Certified Financial Planner (CFP): What You Need to Know
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What is a certified financial planner (CFP)?
A certified financial planner, or CFP, is a type of financial advisor who possesses one of the most rigorous certifications for financial planning knowledge. They must have several years of experience related to financial planning, pass the CFP exam and adhere to a strict ethical standard as set by the Certified Financial Planner Board of Standards.
CFPs, unlike some other types of financial advisors, are held to a fiduciary standard, meaning they are obligated to act in their client's best interest.
What does a certified financial planner do?
CFPs can help you create and maintain a financial plan. A CFP might start by determining your financial goals and discussing your current financial situation and appetite for risk. A CFP can also advise on retirement planning, saving for short- and long-term goals, choosing investments and tackling debt.
Some CFPs specialize in a certain area, such as divorce or retirement planning, while others tend to work with specific clients, like small-business owners or retirees. Because of this, it’s helpful to have an idea of the services you need before you choose a CFP.
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How do I become a CFP?
It’s not easy to become a CFP, and for good reason. Helping people navigate their finances is an important job. On average, it takes between 18 and 24 months to become a CFP and can cost a minimum of $4,000 (if you already have an undergraduate degree). Here’s what else it takes:
Complete the education requirement. The CFP Board requires completion of specific coursework on financial planning and a bachelor’s degree or higher. Applicants have up to five years from the date they pass the exam to receive their bachelor’s degree.
Pass the exam. The exam consists of 170 multiple-choice questions to be completed in a total of six hours. According to the CFP Board, about 65% of first-time exam-takers passed in 2021.
Gain professional experience. To meet the experience requirement, prospective CFPs need to complete either 6,000 hours of professional experience related to financial planning or 4,000 hours of apprenticeship that meets additional requirements. These hours can be completed either within 10 years before taking the exam and/or within five years after passing it.
Adhere to the ethical standard. The final steps of becoming a CFP are to sign the Ethics Declaration, in which you commit to acting as a fiduciary for your clients, and pass a background check conducted by the CFP Board.
What is the difference between a CFP and a financial advisor?
The main difference between a CFP and a financial advisor is that CFPs hold a certification that ensures they have several years of experience and are held to a fiduciary standard. The term financial advisor, on the other hand, does not necessarily denote a specific credential. It's an umbrella term that refers generally to the many different types of financial advisors.
Remember, if you have any doubts about your advisor’s CFP status, you can check their status on the CFP Board website.
CFP vs. CPA vs. CFA vs. ChFC
The various designations financial advisors hold can cause some confusion. More often than not, a financial advisor who is a CFP will be able to help you with your financial planning needs, but other advisors may be able to better assist you in certain areas, such as tax planning. Some advisors even have multiple designations, making them more competitive within their field. Here are a few common designations an advisor can have.
Certified public accountant: CPAs are a bit more distinct from some of the other financial advisory certifications. The CPA certification is common among tax preparers and accountants (even though CPA has the word "accountant" in it, not all accountants have CPA certifications). If your financial advisor has a CPA, they may be able to help you optimize your tax situation.
Chartered financial analyst: CFAs specialize in investment analysis and portfolio management. While CFPs typically help individual clients with their financial planning, CFAs often serve as financial advisors for corporations.
Chartered financial consultant: While ChFCs are less common than CFPs, the two certifications require similar coursework, and recipients of each are likely headed down the same career path: financial advisory and planning services. ChFCs may have more training in modern financial planning topics, such as behavioral finance, planning for same-sex couples and planning after a divorce, but CFPs have more stringent academic and examination requirements.
Is it worth paying for a CFP?
Not everyone needs help with their finances, but for those who do, having a CFP in your corner can be invaluable. If you aren't sure how to organize your finances, navigate investing or balance your financial priorities, a CFP can help.
The 2020 Kitces Research survey on financial planning found that CFPs charge, on average, $1,800 or $2,500 for a comprehensive financial plan, $250 for hourly services and $4,000 for flat-fee retainer services. And while there is no set fee that CFPs charge, it’s usually more than what a non-certified advisor might charge. Online fiduciary financial advisors, some of which offer access to CFPs, typically charge a small percentage of your assets under management, often between 0.3% and 0.9%. (Read more about how much a financial advisor costs.)
Fee-only vs. fee-based financial advisor
It's also important to consider how exactly your advisor is getting paid. This is determined in part by whether they are a fee-only advisor or a fee-based advisor.
Fee-only advisors are solely paid by their clients, creating fewer opportunities for conflicts of interest. Fee-based advisors can receive a commission on products they sell, which can sometimes create those conflicts, such as suggesting a worse product over a better one because they would receive a commission. Bound by their fiduciary duty, CFPs have to put their clients’ needs first regardless of their fee structure (though it’s always a good idea to ask any advisor, CFP or not, what their fee structure is, and to work with a fee-only advisor if possible).
How do I find a CFP?
Some online financial planning services offer access to CFPs for less than what an in-person advisor charges. The CFP Board offers a directory of all its certified CFPs, which makes it easy to find an in-person advisor in your area. This site also allows you to check a CFP’s certification status and check for any instances of disciplinary action.
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