There are quite a number of savvy individuals in the financial world who are well-equipped to help you navigate your own financial realm. Some of these professionals have carved out a selective niche, others enjoy diving into your finances as a whole. So, when it comes to choosing one who best fits your needs, you must understand the differences in what each can offer. The main distinction you should be aware of is the difference in a financial planner/advisor and a CERTIFIED FINANCIAL PLANNER™ (CFP®).
As discussed in our last blog, the term “financial professionals” encompasses a wide range of individuals who have the ability to help you in a number of ways. The terms financial advisor and financial planner are commonly used interchangeably to reference these individuals.
Those with the CFP®certification are held to a higher standard—the highest ethical and professional standards in the industry. This is because they must undergo a different set of rigorous education, continuing education, and work history requirements to obtain and keep their certification.
The criteria a CFP® certificant meets makes one qualified to help you in many areas (not just a few). They spend time delving into your financial picture as a whole. They help clients set realistic financial and personal goals by assessing their current financial health including assets, liabilities, income, insurance, taxes, investments, and estate planning. This helps them assist clients in the development of realistic, comprehensive plans by identifying financial opportunities and complex tax issues through different stages of their lives—such as going through divorce, gaining an inheritance, and how explaining tax law changes affect them.
More specifically, while advisors can do many things, the CFP® professional specializes in an all-inclusive comprehensive financial planning strategy. But, what does that entail?
Well, per the CFP Board of Standards, these individuals are required to become masters in topics including but not limited to:
- Tax planning
- Investment planning
- Retirement planning
- Estate planning
- Insurance planning
- Risk management
- Financial management
The exams, or “boards” as they are commonly referred to in the industry, are rigorous. The examination—if passed—ensures the individual can apply their knowledge in a unified format that includes testing their ability to form solid client-planner relationships and compile information to fulfill their responsibilities, as well as proving they can efficiently analyze and evaluate the client’s current financial situation.
They are also required to complete at least three years of experience in personal financial planning before they can even use their CFP® certification mark.
Finally, these professionals must also go above and beyond, bound by what is known as the CFP Board’s Code of Ethics and Professional Responsibility. This strict code of ethics requires each CFP® practitioner to act as a fiduciary and operate in the best interest of their clients instead of their own, at all times. They have their own backgrounds thoroughly checked by the board and must disclose intimate information of any potential investigations or legal proceedings they are involved in regarding their professional and business conduct.
Before you decide whether to use a financial planner with CFP® certification or not, most importantly, you need to be comfortable in honestly disclosing the details of all your financial affairs. Because, a CFP® professional is definitely going to want to know this information inside and out. Your ability to share these factors will enhance the professional’s ability to best serve your needs.
It is up to you to decide whether you want that level of expertise. And, not everyone needs it. Either way, you must give careful consideration when choosing the person whom you want to involve in your financial affairs. The more knowledge you have about industry professionals, the better equipped you are to make a wise decision.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.