Certified Financial Planner (CFP): Definition & Qualifications (2024)

Money is a tool for funding future goals. Many people lack the knowledge and expertise for managing their money. Others simply don't have the time to do so. This is when it makes sense to consult a financial advisor, and the financial advisors well positioned to advise clients on how to manage their money are CERTIFIED FINANCIAL PLANNERS™, also called CFP® Professionals.

What is a CERTIFIED FINANCIAL PLANNER™?

While financial advisors must pass exams and acquire certain licenses, such as Series 6, Series 7, Series 63 Series 65 licenses, a CFP® Professional is the most rigorously credentialed type of financial advisor. CFPs must:

• Have several years of financial planning experience
• Pass the CFP® exam
• Adhere to a strict ethical standard set by the nonprofit Certified Financial Planner Board of Standards
• Be held to a fiduciary standard rather than a suitability standard, which means they must always act in their clients' best interests.

Holders of the certified financial planner certification can place the letters "CFP" after their name. Each reporting period, CFPs must complete 30 hours of continuing education (CE) in order to maintain their certification.

What Does a CFP® Professional Do?

CFP® Professionals create personalized financial plans for their clients, with the aim of helping them reach their financial goals. They provide advice on:

• Investments
• Savings and budget
• Estate planning
• Insurance
• Tax strategies.

When a client consults a CFP® Professional, they will often be asked to provide:

• A list of assets and liabilities
• Infomation on current income and expenses
• Description of insurance and tax situation
• A list of investments
• An estimate of future income, such as a pension
• Any long-term financial obligations
• Investment preferences and tolerance for risk
• The number of years before they expect to retire.

The professional will then create a comprehensive financial plan that will guide the client into and through their retirement years and help the client choose the types of asset classes they should invest in.

Becoming a CFP® Professional

It usually takes between 18 and 24 months to become a CFP, assuming an applicant already has a bachelor's degree and enough industry experience. To become certified:

• The CFP® Board requires the completion of specific coursework on financial planning and a bachelor’s degree or higher. For those without a college degree, they have up to five years after they pass the CFP® exam to receive their degree.
• The applicant must pass the CFP® exam which takes around six hours to complete and can have a failure rate of more than 30%. However, the exam can be taken up to 4 times.
• Within 10 years before taking the exam or within five years after passing it, the applicant must complete either three years (6,000 hours) of professional experience related to financial planning or two years (4,000 hours) of an apprenticeship.
• The applicant must pass a background check conducted by the CFP® Board and sign an Ethics Declaration which commits them to act as a fiduciary for their clients.

What Do CFP® Professionals Charge?

A 2018 survey, reported on Kitces.com, determined that on average, these professionals charge $235 an hour for their services, $1,871 to create a financial plan, and more than $5,000 as an annual retainer. Clients are typically charged a percentage of their assets under management which can range between 0.3% and 1%.

Commission-Based Model

Under the suitability standard, financial advisors can work on commission, receiving money for the products they sell to their clients, such as insurance policies. While a client might not then receive a bill from their financial advisor, they may also end up paying higher fees on the financial products the financial advisor recommended.

Fee-Based Model

Under the fiduciary standard, CFP® Professionals charge their clients by the hour, or they can charge a percentage of the client's assets under management (AUM). The rates can vary by their location.

Fee-Only Model

There is a clear distinction between fee-based and fee-only financial advisors. Fee-only certified financial planners are compensated only by their clients and not by commissions they earn by selling certain financial products. The recommendations made by both types of CFP® Professionals must always be in their clients' best interests.

Tips for Finding a CFP

In the United States, CFPs can be found by using the Certified Financial Planner Board of Standards website, which also tracks whether someone has ever faced disciplinary action or declared bankruptcy. Sites to help you find a financial advisor are:

• The National Association of Personal Financial Advisors
• The Alliance of Comprehensive Planners
• Certified Financial Planner Board of Standards, Inc.

Some online financial planning services, known as robo advisors, offer access to CFPs and they charge less than an in-person visit. These include:

• SoFi
• Betterment
• Personal Capital
• Charles Schwab

The CFP designation is recognized in more than 20 countries around the world.

CFPs vs. CFAs

Financial advisors do not need to possess a professional designation, but might have one or more of the following:

• Certified Financial Planner (CFP)
• Chartered Financial Analyst (CFA)
• Chartered Financial Consultant (CHFC)
• Certified Public Accountant (CPA).

The CFA designation is administered by the CFA Institute, and most CFAs work for large clients such as investment firms, mutual funds, or hedge funds. CFA charterholders commonly research equities, buy large portions of securities, and actively manage portfolios. They also trade assets such as commodities, currencies, and derivatives. The CFA designation requires the successful completion of 3 exams, and typically more than 50% of candidates fail each exam.

By contrast, most CFP® Professionals work with individual clients. It takes two to four years to complete training and the exam. Achieving a CFA typically takes three to four years, and passing three separate exams. Typical pass rates for the CFP exam are around 67%.

The CFA is regarded as a much more difficult program than CFP and the examinations are more analytical in nature.

Bottom Line

You don't have to be a high-net-worth individual in order to benefit from consulting a certified financial planner. Money management and investing are complicated pursuits, and having a skilled professional is often a wise idea.