What is a certified financial planner (CFP)?
If you’re looking for professional financial advice, a certified financial planner (CFP) could be just what you need.
The CFP designation is awarded to professionals who have completed rigorous education, experience, and ethical requirements in financial planning. And if you’re worried about where to find one, you can rest easy. There are more than 95,000 CFP professionals in the U.S.—all trained in 72 areas of expertise waiting to help you reach your financial goals.
What is a CFP?
A certified financial planner (CFP) has passed a series of strict requirements and maintains ongoing ethical and education duties to give you comprehensive financial advice.
CFPs have a fiduciary duty to provide advice in their client’s best interest, even if it is not in the advisor’s financial interest. They have education and experience across a wide range of financial topics, from retirement planning and investments to taxes, insurance, and estate planning.
“With a CFP, you have somebody that’s been through a rigorous program and has the experience to look at your overall financial health and help you make smart decisions about your money,” says Marc Giradot, MBA, CFP, founder and CEO of Vertical Ascent 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 reach your goals. And building your financial plan isn’t a willy-nilly process. Certified financial planners use a comprehensive seven-step process to construct your ideal plan.
The first set of steps involves data gathering. Through conversations, questionnaires, and financial documents, your CFP gets to know your personal and financial details and helps you define the goals you want to work towards.
From there, your CFP analyzes your current financial course and considers alternative strategies to serve your goals better. That analysis turns into a set of recommendations tailored to your unique circumstances.
Finally, you and your CFP work together to implement those recommendations. Because people and circumstances are constantly evolving, this final step also involves regular monitoring of your finances and updating recommendations as needed to ensure you’re always on the right track.
Not every relationship with a CFP will include all of these steps. For example, you might work with a CFP to create your plan and then choose to implement the plan yourself. In other cases, you might work with a CFP on individual financial topics, like saving for college or managing a Roth IRA conversion. Your relationship with a CFP can be as all-encompassing or focused as you’d like.
However, it’s important to remember that CFPs specialize in providing comprehensive and ongoing financial planning, helping you get on the right track toward your financial goals and stay on the right track through life’s inevitable twists and turns.
How to become a CFP
Becoming a CFP doesn’t happen by taking a community college course or over a weekend. The CFP certification process is rigorous, time-consuming, and takes at least three to four years to complete. All CFP candidates must complete four steps in their training: education, the certification exam, a professional experience requirement, and an ethical commitment.
1. Education requirement
A certified financial planner must fulfill two parts to the education requirement.
First, a CFP must hold a bachelor’s degree or higher from an accredited university and obtain it within five years of passing the CFP exam (more on the exam just below).
Second, they must complete coursework specific to financial planning through a program approved by the CFP Board. This requirement can be bypassed, however, if they already hold specific professional designations, such as a certified public accountant (CPA), chartered financial analyst (CFA), a master’s of business administration (MBA) degree, and others.
2. Pass the exam
CFPs must pass an exam that tests their knowledge across eight topics, including principles of financial planning, investment planning, taxes, insurance, and retirement planning.
The exam consists of 170 multiple-choice questions and is administered in two three-hour sessions over a single day. The historical pass rate for the exam has ranged from 42% to 67%. Remember when we said becoming a CFP was rigorous? Not everyone makes the cut.
3. Fulfill the professional experience requirement
Even after completing the education requirement and passing the exam, CFPs must accumulate a certain amount of professional experience with the financial planning process before earning the designation.
There are two paths to fulfilling the experience requirement:
- Complete 6,000 hours of professional experience. This could include directly working with clients, supporting other financial planners as they work with clients, or teaching financial planning courses.
- Complete 4,000 hours within an apprenticeship. Requires working directly with clients under the supervision of another CFP.
4. Maintain ethical compliance
Upon completing the first three requirements, candidates submit an application that includes an ethics declaration where candidates 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 specifies a fiduciary duty and other guidelines for maintaining integrity and professionalism within their client relationships.
This ethical obligation is ongoing, and the CFP Board has a process for investigating potential misconduct. Consequences for violating these ethical standards could include suspension or revocation of the CFP designation, and those punishments are public for consumers to see.
What’s the difference between a CFP and a financial advisor?
The most significant difference between a CFP and a financial advisor is the regulation around the term. Holding yourself out as a CFP requires completing a rigorous certification process and ongoing ethical and education requirements. In contrast, just about anyone can call themselves a financial advisor.
“I can go out and say I’m a financial advisor after studying for a couple of weeks and taking one test,” says Reeves. “There’s no regulation around the term financial advisor. There’s nobody that’s going to come and say, you can’t call yourself that.”
“With a CFP, that’s not the case,” continues Reeves. “The CFP Board is very committed to making sure that you’re using the marks correctly, that only people that are meeting the code of ethics requirement on an annual basis, meeting the continuing education requirements, only those people are out marketing themselves as a CFP.”
Another significant distinction is that a CFP professional must act in their clients’ best interests.
The CFP Board Code of Ethics and Standards of Conduct requires CFPs to adhere to a fiduciary duty, which says they must put each client’s financial interests above their own. This means that CFPs must make financial recommendations in their clients’ best interest, even if another course of action would make them more money.
Many professionals holding themselves out as financial advisors do not have this duty. They may instead be held to a suitability standard, which simply means that a recommendation has to be reasonably suitable for a client’s situation. This could mean recommending or selling high-cost products when better options are available.
Some CFPs take it a step further and practice as fee-only financial planners. This means they do not sell any products; their income comes directly from clearly stated annual or a la carte service fees instead of commissions, which can be a better way to align financial incentives. Other CFPs may be fee-based, which means they earn money both from commissions and directly from clients.
While even the CFP Board acknowledges that they can’t guarantee quality, the rigorous requirements for obtaining and maintaining the CFP designation are meant to increase the odds that you will receive sound, objective advice.
“When you are talking to someone about something as important as your personal finances, there aren’t that many gatekeepers in our industry,” says Reeves. “The CFP designation demonstrates that the person you’re having these conversations with, the person you’re trusting to answer these questions for you, is someone that has put in the time and the effort to make sure that they’re a well-rounded professional.”
Starting your search for a financial advisor by looking for a CFP is an excellent way to ensure you get the proper guidance for your personal and financial goals.