What Is a Certified Financial Planner? How to Know If You Need One

If you’ve ever inquired about receiving financial guidance or help to set goals for your future and wealth, you’ve likely come across someone with a certification called a certified financial planner, or CFP.

A CFP is a specialized type of financial planner who has met the certification requirements of the CFP Board. A CFP must complete coursework, pass an exam, adhere to the CFP Board code of ethics and keep up with continuing education. CFPs are bound by a fiduciary duty, meaning they must meet the highest standard of care when providing advice to clients.

Here’s a look at what a CFP does, how their services compare to other types of financial planners, how to become a CFP yourself and when you may want to work with a CFP.

What does a certified financial planner do?

CFPs complete coursework covering the full scope of financial planning — insurance, risk management, investing, taxes, estate planning, retirement, even the psychology side of money — and clock thousands of hours of on-the-job experience before gaining their certification.

All that adds up to a well-rounded financial professional who is required to work in your best interest and can help with many situations. Here are a few key responsibilities that CFPs hold:

• Provide comprehensive financial planning advice that’s tailored to clients’ individual needs.
• Analyze and provide advice on investment strategies and asset allocation.
• Help with estate planning to ensure wealth transfers according to a client’s wishes.
• Provide advice on tax planning and/or insurance needs.
• Provide financial education.
• Maintain a client’s financial plan and adjust to life changes and circumstances.

Are CFPs better than financial advisors?

First off, it’s important to note that CFPs and financial advisors can be one and the same. A financial advisor may or may not hold a CFP designation and a CFP may call herself a financial advisor, too. The title “financial advisor” is an umbrella term that isn’t tied to a specific license or certification.

The big difference is that a CFP holds a certification that shows she has years of education and experience and must act as a fiduciary. You can check that certification with the CFP board.

A financial advisor may be a CFP or hold other designations that demonstrate financial expertise. Because there isn’t a tidy definition, a financial advisor may not have that education, experience or ethical standard that CFPs and credentialed financial advisors do.

Here’s a breakdown of the differences between CFPs and financial advisors, as an example.

Additionally, CFPs are part of a larger, professional network, so they have a lot of resources at their disposal if clients have questions, a resource that independent financial advisors might not have.

One of the benefits of working with a CFP vs. a financial advisor is that CFPs must meet a fiduciary standard, which means they must put the needs of a client first. Financial advisors may be fiduciaries but are not required to meet a fiduciary standard.

The CFP is a good designation to have, but it’s not the be-all and end-all. Just because a planner has a CFP certification does not mean that they are the best person to advise you. It’s important to get referrals and reviews for any financial planner you’re considering. Regardless of whether the planner is financial advisor or a CFP (or both), you need someone who understands your needs.

(Here are some tips for finding the right financial advisor for you.)

How much does a CFP cost?

You should expect to pay a CFP for providing financial advice and performing other functions. A CFP’s services don’t come cheap.

• Hourly rates: CFP hourly rates typically start at $200 and go up from there, though $250 is the median, according to the 2023 Kitces report. Of course, it depends on the complexity of the client and the CFP’s experience. Paying an hourly rate may make sense if you see your CFP occasionally.
• Flat fee: If you want more frequent access or have a more complex financial plan, a financial planner who charges a flat monthly or annual rate may be a more prudent option. If you’re looking for a flat fee, Charles Schwab offers a robo-advisor portfolio that charges $30 a month and offers unlimited access to CFPs.
• Assets under management: Other CFPs will charge you a fee that’s based on how much money you have invested. That fee typically ranges from 0.25 percent to 1 percent per year on the assets they manage. A planner who charges a percentage of assets under management is typically more expensive than a flat-fee-based planner, as the percentage fee is tied to the size of your portfolio.
• A combination of fees: Your CFP may charge a combination of fees depending on the work they do. You may pay an hourly rate and a percentage of assets under management.

While these fees may come out of your pocket on the front end, you may end up making much smarter decisions that are aligned with your goals than if you go with the “free” advisors that many financial institutions offer you. They’re often really just salespeople in disguise.

How to become a CFP

A CFP candidate needs a bachelor’s degree or higher, but no specific concentration or major, to become certified. Additionally, individuals must have 4,000 to 6,000 hours of financial planning experience, as well as successfully complete coursework in financial planning and pass a comprehensive exam. According to the CFP Board, the exam covers a range of topics, including insurance, annuities, securities and investment, taxes, retirement planning, estate planning and financial planning practices. Then you must commit to ethical practices and to act as a fiduciary on behalf of your clients.

The CFP exam is administered by the Financial Planning Standards Board, an independent nonprofit organization advocating for consumer protection and financial planning standards.

Those who pass the exam and meet the other criteria are awarded the CFP designation. To maintain the designation, professionals are expected to pay an annual renewal fee of $455 and complete a minimum of 30 hours of continuing education every two years.

More and more financial planners are earning their CFP designation, which can be a boon for their careers. If you’re passionate about becoming a CFP, here’s what you’ll need to do:

• Earn a bachelor’s degree or higher from an accredited institution, potentially in finance, economics or another related field.
• Complete CFP Board-approved classes and coursework or hold a qualifying degree.
• Pass the CFP exam.
• Log either 6,000 hours of professional experience related to the financial planning process or 4,000 hours of apprenticeship experience working with clients under the direct supervision of a CFP professional.
• Adhere to CFP ethical standards.
• Pass a background check.

Who should choose a CFP?

Working with a CFP can be beneficial at different points during your life for different reasons. There are a few times when seeking professional guidance may be especially helpful. Consulting a CFP might be right for you if you’re:

• Juggling multiple financial goals, like paying down debt, saving for college and retirement or trying to make a long-range financial plan.
• Going through a big life transition, including marriage, a divorce, receiving an inheritance or retiring.
• Looking for comprehensive financial planning.
• Seeking guidance for multi-generational wealth transfers or wanting to establish a plan for your estate.
• Dealing with specific and complex tax issues.
• Navigating other complicated financial situations, such as owning a business or managing a high net worth.

Who should choose an alternative advisor service?

Working with a CFP isn’t right for everyone or every season of your life. There may be times when you need help from a CFP with a specific piece of your financial plan or to check in on a goal. Other times, an alternate advisor might meet your needs.

FAQs

• Is a certified financial planner worth it?
  

  Deciding whether working with a CFP is worth it depends on your individual financial needs and goals. A CFP may be valuable, for example, if you have a complex financial situation, need a holistic financial plan, have a lot of debt or are going through a major life transition. But, if your financial plan is more simple and you’re confident in managing your own finances, the cost of CFP services might outweigh the benefits, as most charge upward of $200 an hour. Ultimately, the decision comes down to your financial needs and preferences.

• Is a CFP certificate harder than a CPA certificate?
  

  Becoming a CPA tends to be harder than earning a CFP certificate, though both programs are rigorous. For example, the CPA exam — four sections totaling 16 hours of testing — has a lower pass rate and covers a wide range of complicated topics in accounting, auditing, taxes, financial reporting and regulations. The CFP exam, on the other hand, is a single, six-hour exam focused on aspects of financial planning. Additionally, most states have more stringent educational requirements for CPAs.

• Can I get a CFP without a degree?
  

  To be certified as a CFP, you do have to have a bachelor’s degree or higher in any area of study. However, you can take the CFP exam prior to completing your degree. You have five years to finish your degree once you pass the CFP exam.

Bottom line

A certified financial planner is a professional designation earned through a certification process. CFP professionals can be hired by a financial firm or act as independent planners. But there’s no guarantee that a CFP is the right fit for all of your financial needs. It’s vital to ask questions and understand the provider’s qualifications and expertise to be sure they meet your needs.