What is a certified financial planner (CFP)?

The CFP designation is awarded to professionals who have completed rigorous educational, experience and ethical requirements in financial planning. If you’re worried about where to find one, you can rest easy. There are more than 95,000 CFP professionals in the United States—all trained in 72 specialty areas—waiting to help you achieve your financial goals.

What is CFP?

Certified Financial Planners (CFPs) have passed a rigorous set of requirements and continue to fulfill their ethical and educational responsibilities to provide you with comprehensive financial advice.

CFPs have a fiduciary duty to provide advice in the best interests of their clients, even if it is not in the advisor’s financial interest. They have education and experience in a wide range of financial topics, from retirement planning and investing to taxes, insurance and estate planning.

“With a CFP, you have someone with rigorous planning and experience looking at your overall financial health,” said Marc Giradot, MBA, CFP, founder and CEO of Vertical Ascent. and help you make smart money decisions.” Wealth Management in Seattle, WA.

What does a Certified Financial Planner do?

A certified financial planner’s job is to help you maximize the financial opportunities available to you so you can achieve your goals. Creating a financial plan is not a haphazard process. Certified financial planners use a comprehensive seven-step process to build your ideal plan.

The first set of steps involves data collection. Through conversations, questionnaires, and financial documents, your CFP can learn your personal and financial details and help you determine what you want to achieve.

Based on this, your CFP will analyze your current financial situation and consider alternative strategies to better achieve your goals. This analysis is translated into a set of recommendations tailored to your unique situation.

Finally, you and your CFP work together to implement the recommendations. Because people and circumstances are constantly changing, the final step also involves regularly monitoring your financial situation and updating advice as needed to ensure you stay on the right track.

Not all relationships with the CFP will include all of these steps. For example, you can work with a CFP to develop a plan and then choose to implement the plan yourself. In other cases, you may work with a CFP on individual financial topics, such as saving for college or managing a Roth IRA conversion. Your relationship with a CFP can be as comprehensive or as focused as you want it to be.

However, it’s important to remember that the CFP focuses on providing comprehensive and ongoing financial planning to help you get on the right track toward your financial goals and stay on track through life’s inevitable twists and turns.

How to become a CFP

Becoming a CFP is not something you can do by taking community college classes or taking weekends. The CFP certification process is rigorous and time-consuming, taking at least three to four years to complete. All CFP candidates must complete four steps of training: education, certification examination, professional experience requirements and ethical commitment.

1. Academic requirements

Certified financial planners must meet both parts of the education requirement.

First, a CFP must hold a bachelor’s degree or higher from an accredited university and obtain that degree within five years of passing the CFP exam (more on the exam below).

Second, they must complete financial planning-specific coursework through a CFP Board-approved program. However, this requirement can be bypassed if they already possess specific professional qualifications such as Certified Public Accountant (CPA), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), etc.

2. Pass the exam

CFPs must pass an exam that tests their knowledge of eight topics, including principles of financial planning, investment planning, taxes, insurance and retirement planning.

The exam consists of 170 multiple-choice questions and is held in two three-hour sessions each day. Historical pass rates for the exam range from 42% to 67%. Remember when we said becoming a CFP is rigorous? Not everyone makes the cut.

3. Meet professional experience requirements

Even after completing educational requirements and passing the exam, a CFP must accumulate certain professional experience in the financial planning process before earning the designation.

There are two ways to meet the experience requirement:

1. Complete 6,000 hours of professional experience. This may include working directly with clients, providing support to other financial planners as they work with clients, or teaching financial planning classes.
2. Complete 4,000 hours during the apprenticeship. Required to work directly with clients under the supervision of another CFP.

4. Maintain ethical compliance

After completing the first three requirements, the candidate submits an application containing an ethics statement and the candidate must report any criminal and regulatory issues to the CFP Board. Applicants must also submit to a background check and agree to abide by the CFP Board’s Code of Ethics and Standards of Conduct, which sets forth fiduciary duties and other guidelines to maintain integrity and professionalism in client relationships.

This ethical obligation continues, and CFP Board has a process for investigating potential misconduct. Consequences for violating these ethical standards may include suspension or revocation of CFP status, and these penalties are public and visible to consumers.

What is the difference between a CFP and a financial advisor?

The most significant difference between a CFP and a financial advisor is the regulation of the term. Becoming a CFP requires completing a rigorous certification process as well as ongoing ethical and educational requirements. In contrast, almost anyone can call themselves a financial advisor.

“After a few weeks of studying and taking a test, I can go out and say I’m a financial advisor,” Reeves said. “There are no rules for the term financial advisor. No one is going to come along and say, you can’t call yourself that.”

“With CFP, that’s not the case,” Reeves continued. “CFP Board is very committed to making sure that you are using these marks correctly and only those who meet the requirements of the Code of Ethics every year, who meet the continuing education requirements, only those are marketing themselves as financial planners.”

Another important difference is that CFP professionals must act in the best interests of their clients.

The CFP Board of Directors’ Code of Ethics and Standards of Conduct require CFP to adhere to its fiduciary duty to place the financial interests of each client above its own interests. This means that CFPs must make financial recommendations in the best interests of their clients, even if taking other actions would make them more money.

Many professionals who call themselves financial advisors do not have this responsibility. Instead, they may be subject to a suitability standard, which simply means that recommendations must be reasonably appropriate to the client’s circumstances. This could mean recommending or selling high-cost products when better options are available.

Some CFPs go a step further and practice as a fee-only financial planner. This means they don’t sell any products; their revenue comes directly from clearly defined annual fees or a la carte service fees, rather than commissions, which may be a better way to align financial incentives. Other CFPs may be fee-based, meaning they make money both through commissions and directly from clients.

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While the CFP Board acknowledges that they cannot guarantee quality, the strict requirements for obtaining and maintaining the CFP designation are designed to increase the likelihood that you will receive sound, objective advice.

“When you’re talking to someone about something as important as your personal finances, we don’t have as many gatekeepers in our industry,” Reeves said. “The CFP designation shows that the person you’re having these conversations with, the person you trust to answer these questions for you, is someone who has invested time and effort in making sure they’re a good person…well-rounded and professional.”

Starting your search for a financial advisor by looking for a CFP is a great way to ensure you get the right guidance to achieve your personal and financial goals.