What is a Certified Financial Planner (CFP)?

In a nutshell

A Certified Financial Planner (CFP) is a fiduciary professional licensed to provide financial planning advice.

• These individuals are certified through the CFP Board of Standards once they've met certain education, experience, and ethics requirements, and passed the CFP Board exam.
• CFP professionals are generally regarded as providing a high level of care and financial advice, while also being both competent and ethical.
• To keep their CFP designation, these professionals must maintain certain continuing education requirements, in addition to upholding the standards outlined in the CFP Board's Code of Ethics and Professional Responsibility.

What does a Certified Financial Planner (CFP) do?

A CFP professional is certified to provide individuals and families with comprehensive financial planning services and advice. This can be beneficial whether you're trying to navigate your current financial situation, plan for the future, fund a retirement or even build generational wealth.

Here are some of the services CFP professionals provide.

Analyzing your current financial situation

Upon hiring, your CFP will likely want to conduct a thorough assessment of your existing finances and net worth, including your income, budget, spending habits, assets, expenses, debts, and investments.

Identifying personal goals

Not sure exactly what you need in the short- or long-term? Your CFP professional can help you identify where you want to get and the stepping stones necessary to get there. This means looking at your one-, five-, and 10-year plans, for example. They may ask you what you want your retirement to look like. And perhaps you have auxiliary goals, such as saving for your kids' (or grandkids') education or allocating funds toward charitable causes.

Identifying an investment strategy

Each individual's strategy will be different depending on your current situation, when you plan to retire, what your goals for the future include, and how you're best able to get there. This may mean looking at your overall risk tolerance, retirement timeline, and existing and future asset allocations.

Setting a budget and a plan

Once you have an idea of your financial goals, it's time to identify the changes and everyday actions to get there. This often means building a new budget and financial plan to help you eliminate existing debt, increase cash flow, allocate funds toward investments, and even plan for shorter-term goals (such as a new home or big purchase).

Insurance and tax planning

Outside of retirement and general savings goals, an important part of any financial plan is insurance and taxes. A CFP professional can help you determine how much insurance you need, in addition to the kind of policy that will best protect your assets and loved ones. They can also help you best structure your assets to minimize your tax burden and the tax burden your loved ones will face when you die

Structuring and planning your estate

Building wealth often means structuring your estate and assets intentionally to limit your tax burden now and leave behind an organized and tax-advantaged estate for your loved ones. A CFP can help you create these plans, structure your assets, and design a trust to hold these assets, if desired.

How much does a Certified Financial Planner (CFP) cost?

The cost of working with a CFP professional depends on many factors, including your location, the individual's experience, and even the complexity of your financial situation. Some CFPs will charge hourly fees while others work on a flat fee or percentage basis (according to your assets under management, or AUM).

There may be commissions involved when you purchase certain products, too, which will be disclosed to you ahead of time. A CFP can be fee-based, which means they'll earn a fee and commissions. However, if a CFP is fee-only, they won't also earn commission from products sold.

Where can you find a Certified Financial Planner (CFP)?

Finding a CFP in your area is easy, thanks to several different online resources. You can look up CFP professionals directly through the CFP Board website, for example, which allows you to filter results based on location, services provided, investable assets, and the CFP's primary client focus.

You can also use free search tools, which pair you with pre-screened fiduciaries based on results from an advisor match quiz.

CFP vs. CFA

While there is some overlap, a CFP and a Chartered Financial Analyst (CFA) are different types of financial professionals with distinct areas of expertise. For example, a CFP focuses on providing you with a comprehensive financial plan that is intended to cover all areas of your financial life. They can help you budget, plan for retirement, structure your estate, choose insurance, optimize your taxes, and more.

A CFA, on the other hand, is primarily focused on managing investments, often at an institutional level. They may even be responsible for conducting research and financial analysis, or managing portfolios for institutional investors.

Becoming a Certified Financial Planner (CFP)

To become a CFP professional, you'll need to meet certain criteria. These include:

• Holding a bachelor's degree (or higher) from an accredited institution.
• Completing an accredited course of study for CFP designation.
• Accumulating a minimum number of hours (6,000 in the financial planning field, completing a two-year internship, or a combination of the two).
• Passing the CFP Board exam.
• Meeting the CFP ethics requirement for fiduciary standards and signing an Ethics Declaration.

After meeting these requirements, the CFP Board will conduct a background check and decide whether or not to issue the CFP designation.

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A CFP can be an invaluable resource when it comes to analyzing your current financial situation, identifying financial goals for the future, and creating a plan to help you meet those goals. These individuals are held to high ethical standards, so working with someone who carries the CFP designation is one of the best ways you can ensure that you're receiving the best financial advice from someone without any conflicts of interest.