What Does a Financial Planner Do?
Many individuals refer to themselves as “financial planners”, but not all perform true multidisciplinary financial planning. Investment, insurance and tax professionals sometimes specialize in certain areas of financial planning (such as retirement planning, estate planning, tax planning, or investment management). A CERTIFIED FINANCIAL PLANNER™ practitioner is qualified to give you comprehensive financial advice, as a result of examination, continuing education, board certification and accumulated experience.
In general, individuals who call themselves “financial planners” aim to help you plan for your goals and needs and improve your unique financial situation.
What DOESN’T a Financial Planner Do?
A financial planner cannot make you a thriftier shopper, a better saver, or help you earn more money. Ideally, he or she will look at your financial “big picture” and help you work to enhance it via money management. Depending on their credentials, they may recommend specific investments, long-run investing strategies, insurance options, retirement planning, risk management methods and more.
Who Needs a Financial Planner?
If you have some significant assets built up (a home, a retirement fund, savings, etc.) and are wondering about how to protect and/or grow those assets, you’re probably ready for a financial planner. If you currently live paycheck to paycheck or have less than $250,000 combined in your savings and/or any retirement accounts, then you’re probably not yet in need of a financial planner. What you should do is research savings strategies and take a good look at your spending habits so you can begin to build your wealth at a faster pace.
How Much Does it Cost?
There are a few different fee structures so be sure you ask how the planner gets paid and what biases they may or may not have. The cost of hiring a financial planner can vary depending on who you hire, where they are located, and what type of “fee structure” they use.
A fee-only financial planner earns a flat fee, hourly or otherwise, for their services. A fee-based planner generally prefers to charge advisory fees (often .50% to 2.00% annually of the assets under management) for his or her services, rather than commissions linked to investments or product sales.
A commission-based planner typically receives the total percentage of his or her income in upfront commissions and therefore some may feel they have little incentive to service you on an ongoing basis. This approach could create a conflict of interest or a bias towards one product or another.
In most cases, your initial meeting with one of these professionals will be free of charge (be sure to ask in advance about this), and you can discuss fee schedules and compensation arrangements at that time.
What is a “Certified Financial Planner”?
If you see the designation “CFP®” after a planner’s name, you have found a CERTIFIED FINANCIAL PLANNER™ practitioner (alternately called a CERTIFIED FINANCIAL PLANNER™ professional). A CFP® has passed a comprehensive examination, amassed three or more years of qualifying full-time work experience, and enrolled in continuing education courses. A CFP® practitioner must also adhere to a strict code of ethics as set forth by the CFP® board.
Can you claim to be a financial planner without being a CFP®?
A financial planner cannot make you a thriftier shopper, a better saver, or help you earn more money. Ideally, he or she will look at your financial “big picture” and help you work to enhance it via money management. Depending on their credentials, they may recommend specific investments, long term investing strategies, insurance options, retirement planning, risk management methods and more. Many professionals claim to be a finanical planner however those with the CFP® designation have demonstrated a commitment and responsibility to the profession.
How do I choose a planner?
In two words – ask questions. Ask trusted friends or colleagues for referrals. Sit down with any planner you’re considering and find out how long they’ve been in business, what their credentials are, how they operate, etc. Most importantly, make sure if and when you hire a planner that your personalities will mesh. This is someone you may well be working with for the rest of your life, so you should choose someone you feel comfortable with.
Certified Financial Planner™ Certification Requirements
The Education Requirement
The two-part education requirement includes both (1) completing coursework on financial planning through a CFP Board Registered Program, and (2) holding a bachelor’s degree or higher (in any discipline) from an accredited college or university.
You must complete the coursework before you can take the CFP® exam. You have 5 years from the date you pass the CFP® exam to complete the bachelor’s degree requirement.
The Exam Requirement
Passing the CFP® exam demonstrates that you’ve attained the knowledge and competency necessary to provide comprehensive personal financial planning advice. The CFP® exam is a 170-question, multiple-choice test that consists of two 3-hour sessions over one day. The exam includes stand-alone and scenario-based questions, as well as questions associated with case studies.
The Experience Requirement
The experience requirement prepares you to provide personal financial planning to the public without supervision. You can fulfill the experience requirement either before or after you take the exam. You need to complete either 6,000 hours of professional experience related to the financial planning process, or 4,000 hours of apprenticeship experience that meets additional requirements.
The Ethics Requirement
The ethics requirement is the final step on your path to CFP® certification. It indicates you’ve agreed to adhere to high ethical and professional standards for the practice of financial planning, and to act as a fiduciary when providing financial advice to your client, always putting their best interests first.