What is a Certified Financial Planner (CFP) and what do they do? (2024)

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• A Certified Financial Planner (CFP) is a trade-industry designation for advisors and other professionals in the financial field.
• CFPs must have a certain amount of experience, pass a rigorous exam, and commit to ongoing financial education.
• CFPs advise their clients on topics like retirement, investments, tax planning, and risk management.

Working with a Certified Financial Planner (CFP) can often be a good idea if you're in the market for financial guidance. A CFP is one of the most experienced and knowledgeable financial advisors you'll find. They are held to a strict code of ethics and professional standards that have to be continually maintained. CFPs offer their clients a very specific level of expertise.

Here is a closer look at what CFPs do and what you need to know before working with one.

What is a CFP?

A CFP is a financial professional who has completed all requirements to earn certification from The Certified Financial Planner Board of Standards, Inc. (CFP Board). This encompasses years of education in 72 financial specialties, thousands of hours of practical experience, and ongoing adherence to high ethical standards and certification requirements.

CFPs are usually fiduciaries. "A fiduciary is a legal and ethical standard that requires financial advisors to act in their clients' best interest at all times," says Chloe Wohlforth, CFP and partner at Angeles Wealth Management.

This means CFPs are bound to always deliver advice that is in the best interest of their clients. They also take a holistic approach to financial planning, looking at both long-term and short-term goals.

"Establishing goals will help you keep on track for financial success by holding you accountable," explains Jordan Gilberti, CFP and senior lead planner at Facet. "It serves as a way to measure progress, tweak the plan as needed, and curb spending toward aspects that we may not prioritize as much as reaching our goals."

The cost of working with a CFP can vary greatly depending on what services they offer, how much experience they have, whether they work as part of a firm or as an independent advisor, etc. Because CFPs have a fiduciary responsibility to their clients, they often use a fee-only model for compensation. That means they don't accept commission for products they sell or recommend and charge the client directly for their services. This could be through a retainer, a percentage of earnings, or some other arrangement that is agreed upon by both parties.

What is financial planning?

Financial planning is what it sounds like: making a plan to reach your financial goals over time.

"The purpose of a financial plan is to achieve personal and professional goals through strategic allocation of resources, management risks, enabling us to live our lives to the fullest," says Gilberti.

Because everyone's goals and resources are different, financial planners can help people use tools like retirement accounts and investments strategically to achieve what they want in the long term.

"The critical step to make sure a financial plan is successful is to make sure that the data going into the plan is accurate," says Wohlforth. "Taking time to identify what expenses truly look like today and then think how those numbers might change in the future is key to the validity of the plan and therefore its successes in keeping clients on course."

You don't have to hire a CFP or another type of financial advisor to make a financial plan, but their expertise means they have a full picture of the tools at your disposal and the smartest way to use them. Some people also like working with a financial planner for sheer accountability. Sure, you could create your own financial plan — but will you?

What does a Certified Financial Planner do?

CFPs work with individual clients in any number of areas related to personal finance advising and planning. To earn their certification, CFPs have to:

• Complete extensive coursework in financial planning specialties
• Pass a six-hour exam that tests them in eight core topics they are likely to come across in real-life planning situations
• Complete at least three years of financial planning work with actual clients
• Comply with the CFP Board's Code of Ethics and Standards of Conduct

CFPs may be sole practitioners who solely provide financial planning services, wealth management advice, analysis, or investment and portfolio management. Some are credentialed professionals in a field related to financial planning who choose to earn CFP certification to add to their main practice. You'll often find CPAs, attorneys, insurance agents, and other legal, financial, or business professionals with CFP certification.

"Often questionnaires are sent to gather information and software is used for data aggregation and analysis. That said, every financial plan must start with a conversation, and then what the output looks like will carry from client to client depending on what type of information is most useful to them," says Wohlforth.

A CFP may provide one or more services related to any of the specialty areas they've studied. Some of these include saving for retirement or college, creating a trust or fund for charitable giving, helping develop financial plans to attain a short-term goal, guiding your investment strategies, assessing risks to your wealth, and other specialties they choose to focus on.

Specifically, all CFPs have experience with each of the following:

• Professional conduct and regulation: Consumer protection laws, fiduciary responsibilities, ethical obligations, how financial institutions work, and what regulations govern them
• General principles of financial planning: The process of financial planning, cash flow management, working with financial statements, debt management, financial counseling, financing strategies, money concepts and calculations, financial values, attitudes, biases, and behaviors
• Education planning: Analyzing needs, savings options, how financial aid works, strategies around gifts and income tax, and vehicles for financing education
• Risk management and insurance planning: Risk and insurance principles, analysis, and evaluation; health, disability, long-term, life, property, and casualty insurance; annuities; and business insurance needs
• Investment planning: Risk evaluation, investment concepts and measures of returns, asset allocation, portfolio development, diversification, and analysis, tax issues related to investments, valuation of stocks and bonds, and investment strategies (including alternative investments)
• Tax planning: Basics of tax law and calculations, how taxes apply to businesses, trusts, property transactions, and estates, how to reduce and manage liabilities, and how to manage charitable giving
• Retirement savings and income planning: Analyzing retirement needs and advising the best plans for clients, how entitlement programs impact retirement needs, regulatory and distribution considerations, selecting the right plan for a business, and planning to pass a business on
• Estate planning: Tax implications and strategies for transferring property, estate liquidity and taxation, business transfers, how laws and regulations apply to marriages and non-traditional relationships, and trusts

CFP vs. CFA

In your search to find a financial advisor or planner, you will certainly come across many CFPs. You may also find financial pros who are Chartered Financial Analysts (CFAs). This is a certification similar to what CFPs earn. However, the CFA program focuses only on investment analysis, where CFPs have a much broader scope of experience.

CFP vs. Financial planner

Financial planners are financial experts who take your whole financial life into consideration when developing a financial plan and strategies for long-term and short-term goals. They often offer services for tax planning, retirement plans, budgeting, investment guidance, insurance, and more.

Regular financial planners aren't regulated by the CFP Board of Standards and don't have the same ethical and legal obligations that Certified Financial Planners do. In fact, financial planners don't technically need to be licensed to provide finanical planning services. Unlicensed planners must then work with other licensed advisors or financial consultants to coordinate specific transactions.

CFPs, on the other hand, offer the same services as financial planners, but they also have the accreditation and ethical obligations to act in their client's best interest. If you want to ensure you're receiving the best advice, a CFP is the way to go.

If you're mainly focused on investment strategies and portfolio advice, finding the best financial advisor may be a better fit.

"Investing can be a good way to grow wealth over the long term, and offers the potential for higher returns compared to a typical checking or savings account," says Gilberti. "It is important to consult with a CFP professional to ensure you are choosing investments that reflect your time horizon and risk tolerance."

How to find a CFP

One of the easiest ways to find a CFP in your area is to search on LetsMakeAPlan.org, which is the Certified Financial Planner Board of Standards' consumer site. There, you can input your location, the radius you'd like to search, and the planning services you're looking for. If you already know the name of a CFP and would like to find more information about them, you can search for their last name, as well.

Search results will show an address, map, year of certification and their current certificate (if applicable), planning services offered, languages spoken, and any disclosures, disciplinary actions, or bankruptcies involving an individual CFP. If you want to verify the credentials of someone who says they are a CFP, you can do so at CFP.net.

Once you find a CFP you might want to work with, plan on interviewing them to see if they are a good fit for your needs. Consider asking about:

• Education and credentials
• Specific services offered and their experience in these areas
• Their approach/philosophy when it comes to financial planning
• What types of clients they usually work with
• Fee structure and fiduciary responsibilities; does commission play any role in their business?
• Who will be working on your account and personally with you
• Any disciplinary or legal actions associated with the CFP or their firm

Remember, a CFP works for you and you need to feel comfortable with them. Don't feel like you have to hire any one person over another. Go with whoever has the best qualifications to help achieve your goals and the right chemistry to build a long-term professional relationship.

CFP frequently asked questions (FAQs)

Should you hire a certified financial advisor?

If you're in the market for someone to help you with just about anything related to your financial health or future, looking into CFPs in your area might be a good place to start. These professionals are held to a very high standard of education, ethics, and experience that is ongoing to maintain certification. This may give you some reassurance that your finances are in good hands.

That doesn't mean financial planners who are not CFPs are any less qualified to meet your needs. It all comes down to what you want to get out of your relationship with your financial guide and what kind of experience you feel they should have. This is a very personal decision that only you can make. Remember that CFP certification is only one tool to use in researching financial professionals — not the only one.