What Is a Certified Financial Planner (CFP®) And What Do They Do?

Posted Jun 5, 2022

what is a CFP and what do they do?-1367507376

Investors may look to financial advisors to help manage their accounts and offer professional advice. Depending on your needs, you may want an opinion on a new real estate investment opportunity or how to plan for retirement. Working with a Certified Financial Planner™ (CFP®) can give you confidence that the information you receive is in your best interest.

What Is a Certified Financial Planner?

A Certified Financial Planner™ (CFP®) is a financial advisor who has successfully completed coursework and passed the certification exam following years of financial experience. The CFP Board requires specific coursework that covers:

  •   Regulations and professional conduct
  •   Insurance planning and risk management
  •   Principles of financial planning
  •   Investing and tax planning
  •   Retirement savings
  •   Estate planning

To gain certification, prospective CFPs® must complete at least 4,000 hours of apprenticeship or 6,000 hours worth of financial planning experience. They also have to sign and comply with an ethics declaration and pass a background check. CFP® professionals have made a commitment to acting as a fiduciary, meaning they look out for the best interests of their clients instead of their own bottom line.

What Certified Financial Planners™ Do

Certified financial planners™ help people manage their finances and investments. This can include educating clients on their options, helping them plan for retirement, developing an investing strategy, helping reduce their tax liability, and managing against risks.

Your CFP® evaluates your financial situation to determine your net worth. Your net worth is the value of all your assets, including your property and any investments. They also note any debt liabilities, like mortgages, credit card debt, and student loans. The CFP® needs to understand your assets and liabilities to develop your financial plan.

For investment or retirement planning, your CFP® will ask you about specific financial goals and your risk tolerance. Clients closer to retirement have different needs and risk tolerance than younger clients. A CFP® can develop a financial plan that seeks to ensure you have enough assets to see you through your retirement. They can also help you open a college savings plan if you want to invest in your children’s future.

Your CFP® can guide you through investment options and teach you about opportunities you are unfamiliar with, like a real estate investment trust (REIT). They can help you manage your investment accounts in an effort to minimize your tax liability and maximize your profits.

A Certified Financial Planner™ can also offer advice on everyday finances. They can help you plan for a specific financial goal, like owning a home or saving for a wedding. Some CFPs® work with particular clients, like small businesses, high-wealth individuals, or retirees. Others are experienced in specific financial planning fields like investing, tax planning, or post-divorce planning.

How Is a CFP® Different from a Financial Advisor?

A Certified Financial Planner™ is one type of financial advisor. Since they must go through a certification process that requires education and testing, they may have more in-depth knowledge about many financial planning subjects.

Some financial advisors are only asked to follow a suitability standard. Meaning, that as long as the investment is suitable, they could be offering advice that benefits them instead of you.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

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