Hi guys, welcome to our informative article – “what is a CFP?”
By the end of this article, you’ll have a clear understanding of who financial planners are and what they do.
You’ll also learn about financial planners with the CFP designation and how they differ from those without.
Specifically, we’ll cover:
Without further ado, let’s dive right in.
Who Is a Financial Planner?
Financial planners provide clients with insights into financial planning, including budgeting, saving, investment, wealth management, and tax planning.
They also handle risk management, estate planning, insurance, asset allocation, and retirement planning.
They work with individuals, providing a customized financial plan depending on one’s needs.
Financial planners cut through the noise and guide clients using structured methods to make informed financial choices that will help them meet short and long-term financial goals.
Many people often confuse financial planners as financial advisors.
While both help people with money management, a financial advisor is a more general term that includes financial planners.
More than that, financial advisors offer general advice on financial management, while financial planners assess an individual’s finances before creating a personalized plan to help them meet their goals.
Financial planners work with individuals, families, and even businesses.
When it comes to specific duties and responsibilities, some financial planners specialize while others are general practitioners.
Keep reading to find out more about the general roles of financial planners.
Duties and Responsibilities of Financial Planners
Financial planners have one primary responsibility.
They are tasked with analyzing every aspect of a client’s financial situation, understanding their financial goals, and using their expertise to map out a plan to help them meet those goals.
Clients may have different goals, for example saving for children’s college education, investing for retirement, saving for a house, paying student loan debt, saving for a vacation.
Additionally, some clients may be leaving an inheritance for charitable organizations or heirs.
And so, to better help clients meet these goals, financial planners will first take an inventory of their financial situation to establish the client’s net worth.
They’ll also access the liabilities.
From there, they’ll work with the client to create a plan that fits the client’s situation.
They’ll recommend strategies to pay off the student loan, guide on the right financial products, advise on the right asset allocation balance, and suggest ways to manage expenses and increase savings.
Once the strategies are determined, a financial planner guides their clients through the necessary steps to implement those strategies.
This financial planning process is an integral part of a financial planner’s job.
Also, financial planners monitor their clients’ financial plans and any changes in the economy that may affect their financial position and communicate the same to the client.
They strive to maintain a positive relationship with clients to build trust and better work towards their goals.
While doing all these, they also maintain up-to-date clients’ records.
Lastly, financial planners work with other professionals, including financial advisors, investment managers, and mutual fund agents, among others, to better meet their clients’ needs.
Financial planners must stay up-to-date with current investment trends, tax legislation, financial products, and personal financial management strategies, given the nature of their work.
They must be innovative and updated in their strategies to ensure clients meet their goals within the desired time frame.
Besides that, financial planners are fiduciary.
They are required by law to act in their client’s best interest at all times.
Even more critical in this profession is to meet specific education requirements to dispense financial planning duties better.
As such, financial planners may have one or several designations.
And more often than not, financial planners opt for the certified financial planner (CFP) designation.
The CFP Designation – Becoming a CFP
What is a CFP?
The CFP designation is a prestigious accolade in financial planning.
To earn the CFP certification, one must meet the CFP board requirements.
The requirements include having several years of experience and passing the CFP exam.
In addition to that, CFP candidates must adhere to the CFB board’s strict code of ethics, which requires CFPs to put their client’s interests above their own when giving financial advice.
Once one has earned the certification, one must maintain the certification through continuous education.
Financial professionals who’ve met all the requirements and earned the CFP certification demonstrate their expertise in financial planning.
Given how highly the certified financial planner certification is regarded, CFPs are considered the crème de la crème of financial planning.
They take a holistic approach when offering financial guidance and comprehensive financial planning services to help clients meet short-term and long-term financial goals.
That said, what does it take to earn CFP certification?
You are about to find out.
Education Requirement for CFPs
The CFP certification is awarded and managed by the Certified Financial Planner Board of Standards, Inc.
The board has high standards for its applicants.
And so, to become CFP accredited, financial planners must meet the four Es requirements.
Certified financial planners must have a bachelor’s degree in any field from an accredited university.
They may also be on the path to earning a bachelor’s degree, which must be earned within five years after passing the exam.
Moreover, applicants must complete the CFP board coursework requirement.
It is noteworthy that the CFP registered programs are no small fit.
Most candidates take between 12-18 months to complete the coursework.
Once a financial professional has met the education requirement, the next step is to pass the CFP exam.
It’s a rigorous exam, testing candidates’ understanding of investment planning, income planning, risk management, retirement savings, and professional conduct.
The exam has 170 multiple-choice questions and takes 6 hours.
Only about 62% of candidates who sat for the July 2021 CFP exam passed.
To receive the certification, candidates must have 6,000 hours of financial planning experience.
Those working as apprentices should have 4,000 hours of work experience under the supervision of a CFP accredited financial professional.
CFP candidates have up to five years to meet the experience requirement when they pass the exam.
However, one can sit for the exam without experience.
But having real-world experience can go a long way in helping prepare for the exams.
CFP professionals are required to hold the CFP standard of ethics and professional conduct throughout their practice.
CFP applicants must sign the CFP Board ethics declaration.
They must also commit to the board’s code of ethics and standard of conduct.
The ethical standards call for integrity, professionalism, diligence, and fairness when offering financial services.
CFP professionals are also held to fiduciary duty, which gives these professionals an edge when working with clients.
Additionally, candidates must pass the background check.
Financial planners only become CFP accredited if they’ve met all these requirements.
The journey to earning this professional designation doesn’t stop there.
Once accredited, CFP professionals must meet the 30 hours of continuing education requirement to maintain the certification.
What Do CFPs Do
Certified financial planners can hold many roles in financial planning.
They could be wealth management advisors, personal financial planners, associate advisors, or client service advisors.
CFPs can be investment managers, portfolio managers, or financial analysts when working in investment management.
No matter the position held, CFPs work with clients as they transition through various stages of life, from starting a family to a career change to retirement.
Certified financial planners can help clients better settle their students’ loan debts or even save for a house at the start of their careers.
When settling down, CFPs help clients plan to get married, start a family, get an education fund, and start saving for retirement.
At midlife age, where most people’s income has doubled or tripled, CFPs guide their clients through estate planning, tax strategies, long-term care options, and perhaps care for their old parents.
At the retirement age, certified financial planners assist clients with their retirement plans and manage their estate in case of their death.
While many CFPs take a holistic approach to personal finance advising and financial planning, others specialize in specific areas, such as retirement planning, divorce, or investment.
Others have niched down and only worked with specific groups of people like small businesses or professional athletes, and so on.
Important skillsets for Certified Financial Planner
CFPs need several skills to deliver at work effectively.
Let’s review what the top 6 skills a CFP should possess are:
1. Communication and Interpersonal Skills
First, effective communication is an integral part of the financial planning profession.
CFPs require communication skills to effectively seek new businesses and maintain relationships with prospects and existing clients.
They must also present their services, educate clients and elaborate on the financial planning process.
This will require proficiency in one-on-one communication, telephone conversations, and email etiquette.
More than that, the financial industry is full of jargon, and the financial documents are equally complex.
It will be in a CFP’s best interest to break down this jargon into “layman’s” language so that clients can better understand and make informed decisions.
Again, explaining financial terms in plain language is vital in helping clients understand why they need financial planning services.
The financial industry is highly competitive.
Thus, to start and grow a successful career, CFPs must be self-starters who take the initiative, quickly recognize opportunities and go for them without relenting.
Self-motivation is key to following- up on prospects and establishing a book of business.
3. Analytical and Problem-Solving Skills
This is where crunching numbers come in.
But more than that, CFPs must analyze the unique financial needs of individual clients and come up with a customized financial plan that addresses those needs.
Additionally, analytical skills allow CFPs to settle for the approach that best addresses the client’s needs.
To critically analyze a client’s financial situation, CFPs must pay close attention to details.
This reduces the chance of overlooking vital information and making mistakes.
Moreover, certified financial planners must have strong problem-solving skills, comfort clients in times of distress, and guide them to make informed financial decisions for their future.
4. Sales and Marketing
Sales and marketing skills are at the core of CFP’s responsibilities.
So, it’s only fitting that they have these skills.
CFPs must market their financial services and their experience and qualification to potential clients and get them to trust in their ability in financial matters.
Now that requires top-notch sales and marketing skills.
While communication skills will help a CFP communicate their services, sales skills will allow a CFP to give a pitch, clearly showing the potential client why they need the financial services.
5. Ability to Handle Stress
As with many financial advising jobs, financial planning comes with its share of stress.
CFPs are tasked with helping people make financial choices that could potentially impact their lives in the long term.
They are required to perform at high levels at all times.
A slight mistake can be disastrous.
This responsibility comes with a lot of stress.
Also, CFPs’ earnings are directly tied to the number of clients.
So, continuous prospecting can take a toll on even the best professionals.
As such, high-stress tolerance is a plus in this profession.
Lastly, a CFP must be enthusiastic about making a difference in people’s futures.
There’s no greater joy in this profession than helping people plan for the future, grow their wealth, and secure their future.
A CFP passionate about their work gets started every day to find that one person they can help make a difference in their finances.
That alone is a reason enough to give nothing but the best.
Where Do CFPs Work?
CFPs work in a wide range of settings.
They work in independent firms, large financial institutions, banks, financial investment firms, securities and commodity brokers, and insurance carriers.
Some open their practice.
At the start of their career, CFP professionals work with insurance companies and large financial firms to gain hands-on experience in the job.
In this setup, CFPs usually work under the supervision of experienced certified financial planners who mentor and guide them accordingly.
When working for financial firms, CFPs are paid commission-only.
They earn a commission for every client they bring to the business.
Many CFPs choose to open their practice as they grow in the field.
This option has unlimited potential for growth and a higher earning potential, but it’s more challenging to breakthrough.
Self-employed CFPs have to go above and beyond to build a business book and establish a sustainable practice.
CFPs who have their own practice charge fee-only, meaning they charge clients a fixed rate for financial guidance offered.
They may also charge hourly rates.
Other Financial Planner Designations
Apart from CFP, there are other designations for financial planners.
These specialists are competent in a wide range of areas in the financial world.
Let’s have an overview of two.
Certified Public Accountant (CPA)
Accountants and tax preparers commonly earn certified Public Accountant certification.
CPAs are experts in matters of taxes and accounting.
These professionals are employed in public accounting firms.
They also work as consultants.
Chartered Financial Analyst (CFA)
Chartered Financial Analyst (CFA) mainly specializes in portfolio management and investment analysis.
They also do wealth management, accounting and editing, financial planning, investment banking, and credit analysis, among others.
They work for corporations and financial institutions.
If you are thinking of becoming a certified financial planner, you are on the right track.
Although there are several requirements to be met, if you stay the course and earn the certification, you are well on your way to a great career in financial planning.
So, brace yourself!
It’s going to be a long journey, but a fulfilling one as well.