Key points
- A certified financial planner has met rigorous education requirements.
- CFPs can help with a variety of financial needs.
- Some CFPs bill their services by the hour, others by AUM fees.
As you consider hiring a professional to help you manage your money, the most challenging step can be finding the right person.
A simple internet search is bound to yield hundreds of results. If you’re struggling to narrow down your list, consider looking for financial professionals who are certified financial planners. They meet education and experience requirements and are held to ethical standards that help ensure you receive the best service.
What is a CFP?
A certified financial planner, or CFP, is a financial professional who has met the rigorous education, training and ethical standards set by the CFP Board. Their job is to provide comprehensive financial planning services to clients.
“CFPs are well versed in various aspects of financial management, including investments, retirement planning, tax strategies, estate planning and insurance,” said Brian Seymour II, a certified financial planner and the founder and CEO of Prosperitage Wealth.
The CFP designation is considered by many to be the gold standard for financial professionals. One of the most important characteristics of CFPs is that they are held to the fiduciary standard, meaning they must act in their clients’ best interests and avoid or disclose conflicts of interest.
Other financial professionals may be held to a lower or no standard. One example is the suitability standard, which requires only that they provide advice that is suitable based on their clients’ financial situations and objectives.
What does a certified financial planner do?
CFPs can help with a variety of financial needs. Their services generally fall into two categories: financial advice and financial planning.
- Financial advice. This could be on a single topic, such as your investment portfolio’s asset allocation or your debt repayment plan.
- Financial planning. This involves analyzing your current financial situation, developing personalized strategies, and offering guidance on investments, budgeting, risk management and more.
CFPs and financial planning
Your relationship with a CFP for financial planning is often a long-term one. A CFP can help you create and implement a financial plan, manage certain areas of your finances, and update the financial plan as your life changes.
“CFPs tend to be far less transactional, with the emphasis on holistic financial planning to secure the client’s long-term financial well-being,” Seymour said.
CFPs are trained to help in many areas, including:
- Cash flow and debt management.
- Retirement savings and income planning.
- Risk management and insurance planning.
- Investment planning.
- Tax and estate planning.
How much does a CFP cost?
There are several fee structures a CFP might use, which will impact your overall costs. They include the following:
- Assets under management. You pay a percentage based on the amount of your assets the CFP manages.
- Hourly rates. You pay a flat fee by the hour.
- Retainer fees. You pay a certain amount on an ongoing basis, often monthly or quarterly, for as long as you feel you need the CFP’s services.
- Fixed fees. You pay by service.
“Some CFPs bill their services by the hour, with ranges from $100 to $1,000 per hour or more, depending on the project and the CFP’s experience and expertise,” said Glen Goland, a certified financial planner and senior investment advisor with Arnerich Massena. “Many CFPs include planning costs in an overall AUM fee rather than billing clients by the hour or by the planning project.”
An AUM fee might be more common for planners who provide ongoing management of clients’ investment portfolios. Fees usually range from 0.59% to 1.18% of assets under management, depending on the amount invested, according to AdvisoryHQ. Of course, as your portfolio grows, so will your costs.
Some financial planners may earn money from commissions. A CFP, for example, might earn a commission as compensation for buying or selling an asset like a stock. However, because CFPs are fiduciaries, they must recommend the products that are best for you, regardless of commissions. Fiduciary duty means CFPs are legally required to put your interests ahead of their own at all times when providing financial advice.
How to become a CFP
Remember that there’s no regulation of the term financial planner. Anyone can call themselves a financial planner. However, CFPs must meet rigorous education, experience and ethical standards, giving clients peace of mind.
Maybe you’re considering becoming a CFP or wondering what requirements your CFP has met to earn the title. Here are four steps to obtain the CFP certification:
- Education. CFPs must earn a bachelor’s degree and complete a CFP Board registered program. You can achieve both requirements simultaneously, but many CFPs complete their financial planning coursework after earning their bachelor’s degree.
- Exam. To become a CFP, you must pass a difficult exam that tests your ability to apply your financial planning knowledge to real-world situations.
- Experience. Before you can call yourself a CFP, you must fulfill the experience requirement by completing 6,000 hours of professional experience related to financial planning or 4,000 hours in an apprenticeship that meets additional requirements.
- Ethics. To become a CFP, you must agree to abide by the standards outlined in the CFP Board’s Code of Ethics and Standards of Conduct. Violations constitute grounds for sanction, including censure, suspension or revocation of the right to use the certification marks.
Should you become a CFP?
CFP is a highly sought-after designation in the financial planning field. It not only boosts your credibility but also could increase your earning potential.
However, becoming a CFP is a lot of work. It requires years of education and experience, and CFPs must pass a challenging exam and commit to rigorous ethical standards. And since the designation is not required to work as a financial planner, some professionals may skip it.
It can be helpful to gain industry experience before deciding whether to become a CFP.
When deciding whether to become a CFP, consider your career path. While many large brokerage and planning firms do not require their employees to have a CFP designation, some companies do. If you’re considering branching out and starting your own firm, a CFP can offer the credibility you need to attract clients and grow your business.
“Before I decided to join the industry, I set up meetings with current advisors. These meetings were about 30 minutes, and these advisors told me what their day-to-day jobs look like,” said Kendall Meade, a certified financial planner at SoFi.
CFP alternatives
CFP isn’t the only designation among financial professionals. There are hundreds. Some common CFP alternatives include the following:
- Chartered financial analyst.
- Certified public accountant.
- Chartered financial consultant.
- Registered investment advisor.
- Investment adviser representative.
- Certified financial fiduciary.
- Retirement income certified professional.
Many CFP alternatives specialize in specific areas. For example, while some chartered financial analysts, certified public accountants and investment advisor representatives may provide comprehensive financial planning, others focus on particular services, such as investment or tax management.
It’s also common for professionals to hold multiple certifications. For example, a financial planner might be both a CFP and CFA.
Ultimately, the best way to differentiate the various professional designations and determine which one is right for you is to consider your primary financial need. A CFP is a great option if you want someone to help you create a comprehensive financial plan, while a CPA is likely a good choice if you want someone to help you minimize your tax burden.
CFP vs. CFA
Chartered financial analyst, or CFA, is another popular designation for financial professionals. It is given by the CFA Institute to individuals who have completed the CFA program and work experience requirements.
In some ways, CFPs and CFAs are similar. Both professionals can help their clients reach their financial goals through investments. However, CFAs have a more niche approach.
“A chartered financial analyst spends his or her time focused almost entirely on investment-related questions, analyzing individual companies or investment products,” Goland said.
CFPs, on the other hand, take a more holistic view. They offer comprehensive financial planning services and can help you with your investments and other aspects of your finances.
When to choose a CFP
When you’re ready to hire a financial professional, consider your circumstances, the services you need and your comfort level in managing your finances.
The first question to ask yourself is whether you need to work with a professional at all. You might want to if you experience a major life event, your finances are complex or you don’t feel comfortable managing your finances alone.
If you decide working with a professional is the right choice, there’s no downside to choosing a CFP. A CFP can examine all aspects of your finances and help you create a plan to reach your goals. The standards they’re held to can help ensure you receive a high level of service from someone who is required to put your interests ahead of their own.
