional investors|
Who should consider working with a CFP?
Anyone who would like a comprehensive plan and strategy toward either maintaining and managing a healthy financial life or meeting short- or long-term financial goals could benefit from working with a CFP.
However, you should consider working with a CFP only if you believe that the benefits will outweigh the costs. The price of hiring a CFP differs widely based on factors such as level of expertise and experience and the scope of your financial needs. The fee structure of CFPs can vary, too, and clients might pay a flat fee, an hourly fee or a percentage of the assets that the CFP manages.
For example, a 2017 report published in the Chicago Tribune pegged the typical hourly rates of CFPs as $200-$400 per hour, while CFPs that charge a fixed annual fee tended to charge $3,500-$7,500 per year. Meanwhile, CFPs that charge a percentage of assets under management typically have rates around 1%.
How to find a CFP
The easiest way to find a CFP is to use the CFB Board’s search tool on its website. Simply enter your zip code, and the website will pull up a list of CFPs near you who are accepting new clients.
The CFP Board’s search tool will give you important information on the CFP, including their address, minimum asset requirements, any CFP Board disciplinary history, any bankruptcy disclosures from the past 10 years and focus areas. You also should use the Securities and Exchange Commission’s Investment Adviser Public Disclosure directory to perform additional background research on any CFP you consider.
Beyond credentials, other factors to take into consideration when determining whether you want to hire a particular CFP — and which CFP might be the best fit for you — should include:
- Fees: Are the rates they charge in line with the industry standard? Are you comfortable with the fee structure?
- Investing philosophy: Is their approach to investing something you agree with? For example, do they prefer an active or passive investing approach? What are their thoughts on value investing or stock picking?
- Client history: Why did their last client leave them? What’s their disciplinary track record?
- Work style: How do they prefer to communicate — in-person, over the phone or by email? Is their work style compatible with yours?