If you’re interested in hiring a financial advisor, you might run into someone who has the acronym CFP next to their name. CFP stands for certified financial planner and designates that someone has passed the CFP exam, thus meeting the requirements of the CFP board.
With more than 100 certifications available to financial professionals, the CFP designation stands out. One of the most notable requirements of the CFP is the fiduciary—or trustworthiness—aspect. This mandates that every CFP has to put their clients’ needs ahead of their own.
Most financial professionals are not required to do this, which makes the CFP and its board an important and unique entity in the protection of consumer interests.
What Is the CFP Board?
The CFP board is in charge of distinguishing who can be certified to be a financial planner. Its board of directors has the right to remove the CFP designation from anyone who has attained it.
Key Takeaways
- Not every financial advisor has a CFP designation.
- The fiduciaryaspect of a CFP designationis extremely important.
- There are many requirements, including a 6-hour exam, for becoming a CFP.
“Once you have passed the CFP exam, the CFP board continues to monitor advisors,” said Melissa Sotudeh, CFP and the director of advisory services at Halpern Financial. “Although it is not a regulatory body and cannot impose fines or legal penalties, advisors who violate the CFP Board code of ethics will have their CFP designation removed and be kicked out of the organization.”
When you have a profession that’s responsible for managing millions of dollars worth of investments, you need to have a responsible authority making sure people don’t abuse their power.
The CFP designation protects the consumer from predatory financial advisors looking to make a quick buck.
History of the CFP Board
The CFP board currently has 17 members, financial professionals from across the country. The CFP is a relatively new profession; the board first created the idea of the CFP in the 1970salthough financial planning had been around since the end of World War II.
The CFP board was first started in 1985 to certify new planners and ensure there would be a fair, separate organization overseeing the profession.
The Importance of the CFP Designation
Unlike some certificates that are worth little more than the paper they’re printed on, the CFP designation is one of the most prestigious financial certificates around.
“The CFP designation offered by the CFP board is one that is actually significant because it requires so much preliminary work," saidSotudeh."It usually takes from nine months to two years of study.”
Some requirements of the CFP include having a bachelor’s degree and taking courses about the roughly 75 various topics that the CFP exam covers. The exam takes six hours to complete and has 170 questions. The pass rate, as of March 2021, is 63%.
The exam is only offered three times a year, and it’s important for first-timers to get it right—statistically, the pass rate continues to go down for repeat takers. You’re also required to have worked in the financial industry before you’re eligible to receive the CFP license. There are other ethical requirements you must uphold and those who already hold the certificate must go through continual education requirements.
The Bottom Line
Whether you’re looking to get your CFP license or are just in the market for a financial planner, don’t skimp on the CFP designation. Those three letters show that someone is qualified in financial and investment planning, and that they provide an honest fiduciary benefit to their clients. Not everyone who calls themselves a financial advisor can say that. You can also make sure to hire a fee-only CFP who won't be paid based on how many transactions you do.
FAQs
CFP® professionals have met extensive training and experience requirements, and commit to CFP Board's ethical standards that require them to put their clients' interests first. That's why partnering with a CFP® professional gives consumers confidence today and a more secure tomorrow.
How much money should you have before hiring a financial advisor? ›
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.
Is it worth it to hire a financial advisor? ›
A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.
What percentage of financial advisors have CFP? ›
What percentage of financial advisors are CFP® professionals? About 30% of financial advisors in the United States are CFP® professionals.
Can you give financial advice without a CFP? ›
While there isn't a specific license that advisors must acquire to offer financial planning services, planners who offer specific types of advice or sell certain types of securities will need to be licensed.
What is the failure rate for CFP? ›
The Certified Financial Planner Board of Standards said Monday that the pass rate for the March 2024 CFP certification exam was 68%.
Is 2% fee high for a financial advisor? ›
Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.
What financial advisors don't want you to know? ›
10 Things Your Financial Advisor Should Not Tell You
- "I offer a guaranteed rate of return."
- "Performance is the only thing that matters."
- "This investment product is risk-free. ...
- "Don't worry about how you're invested. ...
- "I know my pay structure is confusing; just trust me that it's fair."
Limited availability: Financial advisors may not be available at all times, which can be a problem if you need urgent advice or assistance. Risk of scams: unfortunately, there is a risk of financial scams in the industry, and it's important to be aware of this risk when working with a financial advisor.
What is the average cost of a CFP? ›
On average, you can expect to pay between 0.5% and 2% of your total assets under management annually, $150 to $400 per hour, or a flat fee ranging from $1,000 to $3,000 for a comprehensive financial plan.
1. Edward Jones. Currently, there are about 3,060 Edward Jones advisors who are CFP professionals, according to data provided by the firm.
Is every CFP a fiduciary? ›
At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client. The following duties must be fulfilled: Duty of Loyalty.
At what point is it worth getting a financial advisor? ›
Key points
Consider hiring an advisor if your finances are complex or you experience a major life event. Choose an advisor you feel comfortable with and whose expertise aligns with your needs.
Is a financial adviser necessary? ›
If you have little experience of dealing with finances or you're confused about making a decision, it may be helpful to get professional financial advice. A financial adviser can help with things like: planning for your retirement. investing or saving money.
Is it important for a financial advisor to be a fiduciary? ›
The CFP code of ethics states that all CFPs “must act as a fiduciary, and therefore, act in the best interest of the client.” Certified Financial Planner Board. Code of Ethics and Standards of Conduct. Accessed Sep 28, 2022.
Is it okay not to have a financial advisor? ›
Situations Where You Can Do It Yourself
It is possible to create a do-it-yourself financial plan. If you have little-to-no debts and are comfortable investing on your own, for example, you likely can track your financial situation on your own and set financial goals on your own.
