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.

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.

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.