Certified Financial Planner: What Is A CFP? (2024)

When you search for a financial advisor, you probably come across plenty of candidates with a “CFP” designation after their names. This acronym indicates you’re looking at a certified financial planner, a highly credentialed financial advisor that can help you create a plan for your whole financial life.

What Is a CFP?

Certified financial planner is a professional designation awarded to financial advisors who have passed rigorous coursework and an examination to prove their fluency in all aspects of financial planning.

CFPs must undergo years of training—4,000 to 6,000 hours in total—before they are eligible to place the letters CFP after their name. They’re also obligated to continue their education even after receiving certification.

The years of training aim to prepare a CFP to help you identify short- and long-term goals for your financial life, make a plan to achieve your goals and then execute on 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, like tax planning or estate planning, and some may have additional professional credentials, such as certified public accountant (CPA), to help you further.

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CFPs and Fiduciary Duty

Unlike some financial advisors, all CFPs are held to a strict standard of fiduciary duty, meaning they must put your financial best interests ahead of their own. Practically speaking, this means they are barred from buying a financial product for a client simply because it pays them a high commission. Some may not even buy products for clients at all and instead simply suggest that clients buy them themselves.

“A CFP professional’s fiduciary duty may be higher than what’s required by regulation, and—as defined by CFP Board—this includes a duty of loyalty, a duty of care and duty to follow client instructions,” says Jack Brod, CFP, board chair of the CFP Board.

CFP vs. Financial Advisor

While most CFPs call themselves financial advisors, not all financial advisors are CFPs. Understanding the difference is important for a few reasons.

A financial advisorcan be anyone who helps you manage your money. There’s no specific licensing or certification process required for someone to call themselves a financial advisor. Typically, a financial advisor will have passed some kind of licensing exam that allows them to buy and sell securities on behalf of their clients.

Financial advisors can be fiduciaries or non-fiduciaries. If they’re not held to a fiduciary standard, theymay only be held to a suitability standard, meaning they’re required to offer suggestions that generally fit their clients’ financial situation, whether or not they have higher fees or bigger commissions than other options.

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A certified financial planner has proven their ability to providecomprehensive financial planning services and may also provide investment advice and recommendations. All CFPs must meet the same basic requirements to earn the privilege of carrying the CFP certification. CFPs also must always act as fiduciaries when providing financial advice to their clients.

Who Should Choose a CFP?

While a CFP might not be necessary or cost-effective for every person, there are situations where engaging with a certified financial planner makes good sense.

If you’re looking for a comprehensive plan that can grow with you, covering every aspect of your finances, a CFP might be a good fit. A certified financial planner can help you craft a budget, make a plan to save for your children’s education or help you navigate an unexpected inheritance. If you’re big on ideas but short on financial savvy, a CFP could help you bridge the gap between where you are today and what you want your finances to look like.

A CFP might also be a good fit for someone who has a more complex financial situation. If you have real estate holdings, a business, a family or large amounts of debt, you could benefit from working with someone with experience in making big plans and understanding any possible tax implications.

“Frankly, if you are looking for competent and ethical financial planning advice, you should start and end by looking for someone who holds CFP certification,” says Brod.

How Much Does a CFP 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 retainer, you’d pay a financial planner an average of $5,528 per year.

CFPs can also charge clients a management fee based on the value of the assets in their account. Average annual management fees range from 0.59% to 1.18%, according to a studyby Advisory HQ.

Fee-Only vsFee-Based Advisors

However, there may be more fees involved with a CFP, depending on their status as a broker. You might notice this distinction based on whether a CFP calls themself a fee-onlyor fee-basedfinancial advisor.

Fee-based indicates the CFP may receive commissions under certain circ*mstances. You won’t necessarily always be the one paying this commission, however. Some commissions, for example, are paid by insurance companies in a way similar to finder’s fees.

Because they have the potential for financial gain based on certain product recommendations, some financial advisors don’t think fee-based financial planners can work wholly in your best interest.

“Some investment advisers who are also brokers receive commissions in certain situations, making it impossible for them to act solely in their clients’ best interests,” says Pam Krueger, founder of Wealthramp, a matching service for fee-only fiduciary financial advisors.

Krueger recommends fee-only advisors. Because their entire income is dependent on you continuing a relationship with them, it’s in fee-only financial advisors’ best interest to make sure all of their plans and product recommendations work best for you.

Regardless of whether you choose to work with a fee-only or fee-based CFP, know that both types are held to fiduciary standards whenever they are giving financial advice.

Where Can I Find a CFP?

Finding a CFPis as easy as a web search. “You can visit LetsMakeAPlan.org, a website where you can find credentialed experts in your area,” says Brod of the CFP Board. You can also research financial planners more broadly on sites like NAPFA (The National Association of Personal Financial Advisors)or ACP (Alliance of Comprehensive Planners). When you use those kinds of broader databases, though, you have to check if a planner is also a CFP.

Brod recommends that anyone interested in working with a CFP does some homework first. Find a few different CFPs to speak to and then narrow down your options as you get to know each.

Not every CFP may be best suited to work with your particular financial situation. Some CFPs, for instance, specialize in particular types of clients, like those managing extensive amounts of student debt. Make sure your CFP has experience working with people from similar financial backgrounds as you.

“From there, you can start to build a relationship with a financial planner that builds a lifetime of benefits,” he says.