What Is a Certified Financial Planner (CFP)?

Planning for the short- and long-term future is a large part of setting yourself up for financial success. Certified financial planners (CFPs) have the qualifications and education to put your goals into action.

In this article, we’ll define CFPs and explain how they earn their certification. We’ll also help you decide whether you need one and give you an idea of how much it costs to hire one.

CFP Definition

Certified financial planners are professionals highly trained in advising and developing plans with clients. They’re familiar with several areas of finance and can help with the following:

• Cash flow
• Estates
• Investments
• Taxes
• Retirement
• Education
• Risk management

Upon hiring a CFP, you can expect to work with them to assess your goals and situation. Then, they’ll help you create a holistic plan for one or more of the above aspects of your finances.

Not just anyone can become one. They receive their designation after completing a two-part education requirement, gaining significant hours of work experience, and passing an exam. Every new one also undergoes a background check. This includes searching public records, such as FINRA’s BrokerCheck or the Investment Adviser Public Database (IAPD).

Ethical and Professional Standards

All certified planners must sign a declaration that they’ll abide by the CFP Board’s Code of Ethics and Standards of Conduct. The document outlines the relationship they have with the public, including clients, as well as how they should conduct themselves to uphold the respected title they hold.

The Code of Ethics sets forth the standard to which certified planners must adhere. In a nutshell, it says that they must use the utmost integrity, maintain a duty of care, and put their clients’ interests before theirs. An example would be a CFP asking detailed questions to understand your financial goals. Then, they would stick to your plan and only recommend products or investments they know can help you reach your targets.

The Standards of Conduct include detailed clauses about duties CFPs hold to clients, financial planning standards, duties to firms or employees, and responsibilities to the Board. In short, the Standards ensure that certified planners follow the law, practice reasonable and careful judgment, and work within the bounds of their profession while remaining faithful to the Board and the public.

One of the most important duties they have is that of a fiduciary. This means they must put their clients first and avoid conflicts of interest. It also requires them to be competent and carry out their clients’ wishes to the best of their ability.

Conforming to a strict ethical code distinguishes CFPs as high-level finance experts. Because they’re fiduciaries with ties to an official organization, you can feel more comfortable walking into a board-certified planner’s office to receive advice.

What It Takes to Become a CFP

CFPs are highly respected experts, but becoming one isn’t for everybody. The process requires a serious commitment of time and effort. Upon reaching the end of the program, these professionals will have gone through a rigorous, well-rounded curriculum that provides them with the experience they need to get out in the field. 

Aspiring certified planners must complete four requirements to finish the program. The Board refers to these as the four “E’s,” and each one isn’t a simple check off a list. Here are the requirements to earn the certification:

1. Education

Candidates must complete a post-secondary course of study offered by a Board Registered Program. During this, they gain exposure to various types of financial planning and receive a balanced understanding of what the profession entails. Here are the eight main topics, per the Board’s website:

• Professional conduct and regulation
• General principles of financial planning
• Psychology of financial planning
• Retirement, savings, and income planning
• Risk management and insurance planning
• Investment planning
• Tax planning
• Estate planning

At the end of the program, students take what they’ve learned and apply it in a capstone course. In it, they practice developing a full-fledged, holistic financial plan.

After coursework is complete, the only remaining piece of the education requirement is proving to the CFP Board that they’ve received at least a bachelor’s degree.

2. Exam

The next part of the certification process is the CFP Exam, which takes place three times per year over eight-day testing windows.

The exam takes around six hours and is divided into three-hour sections. It has 170 multiple-choice questions and centers around the eight main topics we listed above. There’s also a 40-minute break between sessions.

3. Experience

Students must collect tangible on-the-job experience before they can receive certification. There are two methods to do this:

• Standard: 6,000 hours of professional experience.
• Apprenticeship: 4,000 hours learning from a CFP mentor.

A broad number of jobs or activities can count towards the requirement. However, the Board requires experience in the financial planning field. Anything else, even if it’s in finance, won’t count.

4. Ethics

Completing the ethics requirement proves to the CFP Board that candidates will uphold high ethical and professional standards. To fulfill it, a person must sign a declaration that they agree to follow high standards and carry out a fiduciary duty. After this, the Board will review the declaration and conduct a thorough background check.

Do I Need a CFP?

Whether you need a financial planner hinges on both your circumstances and goals. However, it makes the most sense if you need someone to lend a hand with your finances. A CFP can help you figure out how to best map out several aspects of your future, even if you’d just like to plan next year’s taxes.

Keep in mind that planners can assist all kinds of people. If, for instance, you’re a high-net-worth person with a complicated portfolio and want to plan your estate, most CFPs can help you. Likewise, they also often have experience working alongside people with fewer assets.

How to Find One

Ultimately, the financial planner you decide to go with will depend on your needs. While most have valid experience, you’ll need to compare the market and look for ones with the expertise you want. You may even have to meet with a few before you find the one who’s right for you.

It can be hard to find an expert who meets your needs when there are so many options. Matching tools are a great way to quickly find reputable experts and zero in on ones that fit your bill. This free one allows you to connect with up to three vetted CFPs in your area.

Cost to Hire One

Just how much does it cost to hire a certified financial planner? Well, the short answer is that it depends. The amount you’ll end up paying will vary based on the services you need and the payment structure your CFP uses.

Many planners use a fee model where you pay a percentage of the funds they must manage, which is often around 1%. This is most common for investment or wealth managers. You’ll likely see an assets under management (AUM) structure if you and your advisor are going to work together for the long haul.

Others may charge an hourly or flat rate. This is typical if you need one service, like tax planning, an occasional consultation, or a single plan. Since most CFPs’ time is very valuable, hourly rates can add up. According to AARP, certified planners often charge anywhere between $200 and $400 per hour.

Some financial planners use a fee-only structure where they only earn income from the expert advice they provide. Others (not CFPs), though, may make money from commissions, alongside the fees they already charge you. As a rule of thumb, it’s generally best to stay with fee-only advisors, as these are typically the ones who follow a fiduciary duty and avoid conflicts of interest.

Frequently Asked Questions

Is a certified financial planner a fiduciary?

Yes, CFPs are fiduciaries. As part of the certification process, they must sign an agreement to put clients first, act with care and competency, and always follow the law.

What’s the difference between a CFP and a financial advisor?

The difference between the two is very subtle. “Financial advisor” is a general term that refers to any person, firm, or service that offers financial guidance. CFPs are a reputable type of advisor that helps people create comprehensive plans for their portfolios.

Should I hire a CFP or a CFA?

Though both are highly capable, they have different functions. Whether you hire one or the other will depend on your preferences. Chartered financial analysts (CFAs) are accredited professionals with substantial knowledge. CFAs, however, specialize in managing portfolios and investments, while CFPs focus on planning several aspects of a client’s finances.