What is a Certified Financial Planner (CFP)?

A CFP or Certified Financial Planner designation is bestowed upon individuals who have successfully cleared the CFP Board examination. These individuals have extensively studied financial planning in a professional capacity and are committed to act and make decisions in the interest of their clients.

A Certified Financial Planner designation is a recognition issued by the Certified Financial Planner Board of Standards (CFP Board). The distinction is also conferred by 25 other affiliations of the CFP Board. The designation is not a Government recognition and is used purely in a professional capacity.

The key role of a Certified Financial Planner is to help their clients understand how to better manage their finances. Whatever decisions CFPs make or whatever advice they give will always be in the interest of their clients. This makes Certified Financial Planners  ‘fiduciaries’ of their clients’ assets. A CFP can delve into several realms to help their clients – from financial planning to retirement planning and investment planning.

A CFP will start the process with financial due diligence – by assessing your current financial situation, understanding your long-term goals, and determining your ability to take risks. CFPs will also gauge your assets and liabilities and come up with the value of your net worth. Based on these factors, a CFP will devise an exclusive financial strategy to make the best of the money you earn. The idea is to make your money work for you.

Some CFPs will help you in specific tasks that you may choose to hire them for – it could be alimony planning, retirement planning, business planning, or a permutation and combination of tasks. While most CFPs are equipped to provide comprehensive financial plans, there are some CFPs who specialize in certain matters. Some CFPs may be great with helping you maximize the use of your 401(k) funds, while some may purely take care of your estate planning or income tax planning.

CFPs will help clients with customized and comprehensive, fool-proof financial plans to help their clients manage their money and build a corpus while minimizing cash outflow.

What are the benefits of hiring a Certified Financial Planner?

A CFP will be committed to planning your financial journey with whatever goals you might have in mind. The expertise and knowledge of a CFP will make it much easier for individuals to chalk out a financial plan that aims at making their lives more financially sound.

The move to engage with a CFP can be rewarding and will help you save hours of time and loads of money. You may no longer spend weekends researching finances and what decisions to make. One can leave it in the capable hands of a trusted CFP and enjoy some quiet time or follow a passion instead of having to worry about every penny.

Hiring a CFP can even be a stepping stone in learning more about investments and finances. The CFP will break down every technical word and term for you; you may ask as many questions as you need and understand how your money is being managed.

Are you looking for a qualified CFP to help you with your finances? Visit Paladin Registry and answer a few simple questions to match with a fiduciary.

How much does hiring a CFP cost?                                                            

Hiring a CFP can cost an individual anywhere from $120 to $300 per hour. The charges may increase with the expertise of a certain CFP. For a comprehensive financial plan, individuals must be prepared to shell out anywhere from $1,000 to $3,0000 per year on average. Many CFPs may also charge an additional management fee based on the assets in the client’s account. Expect the management fees to be anywhere from 0.65% to 1% of the total assets to be handled by the advisor.

Some CFPs are ‘fee-based financial advisors.’ What this essentially means is that these financial advisors may receive some amount of money as a commission in certain situations. The commission may be paid by an insurance company that plays a key role in the financial plan drawn for the client. Naturally, fee-based financial planners may not always work in the clients’ best interests.

Hiring a certified financial planner can cost an individual anywhere from $120 to $300 per hour. The charges may increase with the expertise of a certain CFP. For a comprehensive financial plan, individuals must be prepared to shell out anywhere from $1,000 to $3,0000 per year on average. Many CFPs may also charge an additional management fee based on the assets in the client’s account. Expect the management fees to be anywhere from 0.65% to 1% of the total assets to be handled by the advisor.

How do you hire a CFP?

Thanks to the internet revolution, a Certified Financial Planner is often just a click away. Many CFPs advertise their services online. One may choose to access the National Association of Personal Financial Advisors (NAPFA) or the Alliance of Comprehensive Planners (ACP) to check if the CFP they’ve picked is Board-certified or not. The Financial Industry Regulatory Authority (FINRA) is also another great source to check the credentials of a particular CFP.

Another important thing to note is that in finances, there is one size fits all with a financial plan or with the kind of professional you want to engage with. Speak to a few Certified Financial Planners before zeroing in on one. Make sure that the CFP understands your major areas of concern and is suited to work with your financial condition. Once you’ve found a CFP who understands your needs, it is more about building a relationship with them and making the best of their expertise and resources through mutual understanding.

Do I need a Certified Financial Planner?

Any financial advisor can help you manage your money, but they may lack the gold standard certification that CFPs come with. A financial advisor without a CFP designation may be non-fiduciary as well – they may not always work for the benefit of their clients. They may sometimes make suggestions that benefit them with a commission or a higher fee. CFPs have years of experience, are held to a fiduciary standard, and are certified practitioners of the business. Most CFPs are affiliated with a Board from which they have received their certification.

Remember, most CFPs are financial advisors, but not all financial advisors are Certified Financial Planners.

Certified Financial Planners and the fiduciary duty

Not all financial advisors are driven by a fiduciary duty. CFPs, on the other hand, strictly adhere to their fiduciary call. This means that CFPs do everything in their capacity to better and work towards the clients’ financial interests, ahead of their own interests. Unlike some kinds of financial advisors, Certified Financial Planners are barred from endorsing or recommending a financial product, service, or investment idea that benefits them monetarily. The fiduciary duty of a CFP bars them from buying a financial product for a client if it has only given them a commission and does not help the client. Some CFPs engage only in planning and strategizing, leaving the purchasing of the financial product to the client.

The fiduciary duty of a CFP not only makes them make the best decision for the client but also puts loyalty towards the client as a standard. Duty to the client becomes of the utmost importance, and personal gains take a back seat.

How can one become a Certified Financial Planner?

The job of a Certified Financial Planner is not easy, which is why it requires specific education and long hours of study to become a Board-Certified Financial Planner. One will ideally need 1.5-2 years to pass the Board exam and get the certification. You will need formal education in the said sphere, adequate work experience, good grades on the CFP exam, and high professional and ethical standards to become a CFP.

The CFP Board has made it mandatory for individuals seeking the certification to complete all relevant coursework for financial planning. Along with this, the person needs to have an undergraduate degree from an accredited university. The work certainly becomes a little easier if the person holds at least one of the many financial advisor designations like the CFA (Chartered Financial Analyst), CPA (Certified Public Accountant), or an MBA.

Candidates are also required to have at least three years of professional working experience as a full-time practitioner in the industry (6,000 hours) or two years of experience in an apprenticeship role (4,000 hours). The candidates will then have to take the CFP Board examination- a crucial step that determines the future of the candidate.

More importantly, candidates must adhere to all ethical standards set by the CFP Board. All norms of professional conduct must be diligently followed by the candidates to successfully get a Board certification. One of the last steps of getting the certification will require the candidate to sign the Ethics Declaration wherein the candidate commits to his/her fiduciary duty to the client. Candidates will also be subject to a background check by the CFP Board to investigate any criminal activity or legal cases against the candidate.

Candidates must keep in mind that the final say lies with the CFP Board, and completion of all prerequisites does not guarantee certification.

The Certified Financial Planner Exam

One of the key constituents in getting a CFP Board certification is passing the CFP Board exams. The exam consists of 170 questions in the multiple-choice format. The questions on the exam range from a wide selection of topics from financial planning principles to professional conduct, from risk management to retirement planning and more. Each section of questions carries its weightage in the exam. The exam will further include 2 case studies, mini-case problems, and standalone questions to assess the candidates’ knowledge and ability. There also may be questions about the client-planner relationship and the candidates’ ability to analyze situations and make decisions.

Candidates must answer the 170 questions in under 6 hours. The exam is conducted in 2 sessions with a 40-minute break. The exam is conducted by the CFP Board in March, July, and November, and it costs $825 to take the exam in the US.

The passing score of the candidate depends on a set level of required competency instead of the grades of other candidates taking the exam. A person can take the CFP Board test only five times in their lives.

Key skills for a Certified Financial Planner

Becoming a Certified Financial Planner involves a multi-skilled approach to several decisions in an average person’s life – investment-related as well as personality-related. While one needs to have in-depth information about investing and accounting in addition to strong financial analytical skills to tackle the financial side of planning, analysis of personality helps CFPs understand the client and his or her lifestyle choices and then create a comprehensive plan accordingly. A qualified CFP must have adequate knowledge of the financial markets, accounting practices, and banking information. CFPs must be able to track the performance of their clients’ money, evaluate potential investment opportunities as well as recognize risks, and know when to make the appropriate moves. CFPs from specific areas like real estate or retirement must know their subject in and out.

Clients expect their CFP to answer every question they have about their money and financial situation. CFPs must know what financial product and service to pitch to what client and when. Therefore, problem-solving is a key skill for every CFP to have.

Apart from the must-have technical skills, CFPs must be good listeners and have terrific communications skills to form a great relationship with their clients. Crisp and clear communication is the key to a fruitful client relationship. CFPs must listen to their clients’ concerns and explain to them in detail the financial remedies available at their disposal. The most important thing is to break down financial jargon.

With the technological advancements in the financial space, CFPs are also required to be tech-savvy and be at ease with new software to make life easier for both them and their clients.

The bottom line

A Certified Financial Planner is a formally recognized designation given by the Certified Financial Planner Board. CFPs are skilled in managing finances and draw out a financial strategy for their clients, keeping the best interest of the client ahead of their own. CFPs have expertise in several financial domains and help their client make the right financial decision and advice on the right financial product. Some may also help execute the buy and offer advice on rebalancing portfolios, depending on your kind of engagement.

The road to becoming a CFP is not easy, and it takes years to get the Board Certification. But once a candidate receives their Board certification, they have the chance to change the lives of thousands of people who make money as their advisor guides them to manage it correctly.

If you are looking for an experienced fiduciary financial advisor who can help you with financial planning, retirement planning, tax planning, wealth creation or preservation, estate planning, etc., use Paladin Registry’s free matching tool and get matched with 1-3 vetted financial advisors that are best suited to meet your financial needs and goals.

Other posts from William Hayslett

Leave a Reply

Your email address will not be published. Required fields are marked *