What is a Certified Financial Planner and Why Does it Matter?

by Sandy John

A client and certified financial planner talking in an office

Becoming a Certified Financial Planner® (CFP®) means an individual has completed a rigorous course of study in financial planning and agreed to meet a high standard of fiduciary responsibility toward clients. The certification indicates the planner has met the gold standard in the financial planning industry.

Unfortunately, anyone can offer services as a financial advisor, regardless of their background or education. However, using a planner with the CFP® designation matters because it ensures the consultant you work with has the education, experience and ethics to help you plan for your financial future. Of the 272,000 financial advisors in the United States, only about 85,000, or fewer than a third, hold the CFP® designation.

Let’s look at what it takes to become a Certified Financial Planner®. The requirements are sometimes referred to as “the 4 E’s” – education, exam, experience and ethics.

Requirements for Certified Financial Planners®

Education

To become a CFP®, you must have at least a bachelor’s degree and complete college-level coursework on financial planning topics following a curriculum approved by the Certified Financial Planning Board. The coursework (some of which candidates can skip if they already have another financial advising designation) takes 18 to 24 months to complete.

It includes classes on:

  • Professional conduct and regulations
  • Principles of financial planning
  • Education planning
  • Risk management and insurance planning
  • Investment planning
  • Tax planning
  • Retirement savings and income planning
  • Estate planning

Students must also complete a capstone course where they develop a financial plan.

Exam

You must pass the CFP® certification exam, which includes 170 questions requiring you to integrate and apply your knowledge of all the subjects listed above. Only about two-thirds of people pass the test on their first try.

Experience

You must have 6,000 hours of professional experience related to financial planning or 4,000 hours as an apprentice planner working under the direct supervision of a Certified Financial Planner® before you can work on your own.

Ethics

CFP®s must uphold a code of ethics, known as fiduciary duty, that requires them to work in the best interest of the client. The CFP® Code of Ethics became even stricter as of October 2019.

In the past, CFP®s were required to act in the best interest of clients when performing financial planning activities, but the code has been broadened to include any financial advice the planner gives. So, if you work with a CFP® who provides financial advice as well as planning services, you can be sure the planner is working in your best interest at all times. (Financial advisors who aren’t CFP®s aren’t always required to act in a fiduciary manner in any activity, so be sure to seek out an advisor who puts your interests first.)

However, even if you’re working with a CFP®, you should be aware of any potential conflicts of interest. If the planner you’re working with works at a bank, an insurance company or any other financial institution that is fee-based and receives a product commission, there is an inherent conflict of interest. While being a fiduciary means looking out for your clients’ best financial planning interests, it’s not as clear when it comes to product selling.

Renewal Requirements

In addition to the upfront work required for CFP® certification, certified financial planners must also complete ongoing ed in order to maintain that certification. The continuing education requirements include 28 hours of financial planning content every two years and two hours of ethical content.

CFP®s who don’t complete such ongoing education, or who are found to have violated their fiduciary duty, can have their credentials revoked.

How a CFP can help you

Because of their educational background,  CFP®s can provide guidance in a wide range of areas. They specialize in helping you figure out the best ways to save and grow your money. You might to turn a CFP® when you want to meet a specific goal (saving for a child’s education or your retirement, for instance) or when you just want someone to analyze your financial status and help you to manage your finances better.

Many planners work with businesses as well as with individuals. Business owners can turn to a CFP® for services such as employee benefits planning, insurance and risk management, or cash flow analysis and planning.

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