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When looking for a financial advisor, you will likely come across many candidates with the designation “CFP” after their name. This acronym indicates that you are looking for a Certified Financial Planner, a highly trained financial advisor who can help you create a plan for your entire financial life.
What is a CFP?
The Certified Financial Planner is a professional designation awarded to financial advisors who have successfully completed rigorous courses and an exam to demonstrate proficiency in all aspects of financial planning.
CFPs must complete years of training – 4,000 to 6,000 hours in total – before they can place the letters CFP after their name. They are also obligated to continue their education even after receiving the certification.
The formative years are aimed at preparing for a CFP to help you identify short and long term goals for your financial life, develop 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, such as tax planning or estate planning, and some may have additional professional qualifications, such as a chartered accountant (CPA), to help you further.
CFP and fiduciary duty
Unlike some financial advisers, all CFPs are held to a high standard of fiduciary duty, which means they must put your best financial interests ahead of theirs. Concretely, this means that they are prohibited from buying a financial product for a client simply because he pays them a high commission. Some may not even buy products for customers and just suggest that customers buy them themselves.
âThe fiduciary duty of a CFP professional may be higher than what is required by regulation and, as defined by the CFP’s board of directors, this includes a duty of loyalty, duty of care and duty of care. follow the client’s instructions, âsays Jack Brod, CFP, Chairman of the Board. of the board of directors of the CFP.
CFP vs financial advisor
While most CFPs call themselves financial advisers, not all financial advisers are CFPs. Understanding the difference is important for several reasons.
A Financial Advisor can be anyone who helps you manage your money. There is no specific licensing or certification process required for a person to consider themselves a financial advisor. Typically, a financial advisor will have passed some sort of licensing exam that allows them to buy and sell securities on behalf of their clients.
Financial advisers can be trustees or non-trustees. If they are not held to a fiduciary standard, they can only be held to a adequacy standard, which means that they are required to come up with suggestions that generally match their clients’ financial situation, which they may or may not have higher fees or commissions than others. option.
A certified financial planner has a proven ability to provide comprehensive financial planning services and can also provide investment advice and recommendations. All CFPs must meet the same basic requirements to gain the privilege of holding CFP certification. CFPs should also always act as trustees when providing financial advice to their clients.
Who should choose a CFP?
While a CFP may not be necessary or profitable for everyone, there are times when engaging with a certified financial planner makes sense.
If you are looking for a comprehensive plan that can grow with you, covering all aspects of your finances, a CFP might be a good choice. A certified financial planner can help you budget, set up a savings plan for your children’s education, or help you manage an unexpected inheritance. If you’re a big fan of ideas but lack financial literacy, a call for proposals can help you bridge the gap between where you are now and what you want your finances to look like.
A CFP may also be suitable for someone with a more complex financial situation. If you have real estate, a business, a family, or significant debt, you might benefit from working with someone experienced in developing large projects and understanding the potential tax implications.
âFrankly, if you are looking for knowledgeable and ethical financial planning advice, you should start and end up looking for someone who is CFP certified,â says Brod.
How much does a CFP cost?
According to a 2018 survey, financial planners charge an average of $ 235 per hour. For a full financial plan, you can expect to pay an average of $ 1,871 and for an ongoing annual retainer relationship, you would pay an average of $ 5,528 per year to a financial planner.
CFPs may also charge clients a management fee based on the value of their account assets. Average annual management fees range from 0.59% to 1.18%, according to a study by Advisory HQ.
Paid or paid advisors
However, there may be more fees associated with a CFP, depending on their broker status. You may notice this distinction depending on whether or not a CFP is called a paying only Where paying Financial Advisor.
Fee-based indicates that the CFP may receive commissions under certain circumstances. However, you won’t necessarily always be the one paying this commission. Some commissions, for example, are paid by insurance companies in a manner similar to finder’s commissions.
Because they have the potential for financial gain based on certain product recommendations, some financial advisers don’t think paid financial planners can work entirely in your best interests.
“Some investment advisers who are also brokers receive commissions in certain situations, which prevents them from acting solely in the best interests of their clients,” says Pam Krueger, founder of Wealthramp, a counterparty service for financial advisers. paying trustees.
Krueger recommends fee-only advisors. Since all of their income depends on continuing your relationship with them, it is in the best interests of financial advisors to make sure that all of their plans and product recommendations work the best for you.
Whether you choose to work with a paid or paid CFP, be aware that both types are required to adhere to fiduciary standards whenever they give financial advice.
Where can I find a CFP?
Finding a CFP is as easy as searching the web. âYou can visit LetsMakeAPlan.org, a website where you can find accredited experts in your field,â says Brod of the PCP Board of Directors. You can also search for financial planners more broadly on sites like NAPFA (The National Association of Personal Financial Advisors) or ACP (Alliance of Comprehensive Planners). However, when using this type of larger databases, you should check if a scheduler is also a CFP.
Brod recommends that anyone interested in working with a CFP do their homework first. Find a few different CFPs to talk to, then narrow down your options as you get to know them.
Not all CFPs may be best suited for your particular financial situation. Some CFPs, for example, specialize in particular types of clients, such as those who handle large amounts of student debt. Make sure your CFP has experience working with people with similar financial backgrounds to yours.
âFrom there, you can start building a relationship with a financial planner that gives you lifelong benefits,â he says.