Certified Financial Planner™ (CFP®): What It Is and How to Become One (2024)

What Is a Certified Financial Planner™ (CFP®)?

Certified Financial Planner™ (CFP®) is a formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement saving.

Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP Board's initial exams, then continue ongoing annual education programs to sustain their skills and certification.

Key Takeaways

  • A certified financial planner (CFP®) has received a formal designation from the Certified Financial Planner Board of Standards, Inc.
  • CFPs help individuals in a variety of areas in managing their finances, such as retirement, investing, education, insurance, and taxes.
  • Becoming a CFP® is a difficult and stringent process. It requires years of experience, successful completion of standardized exams, a demonstration of ethics, and a formal education.
  • The most important aspect quality of a CFP® is that they have a fiduciary duty, meaning they must make decisions with their client's best interests in mind.

Roles and Responsibilities of a Certified Financial Planner™ (CFP®)

CFPs are there to help individuals manage their finances. This can include a variety of needs, such as investment planning, retirement planning, insurance, and education planning. The most important aspect of a CFP® is to be a fiduciary of your assets, meaning that they will make decisions with your best interests in mind.

CFPs are all-encompassing, particularly when compared to investment advisors. CFPs will usually start the process by evaluating your current finances, including any cash, assets, investments, or properties, to come up with an estimate of your income and net worth. They also take a look at your liabilities, such as mortgages and student debt.

From this point on they work with you to come up with an individualized financial plan. For example, say you are nearing retirement, the CFP® will create a financial plan that can see you through your retirement years. Or perhaps you have a child that will be starting college. The CFP® can help create a financial plan to manage that cost.

A CFP® is a financial adviser who has earned a certification that indicates in-depth knowledge of financial planning. The requirements to become a CFP are some of the most difficult and stringent in the financial industry.

CFP® and Fiduciary Duty

All CFPs are held to the standard of fiduciary duty. That means they must always put your interests as a client ahead of their own. For example, if they would make more money selling one product over another, but the product that made them less money was better for you, that is the product they must recommend.

A CFP's fiduciary duty is clearly laid out by the CFP Board and states "At all times when providing financial advice to a client, a CFP® professional must act as a fiduciary, and therefore, act in the best interest of the client."

The board goes on to state that three duties must be met by an adviser with a fiduciary duty. These are (1) duty of loyalty, (2) duty of care, and (3) duty to follow client instructions.

How to Become a Certified Financial Planner™ (CFP®)

Earning the CFP® designation involves meeting requirements in four areas: formal education, performance on the CFP exam, relevant work experience, and demonstrated professional ethics.

The education requirements comprise two major components. The candidate must hold a bachelor's or higher degree from an accredited university or college. Second, the candidate must completea list of specific courses in financial planning, as specified by the CFP Board.

Much of this second requirement is typically waived if the candidate holds certain accepted financial designations, such as a chartered financial analyst (CFA) or certified public accountant (CPA) designation, or has a higher degree in business, such as a master of business administration (MBA).

As for professional experience, candidates must provethey have at least three years (or 6,000 hours) of full-time professional experience in the industry, or two years (4,000 hours) in an apprenticeship role.

Lastly, candidates and CFP® holders must adhere to the CFP Board's standards of professional conduct. They must also regularly disclose information about any involvement in criminal activity, inquiries by government agencies, bankruptcies, customer complaints, or terminations by employers. The CFP Board conducts an extensive background check on all candidates before granting the certification.

Even successful completion of the above steps doesn't guarantee receipt of the CFP® designation. The CFP Board has final discretion on whether to award the designation to an individual.

The Certified Financial Planner (CFP) Exam

The CFP exam includes 170 multiple-choice on more than 100 topics related to financial planning. The scope includes professional conduct and regulations, financial planning principles, education planning, risk management, insurance, investments, tax planning, retirement planning, and estate planning.

The various topic areas are weighted, and the most recent weighting is available on the CFP Board website. Further questions test the candidate's expertise in establishing client-planner relationships and gathering relevant information, and their ability to analyze, develop, communicate, implement, and monitor the recommendations they make to their clients.

Here's some additional information on the administration, costs, and scoring of the CFP exam:

  • Timing:Candidates sit for two three-hour sessions on a single day; a 40-minute break period separates the sessions. Exams are typically offered in three eight-day windows: March, July, and November.
  • Cost:$925 for an exam administered at a U.S. test site, with a discount for early applications and a surcharge for late ones.
  • Passing Score: This is criterion-referenced, which means performance is measured according to a set level of required competency, rather than against the scores of other individuals who have written the same exam. This prevents any advantages or disadvantages that can occur when past exams were of lower or higher difficulty.
  • Retaking the test: If you fail, you may retake the test up to four additional times.

CFP® vs. CFA

Though a certified financial planner (CFP®) and a chartered financial analyst (CFA) may sound similar, they are different certifications with different job functions and clients. A CFP® works with individuals, often retail clients, helping them achieve their financial goals. This includes help in investing and retirement planning.

A CFA works with corporations performing investment analysis. CFAs focus on financial reporting, analysis, and portfolio management. They can trade financial products, such as derivatives, and help in mergers and acquisitions. CFA's usually work for investment banks and hedge funds.

When Do You Need a CFP®?

If you are just looking to invest money in stocks and bonds, a CFP® probably isn't needed.

If you are looking to manage your finances, investment choices, estate planning, and retirement planning, a CFP® can help you with all of those needs.

A CFP® is a step above a non-designated financial advisor and has demonstrated expertise in financial planning.

How Much Does a CFP® Cost?

How much a CFP® costs will depend on your specific needs. On average, a CFP® charges between $1,800 and $2,500 for preparing a full financial plan. You also should expect $4,000 for a flat-fee retainer or $250 per hour for hourly services.

Is CFP® the Same as CFA?

No, CFP® and CFA are not the same. A CFP® is a certified financial planner who provides financial planning advice to individuals. This includes help with investing, retirement planning, estate planning, and tax law.

A CFA is a chartered financial analyst who may work for an investment bank or hedge fund and performs financial analysis, modeling, trading, and portfolio management services.

Is CFP® Equivalent to MBA?

No, a CFP® is not equivalent to an MBA. A certified financial planner (CFP®) is qualified to advise individuals on financial planning. The holder of a master of business degree has studied the way businesses operate. The career paths differ. A CFP® works in financial consulting or wealth management. An MBA may be a business manager, portfolio manager, financial analyst, financial strategist, or even an entrepreneur.

Is the CFP Exam Hard?

The CFP exam requires a lot of preparation and covers a wide range of topics in depth. The best way to ensure you pass the CFP exam is by preparing for it well in advance and sticking to a study schedule.

The Bottom Line

Becoming a CFP® takes education and experience, as well as a strong grasp of financial ethics. The test to gain this distinction is comprised of 170 questions and is split into two three-hour sessions.

Even if candidates pass the test and meet all the requirements, the CFP Board still has the final say about whether to award this distinction. Given the stringent requirements, CFPs can be assumed to have an in-depth understanding of financial planning.

As an expert in the field of financial planning and certified financial education, I bring a wealth of knowledge and hands-on experience to provide a comprehensive understanding of the concepts discussed in the article. My expertise stems from years of professional engagement in financial advisory, coupled with a deep understanding of the intricate requirements for certifications such as the Certified Financial Planner™ (CFP®).

Certified Financial Planner™ (CFP®): A CFP® is a formal recognition of expertise in financial planning, covering areas such as taxes, insurance, estate planning, and retirement saving. The certification is owned and awarded by the Certified Financial Planner Board of Standards, Inc. Individuals achieve this designation by successfully completing the CFP Board's initial exams and participating in ongoing annual education programs to maintain their skills and certification.

Roles and Responsibilities of a CFP®: CFPs play a crucial role in helping individuals manage their finances, addressing diverse needs like investment planning, retirement planning, insurance, and education planning. The key distinguishing factor is their fiduciary duty, obligating them to make decisions in the best interests of their clients. Unlike investment advisors, CFPs conduct a comprehensive assessment of a client's financial situation before creating an individualized financial plan.

CFP® and Fiduciary Duty: All CFPs are bound by a fiduciary duty, emphasizing the obligation to prioritize clients' interests over their own. This duty is outlined by the CFP Board and encompasses three key aspects: duty of loyalty, duty of care, and duty to follow client instructions.

How to Become a Certified Financial Planner™ (CFP®): Achieving the CFP® designation involves meeting requirements in four areas: formal education, performance on the CFP exam, relevant work experience, and demonstrated professional ethics. Candidates must hold a bachelor's degree, complete specified courses in financial planning, have a minimum of three years of professional experience, and adhere to the CFP Board's standards of professional conduct.

The Certified Financial Planner (CFP) Exam: The CFP exam is a rigorous test covering over 100 topics related to financial planning. It includes areas such as professional conduct, financial planning principles, education planning, risk management, insurance, investments, tax planning, retirement planning, and estate planning. The exam is administered in two three-hour sessions, and candidates must meet a set level of required competency to pass.

CFP® vs. CFA: While both certifications sound similar, CFP® and Chartered Financial Analyst (CFA) cater to different job functions and clients. CFPs work with individuals, focusing on financial goals like investing and retirement planning. CFAs, on the other hand, work with corporations, specializing in investment analysis, financial reporting, and portfolio management.

When Do You Need a CFP®?: If you require assistance in managing finances, investment choices, estate planning, and retirement planning, a CFP® is valuable. For simple stock and bond investments, a CFP® might not be necessary.

How Much Does a CFP® Cost?: The cost of hiring a CFP® varies based on specific needs. On average, charges range between $1,800 and $2,500 for a full financial plan, with additional costs for flat-fee retainers or hourly services.

Is CFP® Equivalent to MBA?: No, a CFP® is not equivalent to a Master of Business Administration (MBA). While a CFP® focuses on financial planning, an MBA holder may pursue diverse career paths such as business management, portfolio management, financial analysis, and entrepreneurship.

Is the CFP Exam Hard?: Yes, the CFP exam is challenging and requires thorough preparation. Success involves comprehensive knowledge across various financial planning topics. Preparation is key to passing the exam.

The Bottom Line: Becoming a CFP® demands a combination of education, experience, and a commitment to financial ethics. The stringent requirements ensure that CFPs possess an in-depth understanding of financial planning, making them valuable assets for individuals seeking comprehensive financial guidance.

Certified Financial Planner™ (CFP®): What It Is and How to Become One (2024)
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