What is a certified financial planner (CFP)?

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A certified financial planner, or CFP, is a specialized type of financial planner who has met the certification requirements of the CFP Board. A CFP must keep up with continuing education, pass an exam and adhere to the CFP Board code of ethics. CFPs are bound by a fiduciary duty, meaning they must meet the highest standard of care when providing advice to clients.

CFP candidates must have either 6,000 hours of professional planning experience or 4,000 hours of apprenticeship experience under the direct supervision of a CFP professional (among other requirements), as well as complete coursework through the CFP Board program. A bachelor’s degree or higher from an accredited institution is also required, as is an ethics commitment to work in your clients’ best interest.

Are CFPs better than fee-only planners?

First off, it’s important to note that CFPs and fee-only planners might sometimes be one and the same. CFPs may call themselves fee-only as long as the planner and the planner’s firm receive no sales-related compensation and related parties receive no sales-related compensation from services performed by the CFP, according to the CFP Board’s standards of conduct. That can be an especially high standard for CFPs who work at some financial firms.

CFPs are part of a larger, professional network, so they have a lot of resources at their disposal if clients have questions, a resource that independent fee-only planners might not have.

One of the benefits of working with a CFP is that they must meet a fiduciary standard, which means they must put the needs of a client first. Fee-only planners, however, are not required to meet a fiduciary standard. And don’t confuse fee-only advisors with “fee-based” planners, the latter of whom may still recommend products that pay them a commission.

The value of a fee-only planner for clients is that it provides a better alignment of incentives for the client. That is, the fee-only planner is more likely to work on the client’s behalf if there’s no incentive (i.e., a sales commission) to push financial products and services to the client.

While fee-only planners charge clients only for their time or other services, CFPs may also be compensated by the products they sell. In some cases, that compensation can be as much as 100 percent of the commission that the financial institution gets for selling the product.

What does that mean for you? The more products a planner recommends, the more money the planner earns. A plan that includes a lot of high-commission products, then, is probably not in your best interest. While that arrangement may sound bad, the CFP credential explicitly charges the holder to be a fiduciary and act in the client’s best interest.

So the fee-only compensation setup combined with the CFP designation can be a powerful combo that indicates a planner is skilled while being incentivized to act in your best interest.

The CFP is a good designation to have, but it’s not the be-all and end-all. Just because a planner has a CFP certification does not mean that they are the best person to advise you. It’s important to get referrals and reviews for any financial planner you’re considering. Regardless of whether the advisor is fee-only or a CFP (or both), you need someone who understands your needs.

(Here are some tips for finding the right financial advisor for you.)

How much does a CFP cost?

You should expect to be charged a fee by a CFP for providing financial advice on your investments and perhaps for managing your investments for you as well. A CFP’s services don’t come cheaply. Most CFPs charge you an hourly rate for their services, and larger firms or those CFPs with more experience typically charge more.

CFPs charge an average of around $250 per hour, according to a 2020 study by Kitces Research. While it might not seem like a big deal to pay someone $500 or $1,000 for a few hours of their time once a year, it can add up quickly when you’re paying for advice on a regular basis.

As a result, it might make sense to go with a financial planner who charges you a flat monthly or annual rate, so you can budget for the advice you are getting.

If you’re looking for a flat fee, Charles Schwab offers a robo-advisor portfolio that charges $30 a month and offers unlimited access to CFPs.

Other CFPs will charge you a fee that’s based on how much money you have to invest. They can charge anywhere from 0.5 percent to 1 percent per year on the assets you manage. A planner who charges a percentage of assets under management is typically more expensive than a flat-fee-based planner, as the percentage fee is tied to the size of your portfolio.

It’s worth noting that while these fees may come out of your pocket on the front end, you may end up making much smarter decisions that are aligned with your goals than if you go with the “free” advisors that many financial institutions offer you. They’re often really just salespeople in disguise.

Need expert guidance when it comes to managing your investments or planning for retirement?

Bankrate’s AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals.

How to become a CFP

A financial planner needs a bachelor’s degree or higher, but no specific concentration or major, to become certified. Additionally, individuals must have 4,000 to 6,000 hours of financial planning experience (as explained above), as well as successfully complete coursework in financial planning and pass a comprehensive exam. According to the CFP Board, the exam covers a range of topics, including insurance, annuities, securities and investment, taxes, retirement planning, estate planning and financial planning practices. Then you must commit to ethical practices and to act as a fiduciary on behalf of your clients.

The CFP exam is administered by the Financial Planning Standards Board, an independent nonprofit organization advocating for consumer protection and financial planning standards.

Those who pass the exam and meet the other criteria are awarded the CFP designation. To maintain the designation, professionals are expected to pay an annual renewal fee of $455, starting Oct. 1, 2022. Candidates must also obtain continuing education (CE) credits, and the CFP Board requires a minimum of 30 hours of CE over a two-year period.

More and more financial planners are earning their CFP designation, which can be a boon for their careers.

Bottom line

A certified financial planner is a professional designation earned through a certification process. CFP professionals can be hired by a financial firm or act as independent planners. But there’s no guarantee that a CFP is the right fit for all of your financial needs. It’s vital to ask questions and understand the provider’s qualifications and expertise to be sure they meet your needs.

Correction, Feb. 10, 2023, 3:00 pm ET: A previous version of this article didn’t fully explain the details of the experience requirement for CFP certification. The article has been corrected to better reflect the number of hours needed for both professional experience and apprenticeship experience.