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When looking for a financial advisor, you’ll likely come across many candidates with the title “CFP” after their name. This acronym indicates that you are looking for a certified financial planner, a highly qualified financial advisor who can help you create a plan for your entire financial life.
What is a CFP?
Certified Financial Planner is a professional designation awarded to financial advisors who have passed rigorous coursework and an exam to prove their mastery of all aspects of financial planning.
CFPs must undergo 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 studies even after receiving the certification.
The formative years are designed to prepare 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, paying off debt, 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 credentials, such as Certified Public Accountant (CPA), to help you further.
CFP and fiduciary duty
Unlike some financial advisors, all CFPs are held to a strict standard of fiduciary duty, which means they must put your best financial interests before their own. Concretely, this means that they are prohibited from buying a financial product for a client simply because it pays them a high commission. Some may not even buy products for customers and simply suggest customers buy them themselves.
“The fiduciary duty of a CFP professional may be greater than required by regulation and, as defined by the CFP Board of Directors, this includes a duty of loyalty, a duty of care and a duty to follow the client’s instructions,” said Jack Brod, CFP, chairman of the board. of the PCP Board of Directors.
CFP vs Financial Advisor
Although most CFPs call themselves financial advisors, not all financial advisors 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 someone to qualify as 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 fiduciary or non-fiduciary. If they are not held to a fiduciary standard, they can only be held to a suitability standard, which means they are required to offer suggestions that generally match the financial situation of their clients, whether or not they have higher fees or larger commissions than other options.
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 earn the privilege of carrying the CFP certification. CFPs must also always act as fiduciaries when providing financial advice to their clients.
Who should choose a CFP?
While a CFP may not be necessary or cost-effective for everyone, there are situations where engaging with a certified financial planner makes sense.
If you’re looking for a comprehensive plan that can grow with you and cover all aspects of your finances, a CFP might be right for you. A Certified Financial Planner can help you budget, develop a savings plan for your children’s education, or manage an unexpected inheritance. If you have lots of ideas but lack financial knowledge, a CFP could 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 large debts, you could benefit from working with someone who has experience in carrying out large projects and who understands the possible tax implications.
“Frankly, if you’re looking for competent and ethical financial planning advice, you should start and end by looking for someone who holds CFP certification,” Brod says.
How much does a PFC 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, and for an ongoing annual relationship paid by installment, you’ll 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 assets in their account. Average annual management fees range from 0.59% to 1.18%, according to research from Advisory HQ.
Paid or Paid Advisors
However, there may be more fees involved with a CFP, depending on their broker status. You may notice this distinction depending on whether a CFP is called a paying Where paying Financial Advisor.
The term fee-based indicates that the CFP may receive commissions under certain circumstances. However, you will not necessarily always be the one paying this commission. Some commissions, for example, are paid by insurance companies in the same way as intermediary fees.
Because they have the potential for financial gain based on certain product recommendations, some financial advisors don’t believe that paid financial planners can work entirely in your best interest.
“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 matching service for financial advisers. paying trustees.
Krueger recommends paid advisors. Since their entire income depends on your continuing relationship with them, it is in the interest of paid financial advisors to ensure that all of their plans and product recommendations are the best fit for you.
Whether you choose to work with a paid or fee-based CFP, be aware that both types are held to fiduciary standards whenever they provide financial advice.
Where can I find a CFP?
Finding a CFP is as easy as searching the web. “You can visit LetsMakeAPlan.org, a website where you can find credentialed experts in your area,” says CFP Board’s Brod. 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 these types of larger databases, you should check whether a scheduler is also a CFP.
Brod recommends anyone interested in working with a CFP to 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 to work with your particular financial situation. Some CFPs, for example, specialize in particular types of clients, such as those managing large amounts of student debt. Make sure your CFP has experience working with people with similar financial backgrounds to yours.
“From there, you can start building a relationship with a financial planner that will provide you with lifelong benefits,” he says.