Choosing a financial advisor is not easy. What you want is a true financial planner who cares about you and your goals, who puts your interests first, and who knows what they’re doing. But what you find is that nearly every financial professional calls herself a “financial advisor” or “financial planner.” How are you supposed to figure out what means what, and who does what?
The place to start is with the CERTIFIED FINANCIAL PLANNER™ designation. CFP® certification is the best credential out there to denote someone who provides competent and ethical personal financial planning. Earning the CFP® mark is rigorous, and maintaining it is tightly regulated by the CFP Board. But the fact that someone holds a CFP® certification does not tell you everything you need to know. Let’s look at what the CFP® mark means and what it does not mean.
What does it mean to be a CFP® professional?
1. CFP® PROs HAVE COMPLETED GRADUATE-LEVEL EDUCATION IN FINANCIAL PLANNING
To be accepted into a CFP® professional education program, one must already hold a Bachelor’s degree in any discipline. The 2-year program (or 1-year intensive) consists of seven college-level courses in retirement planning, investments, insurance, estate planning, and taxes, as well as a capstone course where students develop full comprehensive financial plans.
2. CFP® PROs HAVE PASSED A 6-HOUR EXAM
The CFP Certification Examination is administered by the CFP Board and the exam is tough. Even though one has just completed seven courses in financial planning, preparing for this exam is a major undertaking. They body of knowledge is wide, including formulas, calculations, theories, rules and standards, and ever-changing tax laws. Most students take an intense and expensive exam prep course.
3. CFP® PROs HAVE AT LEAST 6,000 HOURS OF QUALIFYING EXPERIENCE
The CFP Board requires certificants to have 6,000 hours of experience related to the process of financial planning. This can be in one or more areas of financial planning. It may be worth finding out what type of experience a person has that allowed them to meet this requirement. (For example, 100% of my experience is as a fee-only fiduciary.) For those who completed a formal apprenticeship, the hours requirement is reduced by one-third.
4. CFP® PROs ABIDE BY A CODE OF ETHICS
Actually, the CFP Board’s Standards of Professional Conduct include the Code of Ethics, the Rules of Conduct, and the Practice Standards. CFP® professionals must adhere to all of these, which were put in place “for the ultimate benefit of consumers of financial planning services.” Additionally, all candidates for CFP® certification are subject to a background check.
5. CFP® PROs PURSUE CONTINUING EDUCATION
In order to maintain the CFP® designation, one must complete 30 hours every two years of Continuing Education, including at least two hours on ethics. The goal is to remain well-versed in comprehensive financial planning.
6. CFP® PROs ARE MORE LIKELY TO CARE ABOUT DOING GOOD WORK
Generally, the CFP® mark is likely to indicate someone who cares about doing competent, quality work. Why? Because they are willing to do everything I just listed in order to learn and get better at their craft. The requirements are grueling, time-consuming, and expensive.
What does it not mean to be a CFP® professional?
Given the challenging requirements and ongoing commitment I just outlined, you can see why the CFP® mark is the standard of excellence. I worked hard to earn mine and I’m dang proud.
So, once you know the person you’re talking to is a CFP® professional, you’re more than halfway to the goal. However, the CFP® mark behind someone’s name does not tell you everything you need to know about how they work. Here are some questions to ask the CFP® pro sitting across from you:
1. HOW ARE YOU COMPENSATED? ARE YOU “FEE-ONLY?”
Fee-Only advisors get paid directly from their clients. Period. They do not earn commissions or accept referral fees or accept any other type of third-party compensation. The benefit of working with a Fee-Only advisor is that there are no inherent conflicts of interest. The fee should be transparent, although it may take different forms: a percent of assets under management, a flat retainer fee, or an hourly fee.
“Fee-based” is not the same as Fee-Only. Fee-based advisors typically charge a fee for advice and also sell products or insurance for a commission. It’s important to find out what portion of their compensation is commission.
Brokers earn commissions by selling you financial products. They are more salespeople than financial advisors.
2. ARE YOU A FIDUCIARY?
Sworn fiduciaries uphold an oath to put the client’s best interest above all others. Is the advisor willing to show you a signed Fiduciary Oath? Brokers and salespeople must meet a lower standard of “suitability” rather than the fiduciary standard. According to NAPFA, non-fiduciary advice costs investors up to $17 billion a year in higher fees.
3. IS YOUR FIRM INDEPENDENT?
Independent firms are not affiliated with any brokerage firm, bank, or insurance company. Independent advisors have the freedom to recommend anything they think is right for you, without having to stick to a corporate strategy or script, or lean toward a certain “brand” of investments.
4. DO YOU DO “COMPREHENSIVE FINANCIAL PLANNING?”
Comprehensive financial planning takes into consideration your values, philosophies, and dreams, as well as your assets, liabilities, earning and spending habits before formulating a plan to help you reach your goals. True financial planners will take the time to get to know you and your entire financial picture in order to guide you on a range of financial topics.
Investments should be just one piece of the puzzle. Ask to see a sample plan. Find out more about their process for getting to know you, your family, your goals and dreams.
Find the right CFP® professional for you
You deserve quality, objective financial advice tailored to your situation. You deserve to work with someone who is caring, competent, and working in your best interest.
When your advisor is a CFP® professional, you know they are part of an elite group providing competent and ethical personal financial planning. If you are unsure how they work or how they are compensated, find out their responses to questions such as those above. It may mean getting a little uncomfortable but it will be worth it to make an informed decision and feel confident you are engaged with the right planner with whom you can build a trusting relationship.
Pearl Financial Planning is a fee-only, independent firm. Comprehensive financial planning is the foundation of the work we do with every client. Click to learn more about our services, or reach out to schedule a complimentary consultation.
About the Author
Gretchen Behnke, CFP®, RLP®
Gretchen Behnke is a fiduciary financial planner in Plano, TX. Pearl Financial Planning is a fee-only firm providing full financial planning and investment management services to independent professional women and couples. Serving local clients in-person or virtually, and virtual meetings for clients across the country.