Financial planning is essential for ensuring that you and your loved one’s financial needs are met throughout your lifetime and beyond. While just about anyone can set up shop as a financial planner, certified financial planners must meet rigorous educational and experience requirements and commit to ethical requirements set by the Certified Financial Planner Board of Standards (CFP Board). Only people who have met the CFP Board standards and requirements can call themselves CFP professionals.
What does a CFP professional do?
After scheduling an appointment, your CFP professional will meet with you to learn more about your current financial needs and goals. They will help you evaluate your current financial situation through conversations, questionnaires, and financial document reviews.
After looking at all sources of income and debt, your financial planner will estimate your net worth and create an individualized financial plan that will best help you meet your financial goals.
What should you expect from a CFP professional?
A CFP professional has a fiduciary responsibility to consider your financial goals, risk tolerance, and unique circumstances before offering financial advice. A fiduciary is a person who has an obligation to put the interests of the person they are advising ahead of their own.
According to the Financial Planning Standards Board, a certified financial planner must meet initial and ongoing education, experience, and professional development requirements, pass a rigorous exam that assesses their competency, and adhere to a code of ethics that requires a commitment to provide financial advice that fully aligns with their client’s interests and follows the highest ethical and professional standards.
Why should you select a CFP professional for financial planning?
Only 22% of consumers surveyed by the FPS Board are very confident that they will achieve their financial goals.
While most people have the following financial goals, only 32% have a written financial plan.
- Saving for retirement
- Living debt free
- Preparing for an emergency
- Owning a home
- Managing investments
- Supporting loved ones financially
- Managing their own finances
People who seek services from a professional financial advisor typically request advice regarding retirement planning (50%), investment planning (38%), and debt management (36%). While two-thirds of consumers rate trust as a very important consideration when selecting a professional financial advisor, most admit they do not know who to trust when it comes to financial planning.
Consumers who work with a CFP professional are 36% more likely to feel very confident that they will reach their financial goals and are more satisfied with the advice offered than consumers who work with other advisors, according to the FPS Board.
What is a CFP professional’s fiduciary duty?
When selecting a financial advisor, it is important to consider how they will be paid. Most financial advisors are compensated under one of these business models: fee-only, commission-based, salary, or combination.
Fee-only financial planning involves charging an hourly rate, a fixed annual retainer, or a percentage of the assets they manage. A fee-only financial compensation model aligns the goals and interests of the client and their financial advisors because financial advisors do not receive any compensation from third parties.
According to the CFP Board, a CFP professional has a fiduciary duty of loyalty and care and a duty to follow client instructions. They must always act with integrity, demonstrate competence and due diligence, disclose and manage any known conflicts of interest, comply with the law, maintain confidentiality and privacy, and provide sound and objective professional advice.
What is required to become a CFP professional?
Earning the designation ‘CFP Professional’ involves the following steps:
Formal education
A two-part educational requirement ensures that CFP professionals have the knowledge needed to provide sound financial advice. CFP professionals must hold a bachelor’s degree or higher from an accredited college or university. The degree can be in any discipline. It must be completed within five years of passing the CFP exam.
Candidates for a CFP professional certification must also complete college- or university-level coursework through a CFP Board registered program. This program covers all major personal financial planning areas.
Relevant work experience
As part of the CFP certification process, candidates must demonstrate that they have at least 6,000 hours of professional experience related to the financial planning process or 4,000 hours of apprenticeship experience (along with additional requirements).
Candidates must meet the experience requirement by providing financial planning services or teaching financial planning-related courses within 10 years before or 5 years after successfully completing the CFP exam.
CFP Exam performance
The CFP exam includes 170 multiple-choice questions that comprehensively cover more than 100 topics related to financial planning and take 6 hours to complete. Candidates are eligible to take the exam after completing the educational requirements. The exam is graded as pass-fail but offers a limited number of retakes.
Demonstrated professional ethics
Candidates for CFP certification must commit to acting as a fiduciary. After a background and fitness check, candidates for certification must complete an ethics declaration where they must report any criminal or regulatory issues and an agreement in which the candidate commits to act with integrity, honesty, and diligence and adhere to the duties described in the agreement.
The CFP Professional designation indicates that holders provide expert, objective, and trustworthy financial advice. They commit to acting in their client’s best interests. The rigorous requirements for obtaining and maintaining a CFP designation can give you peace of mind when choosing your financial advisor.
There is no one-size-fits-all guide to investment. Working with a wealth manager can ensure you make the best financial decisions for yourself and your loved ones.
