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A certified financial planner, or CFP, is a specialized type of financial planner who has met the CFP board’s certification requirements. A CFP must complete continuing education, pass an exam, and adhere to the CFP board’s code of ethics. CFPs are bound by a fiduciary duty, which means they must adhere to the highest standard of care when providing advice to clients.
CFP candidates must, among other things, have 6,000 hours of professional planning experience or 4,000 hours of internship experience under the direct supervision of a CFP professional and complete coursework through the CFP Board program. A bachelor’s degree or higher from an accredited institution is also required, as is an ethical commitment to working in the best interests of your clients.
Key Takeaways
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The CFP certification is one of the most sought after designations for financial professionals and can add a lot of value to their careers.
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The CFP certification requires holders to adhere to a fiduciary standard that puts the needs of their clients first.
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A CFP holder must pass an exam, have demonstrated experience, participate in continuing education and commit to an ethical standard.
Are CFPs better than fee-only planners?
First, it’s important to note that CFPs and fee-only planners can sometimes be one and the same. CFPs may call themselves “fee-only” as long as the planner and the planner’s firm do not receive sales-related compensation and related parties do not receive sales-related compensation for services performed by the CFP, according to the CFP Board’s standards of conduct. That can be an especially high standard for CFPs who work at some financial firms.
CFPs are part of a larger, professional network, so they have many resources at their disposal when clients have questions, a resource that fee-only independent planners may not have.
One of the benefits of working with a CFP is that they must meet a fiduciary standard, which means they must put a client’s needs first. However, cost-only planners are not required to meet a fiduciary standard. And don’t confuse fee-only advisors with “fee-based” planners, the latter of whom can still recommend products for which they pay a commission.
The value of a fee-only planner for customers is that it better aligns the incentives for the customer. That is, the fee-only planner is more likely to work on behalf of the client if there is no incentive (e.g., a sales commission) to push financial products and services to the client.
While fee-only planners only charge clients for their time or other services, CFPs can also be compensated by the products they sell. In some cases, this compensation can amount to 100 percent of the commission that the financial institution receives for the sale of the product.
What does that mean for you? The more products a planner recommends, the more money the planner makes. So a plan that includes many high-commission products is probably not in your best interest. While this arrangement may sound bad, the CFP certificate explicitly charges the holder to be a fiduciary and act in the best interests of the client.
So the fee-only compensation setup combined with the CFP designation can be a powerful combination that signals a planner’s competence while incentivizing them to act in your best interests.
The CFP is a good name, but it is not everything. Just because a planner has a CFP certification doesn’t mean he or she is the best person to advise you. It is important to get referrals and reviews for any financial planner you are considering. Regardless of whether the advisor is fee-only or CFP (or both), you need someone who understands your needs.
(Here are some tips for finding the right financial advisor for you.)
How much does a GVB cost?
You should note that a CFP will charge a fee for providing financial advice about your investments and possibly also for managing your investments for you. The services of a CFP are not cheap. Most CFPs will charge you an hourly rate for their services, and larger firms or CFPs with more experience typically charge more.
According to a 2020 study by Kitces Research, CFPs charge an average of about $250 per hour. While it may not seem like a big deal to pay someone $500 or $1,000 once a year for a few hours of their time, it can quickly add up if you’re paying for advice on a regular basis.
As a result, it may make sense to hire a financial planner who will charge you a flat monthly or annual rate so that you can budget for the advice you receive.
If you’re looking for a flat fee, Charles Schwab offers a robo-advisor portfolio that charges $30 per month and offers unlimited access to CFPs.
Other CFPs charge you a fee based on how much money you need to invest. They can charge 0.5 to 1 percent per year on the assets you manage. A planner that charges a percentage of assets under management is usually more expensive than a flat-fee planner because the percentage depends on the size of your portfolio.
It’s worth noting that while these up-front costs may come out of your pocket, in the end you can make much smarter decisions that are in line with your goals than if you opt for the “free” advisors who charge a lot of financial institutions offer you. They are often actually just salespeople in disguise.
Do you need expert guidance when it comes to managing your investments or planning your retirement?
Bankrate’s AdvisorMatch can connect you with a CFP® professional to help you achieve your financial goals.
How do you become a CFP?
A financial planner needs a bachelor’s degree or higher, but no specific concentration or major, to become certified. Additionally, individuals must have 4,000 to 6,000 hours of financial planning experience (as explained above), as well as successfully complete courses in financial planning and pass a comprehensive exam. According to the CFP Board, the exam covers a range of topics including insurance, annuities, securities and investments, taxes, retirement planning, estate planning and financial planning practices. Next, you must commit to ethical practices and act as a fiduciary on behalf of your clients.
The CFP exam is administered by the Financial Planning Standards Board, an independent nonprofit organization that advocates for consumer protection and financial planning standards.
Those who pass the exam and meet the other criteria will receive the CFP label. To maintain the title, professionals are expected to pay an annual renewal fee of $455 beginning October 1, 2023. Candidates must also complete continuing education (CE) credits, and the CFP board requires a minimum of 30 hours of CE over a two-year period. year period.
More and more financial planners are earning their CFP designation, which can be a boon to their careers.
In short
A certified financial planner is a professional designation earned through a certification process. CFP professionals can be hired by a financial company or act as independent planners. But there is no guarantee that a CFP will be right for all your financial needs. It is essential to ask questions and understand the qualifications and expertise of the provider to ensure they meet your needs.
Correction, February 10, 2023, 3:00 PM ET: An earlier version of this article did not fully explain the details of the experience requirement for CFP certification. The article has been corrected to better reflect the number of hours required for both professional and internship experience.
