Disclosure: We are reader-supported. If you buy through links on our site, we may earn a commission. Learn more.
What is a CFP and what do they do? The term “CFP” stands for Certified Financial Planner. These are financial services professionals who have passed a rigorous series of seven courses on various aspects of personal financial planning and passed a challenging exam.
The CFP designation is one of the more prestigious titles in the industry. Although the Certified Financial Planner Board of Standards requires that all certificants hold at least a Bachelor’s degree, you can’t just get it by going to college and majoring in financial planning. To carry the CFP designation, these planners must also have at least three years of experience providing direct financial advice or other services to clients.
In addition to the initial requirements just to get the certification, CFPs must also continue to take continuing education courses at least every two years to stay up to date and maintain their credential.
Certified financial planners must also abide by the CFP Board's Code of Ethics. They must undergo a background check before being granted the CFP title. If a planner is found to have violated the Code, they can have their credential revoked.
Find Your Advisor Match
Personalized Advice for Portfolio Size $50k and Above
Answer a few questions and get matched with financial advisors based on your specific needs.
What do CFPs Do?
Generally, CFPs are trained to do "comprehensive financial planning." That is, they are trained to take a detailed fact finder and attempt to get to know their clients very well. They try to ascertain the client's long-and-short-term financial goals, their risk tolerance, any constraints or possible risks, and then try to develop a comprehensive financial plan for their clients that helps them achieve their long-term objectives while minimizing the risks.
While CFPs can and do recommend specific financial products to their clients that should help them achieve their financial goals, their engagements are usually not transactional in nature. The CFP isn’t out to sell an individual financial product, pocket a commission, and move on to the next transaction.
Instead, the comprehensive financial planning process often involves a combination of financial products, savings and spending goals, income goals, income tax planning and estate planning measures, and other items. It’s the combination of products and services as a whole that enables CFPs to help their clients achieve their goals.
That's not to say those are the only services they engage in. Some CFPs do engage in more short-term or transaction-related relationships with a more limited scope. For example, you may not need a full comprehensive financial plan - which may cost thousands of dollars. Some people just need to make an appointment and pay an hourly rate to have the financial planner look over an annuity or life insurance policy they are considering.
But all CFPs have to take coursework covering the comprehensive financial planning model.
Related: Get Matched with a Certified Financial Planner in Your Area
CFPs are Fiduciaries
The CFP Board of Standards requires that all certified financial planner certificants act as fiduciaries. That is, CFPs are held to the fiduciary standard, which is the highest standard of professionalism and ethics under the law. As fiduciaries, CFPs and other professionals acting in that capacity may not engage in self-dealing, and must make all recommendations solely in the best interests of the client — regardless of how it may affect their commission, bonus, or other income.
Like all fiduciaries, CFPs are to avoid conflicts of interest with their clients as much as possible. Where a conflict of interest cannot be avoided, the fiduciary must clearly disclose the conflict or potential conflict to the client.
Not every financial advisor or other professional is expected to conduct themselves according to the fiduciary standard. Most advisors in commissioned sales channels, including stockbrokers, many people using the term "financial advisor," insurance agents, and annuity sales agents, are expected to adhere to the lower suitability standard.
That is, their recommendations and advice do not have to be the best for the client. It only needs to be suitable. As long as the advice and financial product recommendations are suitable, these advisors are free to recommend the products that offer good commissions or fee income for themselves. They aren’t necessarily the very best fit available for the client.
There are excellent advisors in both channels. But when you engage a CFP, you can be confident that your financial planner is expected to hold to the fiduciary standard.
What is a CFP? What you need to know about Certified Financial Planners
Find Your Advisor Match
Personalized Advice for Portfolio Size $50k and Above
Answer a few questions and get matched with financial advisors based on your specific needs.
CFPs vs. ChFCs
CFPs and Chartered Financial Consultants (ChFC)s do a lot of the same work, and have to take a similar series of courses before using the credential. The ChFC was introduced in 1982 by the American College of Financial Services and is widely considered the leading alternative to the CFP designation.
In practice, CFPs tend to come from an investment services background, while ChFCs usually have a background in insurance. The CFP Board has been more successful in branding their credential in the media and with the general public, but both are very highly-respected credentials within the industry.
The College requires program applicants to have at least three years of experience before enrolling in the curriculum.
Because of this focus, which often includes a lot of emphasis on employee health insurance, group disability plans and voluntary benefits, ChFCs often have more of a focus with business owners and with special needs planning. The CFP curriculum CFPs, on the other hand, tend to focus more on personal financial planning.
From the client's point of view, perhaps the most important distinction between CFPs and ChFCs is that CFPs must all adhere to the fiduciary standard. The ChFC, on the other hand, may be a fiduciary, or they may be a commissioned agent and/or adhere to the lesser suitability standard.
One clue: Look at the fee structure. If you are paying a direct hourly, retainer, flat rate, or assets under management fee to the advisor out of your own pocket, you may be dealing with a fiduciary.
If you are paying nothing out of your pocket, then chances are you are dealing with a commissioned sales agent, who will be adhering to the suitability standard.
Often, CFPs will work in cooperation with commissioned sales agents, recommending their products. Sometimes the best life insurance policies, annuities, and other financial products for the clients are only available via a commissioned sales agent.
In other cases, CFPs and other fiduciaries may recommend a commission-free alternative.
In any case, the best way to tell if your advisor is a fiduciary is to ask them outright: "Are you a fiduciary?"
Related: Compare Top Financial Advisors Matched to Your Specific Needs
How Do CFPs Get Paid?
There are many different business models for financial planning practices, and CFPs can get paid in a variety of ways. Many CFPs, though not all of them, are "fee only" financial planners. That is, they attempt to minimize the potential for conflicts of interest by relying solely on fees paid by the client. They do not take commissions or fees of any kind from insurance companies, Wall Street brokerage firms, or other third parties.
- Hourly: You pay for an appointment and a specific amount of the planner’s time.
- Flat rate: You can choose from a menu of common financial services or recommendations, with the price known in advance.
- Retainer: You pay the planner an annual, quarterly, or monthly retainer, and they are available to provide financial advice and recommendations.
- Assets under management fees (AUM fees): You pay the planner or their practice a percentage of the support they hold and manage on your behalf. There is a potential conflict of interest with this common arrangement: If the financial planning firm is charging you 1% of the assets they manage, they may have a disincentive to make certain recommendations to you, because it would reduce their fee income.
For example, you may be interested in buying an annuity for lifetime income security, buying an investment property, or paying off a mortgage. If you must sell assets under their management to raise the cash, that could put a real crimp on the planner's wallet. This could influence their recommendation to you about what course of action to pursue.
For this reason, wealthy people sometimes don't use planning firms that charge an AUM fee, and instead go with someone who charges by the hour, or who charges a retainer or flat fee.
Finding a CFP
There are Certified Financial Planners working in just about any good-sized town in America. You can go to the CFP Board’s website, www.letsmakeaplan.org, for a referral to a CFP near you. You may also get a referral from the National Association of Personal Financial Planning (www.napfa.org), which exclusively represents fee-only financial planners.
With companies like WiserAdvisor.com, you can compare top Certified Financial Planners in your area and even schedule a free consultation with no obligation to hire.
This is an excellent option for vetting financial professionals before making a hiring decision.
Related: How to Choose a Financial Advisor
But you don’t need to be in the same town. If you click with a certain planner, you can engage their services from anywhere in the world, no matter where the planner is (though there may be some location considerations if you want to buy securities or insurance products directly from the CFP).
You can also gain access to CFP professionals by using a robo-advisor or online investment advisor. Many of them employ CFPs to give advice to their clients by phone or email.
This may be a good option if your financial planning needs are relatively simple, or you want to minimize the fees you pay for their services. Generally, the more in-person services you need, and the more detailed the planning or research you need the planner to do, the more fees you can expect to pay.
Find Your Advisor Match
Personalized Advice for Portfolio Size $50k and Above
Answer a few questions and get matched with financial advisors based on your specific needs.