A Career as a Certified Financial Planner (CFP)

One of the most popular financial career options is personal financial planning. Financial planning services should remain in high demand as a steady stream of retirees requires professional, competent advice. People need guidance on saving for college, preparing for retirement, living off savings in retirement, and passing their estate onto their family when they’re gone. None of these are easy tasks.

Given all the financial challenges facing millions of Americans, the industry is expected to grow 41% by 2016 according to Money Magazine and Payscale.com.1 In the United States alone, there are already about 285,000 financial advisors (also known as a financial planners).2 But not all financial advisors are the same. How do you know if yours is knowledgeable and can handle the complexities of your financial situation? Further, with so many investment advisors going independent, there is often little brand recognition associated with their new firm.  A classic commercial by the CFP Board satirically shows that anyone can wear a suit and “look the part” of a financial planner (who later revealed to the client that he was actually a DJ). One way to distinguish yourself is by earning the prestigious CFP designation.

What is a CFP?

While many professionals share the title ‘financial planner’, only one in five are Certified Financial Planners, CFPs. These professionals have undergone rigorous financial educational training, encompassing the knowledge today’s client’s demand. CFPs add high level of value to the client relationship. Their financial needs are fluid, requiring a comprehensive view of wealth. Whether that’s opening a bank account, obtaining a home loan, investing for retirement and finally, estate planning. Certified Financial Planners can tackle all of these needs.

There are five main topics in the CFP program’s curriculum-insurance, tax, investments, retirement and estate planning. They also have met the expected standard of experience and professional conduct. CFPs must also adhere to a fiduciary standard with their clients. This is important since there has recently been legislation requiring stricter responsibilities involving fiduciaries. Today’s CFP must multi-task- acting not only a financial advisor but also wearing accounting and legal hats as well. This is much different from the stock broker days of decades ago where the role of a stock broker was simply an intermediary used to buy and sell stocks for a high commission.

Since the first Certified Financial Planner designation was awarded in 1973, the certification has grown to over 73,000 members.3 According to the CFP Board, most CFPs earned their designation at age 39, work for large financial institutions, and serve 100 clients with median assets of $450,000.4 The CFP designation sets you apart from other financial planners, similar to the CFA designation with analysts and the CPA for accountants.

Why Choose a CFP?

The CFP designation has become the gold standard in personal financial planning. The stringent requirements to become a Certified Financial Planner appeal to many investors. Job security is enhanced as CFPs are often recruited by banks, brokerages and insurance businesses. Not surprising, at least 70% of financial planning teams have at least one CFP on their team.

Perennial retail powers like Merrill Lynch have actually incorporating aspects of the CFP curriculum into their new advisor training programs. Dwight Mathis, Head of New Advisor Development at Merrill Lynch speaks about the value of the designation. “We view the CFP as a premium, professional designation that’s widely recognized and it’s the designation we believe in enough, we are making it an integral part of our development program.”5 Even if you aren’t a financial planner, you can still benefit from the knowledge obtained through the CFP program. Accounting and tax professionals, trust officers and mortgage loan officers have all benefitted from the program.

But the learning doesn’t stop when the designation is awarded. Continuing education is required for CFP professionals to ensure they are up to date on the latest regulations, tax implications and product offerings. For example, the proliferation of actively management products, like alternative exchange traded funds, is exactly why working with a CFP is so important.

Finally, the CFP is a well-respected designation. With social media becoming increasingly utilized for marketing purposes, prospects can easily distinguish CFPs from other financial advisors in the industry. Having a CFP provides a client with peace of mind.

What are the Requirements for the CFP?

Broadly, there are five requirements needed to earn the CFP designation.

  • Completing the Education Requirement
  • Passing the CFP Exam
  • Meeting the Experience Requirement
  • Exceeding CFP Board’s Fitness Standards
  • Receiving Permission to Use CFP and Certified Financial Planner marks after your name.

The education requirement for the CFP designation assures that your advisor has the appropriate knowledge to handle today’s financial landscape. Before sitting for the CFP exam you must have completed a CFP Board-Registered program or Capstone course. These are college-level programs, geared towards financial planning, that have been pre-approved by the CFP Board to meet the education requirement.6

If you did not receive a degree specifically from one of the CFP Board-registered schools, you can apply for a Transcript Review, where the Board will determine if you have completed an adequate curriculum of financial analysis, estate planning and risk management from whatever school you attended.  Typically, ‘300-level’ classes including Investments, Personal Income Tax, Risk Management, Retirement Planning and Personal Financial Planning will be acceptable. You can also apply for Challenge Status to meet the CFP’s education requirement. Here, certain credentials (such as the CFA or CPA) will meet the education requirement on their own. All candidates need, at a minimum, a bachelor’s degree from a regionally accredited school.

Once you’ve met the education requirement, you can sit for the exam. But passing the CFP exam is no easy task. It is recommended that candidates allocate at least 1000 hours of study time to get through the study material to complete a grueling, six-hour, multiple choice exam. Candidates don’t receive an actual grade on the exam, just a ‘Pass’ or ‘Fail’. The CFP exam is offered three times per year (March, July and November) at around fifty locations nationwide. The last exam date for the CFP, the pass rate was roughly 65%.7 Topics covered on the exam include tax and estate planning, retirement savings and income planning, risk management, insurance planning and regulations.

You must have adequate real-world financial experience to receive the designation. This equates to either three years of qualifying, full-time experience or two years of apprenticeship experience if combined with other qualifying conditions.8 Qualifying experience includes work that fits into the CFP program’s six basic financial planning process elements.

There is also a ‘Fitness’ standard from the CFP Board that must be met before the designation can be awarded (this is not the treadmill type of ‘fitness’). This requirement is rooted in ethics and candidates and registrants must continually adhere to a strict code of conduct. A background check is part of this standard.

Once you’ve met all the above criteria, you will be notified by the CFP Board that you are free to use the CFP or Certified Financial planner marks. There are also ongoing requirements after you earn your designation, including continuing education (CFPs must meet CE requirements every other year), confirming professional conduct compliance and payment of annual dues ($325). You will also still need to be licensed with FINRA (Series 7 and 63).

What is the Compensation for CFPs?

Studies show that CFPs earn 26% more than non-certified brethren, adjusted for years of experience.9  All financial planning compensation varies widely, based on experience, but according to cnn.com, the median pay for a certified financial planner is $89,500.10 The 2010-2011 Financial Planning Salary Survey from the Financial Planning Association reveals that CFP professionals actually have a median income of $101,000.11

Part of complying with the CFP Board’s Standards of Professional Conduct is transparency in compensation structure with clients. CFPs must disclose their compensation structure. Complying structures are ‘fee only’ (where the advisor gets a set percentage of assets under management, often 1% annually), ‘commission only’ (where the advisors earn commissions when they make a transaction for the client, not popular anymore) or a combination of the two, ‘commission and fee’. Many CFPs choose to designate themselves as ‘commission and fee’ these days given the strictness of the CFP Board’s disclosure rules. Choosing to become a CFP is more than an excellent career move, it’s becoming a must-have designation for financial planning professionals going forward.