Since 1985, the Certified Financial Planner Board of Standards has issued the Certified Financial Planner designation to those who have met the educational and experiential requirements and passed the rigorous board exam. This credential is now known all over the world as the definitive professional designation for financial planners and advisors.
Different types of financial professionals earn this credential including stockbrokers, registered investment advisors, insurance agents, estate planners, bankers, and tax professionals. Many in the financial industry can benefit from carrying the CFP mark on their business card.
Earning this mark indicates additional knowledge and expertise as well as a willingness to work hard and put the customer first. When it comes to attracting clients, CFP professionals have a significant leg up on their colleagues without this designation.
Becoming a CFP
CFPs can quite often command higher salaries in corporate jobs and may be more suited for supervisory positions. CFPs are also more marketable in the financial industry than others and often have an easier time finding and maintaining employment.
Those who sell products and services will have greater credibility to the public than non-credentialed advisors and will be able to handle more complex transactions. The media has trained the public to find and choose financial advisors with this designation for the past several years. In fact, many new financial planning prospects will now only speak to a Certified Financial Planner about their situations.
The costs associated with earning this credential will vary somewhat from one candidate to another. Those who challenge to sit for the board exam will not have to pay for the coursework that others will. Financial professionals who have already earned the CLU (Chartered Life Underwriter), ChFC (Chartered Financial Consultant), CFA (Chartered Financial Analyst), and CPA (Certified Public Accountant) designations can challenge the education requirement and sit directly for the board exam. Attorneys, PhDs in business or economics, and those with a DBA degree are also eligible to waive the coursework. Candidates with a CEBS credential can sit for the exam after the completion of only two courses.
The exam itself costs $595 and the coursework can run anywhere from $1,500 to $5,000. Review courses can cost an additional $1,500 to $2,500, depending upon their length and other factors. Certificants must also pay a biannual renewal fee of $695 to maintain their certification.
CFP certificants must complete 30 hours of continuing education every two years in order to maintain their designations. They must adhere to a strict code of ethics and comply with high standards of competence, confidentiality, diligence, and fairness. CFPs are also required to maintain a fiduciary standard of care which means they’re professionally and legally bound to put the customers best interests before their own.
There are four main requirements that must be met in order to obtain the CFP credential:
1. Professional Experience
All CFPs must have at least three years of relevant professional experience in the financial industry. This can include time spent working with financial planning, investments, insurance, banking, estate planning, accounting, tax preparation, real estate, and mortgages.
2. Bachelor’s Degree
All CFPs must have a four-year degree from an accredited educational institution.
3. Educational Coursework
All CFP candidates must complete five college-level courses offered by institutions that have been approved by the CFP Board. The courses cover the following subjects:
- Investment Planning
- Insurance Planning, Education Planning, Ethics and the Financial Planning Process
- Tax Planning
- Estate Planning
- Retirement Planning
- Starting in 2012, a capstone course that covers the financial planning process as a whole will also be required for all CFP students.
There are dozens of accredited CFP coursework providers in the U.S., including the College of Financial Planning in Denver, the American College of Financial Planning in Pennsylvania, and self-study providers such as Dalton, Kier, and Ken Zahn. Many universities, both public and private, offer these courses, and a growing number also offer undergraduate and graduate degrees in financial planning.
4. The Board Exam
This is far and away the most difficult part of the certification process. The CFP Board exam is a rigorous 2-day exam that tests the student on 106 different financial planning subtopics that are covered in the coursework.
This test is fundamentally unlike the FINRA proctor tests for securities licensure or state-sponsored tests for life, health, and property/casualty insurance. The CFP Board exam is considerably longer and more difficult.
To pass the exam, the student is expected to apply the learned material, as opposed to just remember it, in the way the CFP Board has mandated.
- Test Format
The exam itself has three parts that are administered over ten hours: one 4-hour segment on Friday and two 3-hour sessions on Saturday. The test is administered three times a year, in March, July, and November. It consists of 285 multiple-choice questions that force the student to be proactively familiar with all the tenets of financial planning. About four-fifths of the questions cover standalone topics and are worth two points each.
- Case Studies
The remaining questions cover three separate case studies that are laid out for the student in the exam. These questions are worth three points each. The case studies outline various hypothetical financial planning scenarios, such as a couple with a blended family trying to save for college and retirement, an elderly client who owns a successful small business, or a wealthy couple who need to do estate planning. In each scenario, a complete cash flow and balance sheet statement are provided and the student must knowledgeably use these to answer the case study questions correctly.
- Preparing for the Exam
Many of the educational institutions that provide CFP Board approved coursework also offer a comprehensive exam preparation course that helps students prepare for the case studies and shows how to reason through them. These review courses can provide invaluable insight by giving practical tips about what will likely be covered in detail on the exam.
- Scoring and Results
The exact number of questions that must be answered correctly is not disclosed by the CFP Board. The test is graded according to a highly classified modified Angoff method that uses a bell curve. Students who sit for the exam will receive a notification of pass or fail about 8 weeks after the exam is taken. Those who fail are given the list of topics in which they did poorly, while those who pass are only notified of this. The national pass rate for the exam ranges from 50-60%, and the exam is regarded as one of the most difficult in the financial industry, behind the CPA, CFA, and legal bar exams. Not surprisingly, lawyers and CPAs are most likely to pass.
Earning the CFP credential will usually require a substantial commitment of time and money. If you have a full-time job, you can expect to spend a busy two to three years of spare time studying the coursework and satisfying the 3 year experience requirement.
Schools may limit how long you have to complete your coursework. For example, CFP courses at the College of Financial Planning expire after three years. So, make sure it’s an undertaking you can finish in the allotted time.
If you’re already in the industry, check with your company to see if coursework and/or examination fees can be reimbursed. Plus, CFP courses may satisfy your existing continuing education requirements.