When you search for a financial advisor, you probably come across plenty of candidates with a “CFP” designation after their names. This acronym indicates you’re looking at a certified financial planner, a highly credentialed financial advisor that can help you create a plan for your whole financial life.
What Is a CFP?
A certified financial planner is a professional designation awarded to financial advisors who have passed rigorous coursework and an examination to prove their fluency in all aspects of financial planning.
CFPs must undergo years of training—4,000 to 6,000 hours in total—before placing the letters CFP after their name. They’re also obligated to continue their education even after receiving certification.
The years of training aim to prepare a CFP to help you identify short- and long-term goals for your financial life, make a plan to achieve your goals, and then execute the plan. Goals can include saving for college, navigating debt repayment, preparing for retirement, or maximizing the impact of your charitable giving.
Some CFPs specialize in different areas, like tax or estate planning, and some may have additional professional credentials, such as certified public accountant (CPA), to help you further.
CFPs and Fiduciary Duty
Unlike some financial advisors, all CFPs are held to a strict standard of fiduciary duty, meaning they must put your financial best interests ahead of their own. This means they are barred from buying a financial product for a client simply because it pays them a high commission. Some may not even buy products for clients and suggest that they buy them themselves.
“A CFP professional’s fiduciary duty may be higher than what’s required by regulation, and—as defined by CFP Board—this includes a duty of loyalty, a duty of care, and duty to follow client instructions,” says Jack Brod, CFP, board chair of the CFP Board.
CFP vs. Financial Advisor
While most CFPs call themselves financial advisors, not all financial advisors are CFPs. Understanding the difference is essential for a few reasons.
A financial advisor can be anyone who helps you manage your money. No specific licensing or certification process is required for someone to call themselves a financial advisor. Typically, a financial advisor will have passed a licensing exam that allows them to buy and sell securities on behalf of their clients.
Financial advisors can be fiduciaries or non-fiduciaries. Suppose they’re not held to a fiduciary standard. In that case, they may only be held to a suitability standard, meaning they must offer suggestions that generally fit their clients’ financial situation, whether or not they have higher fees or more significant commissions than other options.
A certified financial planner has proven their ability to provide comprehensive financial planning services and may also provide investment advice and recommendations. All CFPs must meet the exact basic requirements to earn the privilege of carrying the CFP certification. CFPs also always act as fiduciaries when providing financial advice to their clients.
Who Should Choose a CFP?
While a CFP might not be necessary or cost-effective for every person, there are situations where engaging with a certified financial planner makes good sense.
If you’re looking for a comprehensive plan that can grow with you, covering every aspect of your finances, a CFP might be a good fit. A certified financial planner can help you craft a budget, plan to save for your children’s education, or help you navigate an unexpected inheritance. If you’re big on ideas but short on financial savvy, a CFP could help you bridge the gap between where you are today and what you want your finances to look like.
A CFP might also be a good fit for someone with a more complex financial situation. Suppose you have real estate holdings, a business, a family, or significant debt. In that case, you could benefit from working with someone with experience in making big plans and understanding tax implications.
“Frankly, if you are looking for competent and ethical financial planning advice, you should start and end by looking for someone who holds CFP certification,” says Brod.
How Much Does a CFP Cost?
According to a 2018 survey, financial planners charge an average of $235 per hour. For a comprehensive financial plan, you can expect to pay an average of $1,871. For an ongoing annual relationship paid by a retainer, you’d pay a financial planner an average of $5,528 annually.
CFPs can also charge clients a management fee based on the value of the assets in their accounts. According to a study by Advisory HQ, average annual management fees range from 0.59% to 1.18%.
Fee-Only vs. Fee-Based Advisors
However, there may be more fees involved with a CFP, depending on their status as a broker. You might notice this distinction based on whether a CFP calls themself a fee-only or fee-based financial advisor.
Fee-based indicates the CFP may receive commissions under certain circumstances. You won’t necessarily always be the one paying this commission, however. Some commissions, for example, are paid by insurance companies similarly to finder’s fees.
Because they have the potential for financial gain based on specific product recommendations, some financial advisors don’t think fee-based financial planners can work wholly in your best interest.
“Some investment advisers who are also brokers receive commissions in certain situations, making it impossible for them to act solely in their client’s best interests,” says Pam Krueger, founder of Wealthramp, a matching service for fee-only fiduciary financial advisors.
Krueger recommends fee-only advisors. Because their entire income depends on you continuing a relationship with them, it’s in fee-only financial advisors’ best interest to ensure that all of their plans and product recommendations work best for you.
Whether you work with a fee-only or fee-based CFP, know that both types are held to fiduciary standards when giving financial advice.
Where Can I Find a CFP?
Finding a CFP is as easy as a web search. “You can visit LetsMakeAPlan.org, a website where you can find credentialed experts in your area,” says Brod of the CFP Board. More broadly, You can research financial planners on sites like NAPFA (The National Association of Personal Financial Advisors) or ACP (Alliance of Comprehensive Planners). When you use those kinds of broader databases, you have to check if a planner is also a CFP.
Brod recommends that anyone interested in working with a CFP does some homework first. Find a few different CFPs to speak to, and then narrow down your options as you get to know each.
Not every CFP may be best suited to work with your particular financial situation. Some CFPs, for instance, specialize in particular clients, like those managing extensive amounts of student debt. Make sure your CFP has experience working with people from similar financial backgrounds as you.
“From there, you can start to build a relationship with a financial planner that builds a lifetime of benefits,” he says.
Note: ZPEnterprises is not a licensed investor/financial advisor, but we are trying to share awareness of financial topics. Please do further research and work with a licensed financial advisor.
