What Is a Certified Financial Planner?

What Is a CFP?

Financial advisors often earn and maintain certifications to help them stay up to date on best practices—and to show clients that they're well-equipped to handle their needs. The CFP certification is one of the most well-known and trusted designations. It requires financial planners to meet education requirements, gain experience working in the field, pass an exam and adhere to a code of ethics.

After getting certified, a CFP might also choose to pursue other credentials based on their area of expertise. If they specialize in retirement planning, for example, they may earn the retirement income certified professional designation. If you're looking to work with a financial advisor, you might feel more comfortable with someone who has done the extra work to earn these types of certifications.

What Does a CFP Do?

A CFP can offer financial education and personalized advice based on your unique needs. The right professional could help you:

• Clarify your short- and long-term financial goals
• Update your budget and savings plan
• Make a retirement savings strategy
• Tackle debt repayment
• Make investing decisions
• Create an estate plan
• Minimize your tax liability

CFP vs. Financial Advisor

The term financial advisor casts a wide net and can refer to any professional who helps clients manage their money. You don't need a special certification to call yourself a financial advisor, but that isn't the case for CFPs. A CFP is a type of financial advisor who has been credentialed by the Certified Financial Planner Board of Standards. There are some other key distinctions to consider:

• CFPs have a fiduciary duty. Being a fiduciary means that CFPs are legally required to operate in their clients' best interests. Not all financial advisors can say that.
• CFPs often have higher client satisfaction ratings. According to the CFP board, CFPs have an 87% client satisfaction rating, compared to 72% for general financial advisors.

Learn more: Fiduciary vs. Financial Advisor: What's the Difference?

When You May Want to Hire a CFP

Having a financial professional by your side can reduce stress and help you make progress toward your financial goals. Here are some scenarios that might motivate you to work with a CFP:

• You need help with your finances. Whether you're trying to pay down debt, save for retirement or cover your kids' college education, a CFP can review your finances and help you make a plan for getting there. The right professional can also answer your financial questions and offer investment guidance that's built around your goals and time horizon.
• You've experienced a major life change. That might include getting a new job, getting married or divorced, welcoming a child, starting or selling a business, or experiencing a financial setback. A CFP can help you adjust your financial plan based on your new normal.

How Much Does a CFP Cost?

Rates and fee structures vary depending on the level of guidance you need and a CFP's specialty and experience. Having said that, below are some estimates to help you decide if working with a financial planner is right for you.

Learn more: Do I Need a Financial Planner?

How to Choose a Certified Financial Planner

You'll want to do your homework before choosing a financial planner. Here are some simple steps to help get you started:

• Check their credentials. The CFP Board maintains a database of credentialed CFPs, which you can use to find a professional in your area. When comparing profiles, you'll be able to see their services, specialty areas and whether they have a disciplinary history with the CFP board.
• Understand how they're paid. CFP rates and fee structures vary, so be sure to clarify how much you can expect to pay. Some CFPs may require a minimum amount of investable assets, such as $500,000, which could translate to a hefty AUM fee.
• Match their expertise to your needs. Every CFP is different. Some may specialize in divorce planning or tax planning, while others have a stronger focus on insurance and risk management. Think about why you want to work with a CFP in the first place, then look for someone who's equipped to handle your needs.

Frequently Asked Questions

The Bottom Line

A certified financial planner is a financial advisor who's taken extra steps to get certified by the CFP board. Having that designation can give their clients peace of mind, especially since CFPs are obligated to act as a fiduciary. When looking for someone to work with, consider their specialty areas and fee structure before making a commitment. Also be on the lookout for potential scams—and always check a financial professional's credentials before providing information about your finances.