Are you a planner?
I’m not. Until my wife convinced me to join a shared household calendar, I more or less lived by the seat of my pants. I’ll admit that spontaneity extended to my personal finances. Though I’ve always been financially disciplined, strategic money management hasn’t been my strong suit. Spending less than I earned and spreading the surplus across savings and tax-advantaged retirement accounts was about the extent of my financial planning strategy.
That changed, big time, when my wife I and began working with a CERTIFIED FINANCIAL PLANNER™ (CFP®). For the first time since we merged our finances, we feel in control of our collective financial future.
Here’s why you should consider hiring a CFP® professional too, even if you’re not sure you need one. Before we dive in, be sure to follow #LetsMakeAPlan on social media, check out the CFP® Board Facebook page, and find out how a CFP® pro can help you at LetsMakeAPlan.org.
What Is a CFP® Professional?
A CFP® certificant is a credentialed financial professional held to strict ethical and performance standards. According to the CFP® Board, CFP® professionals “are trained to help you develop a comprehensive strategy to reach your short- and long-term financial goals … from planning for retirement to saving for college.”
In order to earn this coveted credential, every prospective CFP® certificant must have at least 4,000 hours of financial planning experience and meet additional initial certification requirements in four main categories. Only those who meet these rigorous requirements can call themselves CFP® professionals.
All CFP® professionals must have or obtain a four-year bachelor’s degree from an accredited educational institution. Prospective CFP® certificants don’t need a completed bachelor’s degree when they sit for the CFP® exam, but they must earn it within five years of initial exam passage.
Aspiring CFP® certificants must also complete five college-level courses offered by institutions that have been approved by the CFP® Board. This coursework covers topics such as:
- General principles of financial planning
- Tax planning
- Estate planning
- Risk management
- Financial plan development
The CFP® Board exam is a rigorous daylong exam that tests students on dozens of financial planning subtopics covered in the CFP® coursework, as well as measuring their ability to apply financial planning principles to real-world situations.
The CFP® Board exam is considerably longer, and more difficult, than the FINRA proctor tests for securities licensure or state-sponsored tests for life, health, and property/casualty insurance. The CFP® Board exam pass rate typically ranges between 55% and 60%.
Prospective CFP® certificants must acquire at least 4,000 hours of relevant financial planning experience. There are two ways to do this:
- Standard Pathway. Standard Pathway candidates must earn the equivalent of at least 6,000 hours of qualifying experience in a professional setting.
- Apprenticeship Pathway. Apprenticeship Pathway candidates must earn the equivalent of at least 4,000 hours of qualifying financial planning experience under the direct, documented supervision of a CFP® professional.
Both options expose prospective certificants to a range of real-world situations they’re likely to encounter as CFP® professionals.
Every CFP® professional is a fiduciary, meaning they’re sworn to act in their clients’ best interests. Moreover, certificants are expected to adhere to rigorous standards of professional conduct as defined in the CFP® Board’s “Standards of Professional Conduct” handbook.
Before they’re welcomed into the fold, prospective certificants must complete a CFP® Certification Application, which includes a thorough criminal and professional background check. Certificants can’t use the CFP® mark until they’ve cleared this step and officially received the designation.
What Your CFP® Professional Can Do for You
All this rigorous training and preparation equips CFP® professionals to assist clients in any stage of life, no matter how complex their personal finances or how ambitious their plans.
When to Call on a CFP® Professional
You can look for a CFP® professional at any time. Indeed, there’s something to be said for proactive planning, or calling in a CFP® professional to give a second opinion or provide a fresh set of eyes, even if you feel like you’re on track to meet your financial goals.
In other cases, a specific event might prompt you to seek out a CFP® professional, such as:
- A Change in Marital Status. Marriage and divorce both bring the prospect of big financial changes. For instance, if your spouse-to-be has significant student debt, you may want to develop a plan to minimize its impact on your shared finances. If you’re concerned about the implications of returning to single-earner status after the dissolution of a marriage, you’ll want to think about how to stay on track to reach your personal financial goals.
- A Change in Family Size. Expecting the birth or adoption of a child? With great joy comes great responsibility. A comprehensive financial plan can help you address the myriad financial challenges you’ll face as your little one ages, from seemingly endless diaper purchases to building a college tuition fund.
- A Change in Employment Status. An unexpected job loss or downsizing generally brings immediate financial pressure, even if you have substantial personal savings. Likewise, challenges – or, at least, new complexities – may arise out of positive changes in employment status, such as securing your first full-time job out of college.
- A Financial Windfall (Expected or Not). This is an especially common impetus to seek out advice from a CFP® professional and avoid sudden wealth syndrome. The most common type of windfall is an inheritance from a deceased relative, but other windfalls, such as legal judgments or lottery wins, call for strategic planning too.
- Coping With a Serious Financial Challenge. Financial distress takes many forms. Whether you’re dealing with a prolonged illness in your family, a gambling addiction or compulsive buying disorder, an accumulation of high-interest credit card debt or student loans, or anything else that seriously strains your finances, you may benefit from a thorough, candid consultation with a CFP® professional. In cases of unhealthy financial habits or medical issues, you’ll need guidance from other professionals, as well.
- Long-Term Planning for Major Life Milestones. If you’re not sure how to start planning for major life milestones, or you think you need help developing your plan, a CFP® professional can help. Common examples include financing your kids’ college education, buying a home, and ensuring that you’ll have enough money in retirement.
- Entering or Exiting a Business. Starting a business from the ground up is an all-consuming undertaking with vast financial ramifications. While your CFP® professional may not be equipped to advise you on technical business matters, they can help you optimize your personal finances for an entrepreneurial future. Investing in an existing business is no less complex, and exiting a business may produce a substantial financial windfall.
- Feeling Overwhelmed by Financial Matters. Simply feeling overwhelmed by the state of your finances or the obligations you face is reason enough to consult a CFP® professional.
This isn’t an exhaustive list, of course. And bear in mind that there’s no need to wait for a precipitating event to call on a CFP® certificant. Any time is a good time to make a plan.
The Financial Planning Process
The CFP® Board’s Consumer Guide to Financial Planning outlines a six-step financial planning process. Depending on the arrangement you’ve worked out with your CFP® professional, this process may be of finite or indefinite duration.
- Agree on How to Work Together. First, you’ll have an introductory meeting with your CFP® professional, during which they’ll outline your respective responsibilities, the nature of the services you can expect, and important considerations such as compensation. During this meeting, you’ll want to ask some or all of the questions outlined in the following section.
- Gather Information and Set Goals. During your introductory meeting or a follow-up, you’ll discuss your current financial situations, goals, and risk tolerance with your CFP® professional. You’ll most likely need to provide account statements and other information before this conversation.
- Analysis and Strategy. Next, your CFP® professional will analyze your financial situation in the context of your stated goals to begin fleshing out a plan to meet them within the timeframes you’ve set. This step includes a detailed analysis of your household’s cash flow, tax situation, insurance needs, assets, and liabilities.
- Set Recommendations. Your CFP® professional’s analysis will produce actionable recommendations that collectively comprise your financial plan. These recommendations involve a variety of topics, from investing strategy and insurance to estate planning and debt management. Your professional should provide a detailed explanation of how they arrived at each recommendation, ask for your feedback, and incorporate your input into any revisions. You’re not obligated to follow original or revised recommendations to the letter; you don’t have to take any action on them at all if you don’t want to.
- Put Your Plan in Motion. If you choose to retain your CFP® professional after your plan is in final form, they’ll help you implement its recommendations. In some cases, such as investment management, they’ll be directly and closely involved in implementation. In others, such as the crafting of an estate plan and underwriting insurance coverage, they’ll coordinate with third-party service providers.
- Monitor Progress. This step involves ongoing coordination between you and your CFP® professional for as long as you wish to retain them. You’ll need to coordinate with your CFP® professional to determine who’s responsible for implementing each aspect of your plan. You’re free to sever the relationship at any time and take full control of implementing your plan.
Questions to Ask Prospective Financial Planners
Don’t rush into a planning relationship. Once you’ve narrowed down your financial planner options to a handful, sit down or set up a call with each one to get a better sense of their approach, strengths, and weaknesses. Questions to ask them include:
- Are You a CFP® Professional? It sounds basic, but remember: not everyone who calls themselves a “financial planner” is, in fact, a CFP® certificant. If you’re committed to working with someone qualified to display the CFP® mark, you need to confirm this upfront.
- What Products and Services Do You Offer? Financial planners can’t legally sell financial products and services unless they’re licensed and registered to do so. Before you enter into a planning relationship, confirm that your CFP® professional has the appropriate credentials, such as a broker-dealer license.
- What’s Your Financial Planning Philosophy? There’s no correct or incorrect answer here, but the question is important nonetheless. You want to work with a CFP® professional whose approach and style put you at ease and whose financial perspective aligns with yours.
- What Types of Clients Do You Work With? How Many Clients Do You Have? Confirm with prospective planners that they’re comfortable working with clients like you. If your financial situation isn’t overly complex, this might not be a dealbreaker. Clients with more complicated situations, such as business owners and high-net-worth families, need to trust that their CFP® professional can handle the full breadth of their needs. Likewise, overworked planners may not be able to devote sufficient resources and attention to your needs, even if they claim otherwise. If personal, hands-on attention is important to you, look for planners with plenty of capacity.
- What (and How) Do You Charge? Determine upfront what you’ll pay for planning services and, more importantly, how your planner charges. Some CFP® certificants charge fixed-rate “project” fees based on situational complexity. Others charge by the hour. In an ongoing relationship where your CFP® professional directly manages your investments, they may charge a percentage fee calculated off the value of your assets under management. It’s critical that your expectations are clear on this front.
- Do You Have Any Conflicts of Interest? Ask prospective planners to identify and elaborate on potential conflicts of interest that may impede their ability to act in your best interest, even if they’re sworn fiduciaries. For instance, ask about any beneficial relationships they have with brokerages and insurance companies. Treat caginess or unwillingness to describe specific relationships as red flags.
- Have You Ever Been Subject to Professional Sanction or Discipline? Only you can determine whether you’re comfortable working with a previously sanctioned planner, but this is something else you’ll want to know upfront. Ask specifically about disciplinary (professional) action around ethical or procedural violations, as well as any legal action around potentially unlawful activities.
- Will You Draw Up a Written Contract? Last, but not least, get everything in writing. With a detailed written contract spelling out exactly what services your planner will perform and elaborating on both sides’ responsibilities, you’ll reduce the likelihood of disputes or misunderstandings down the line.
Advantages of Working With a CFP® Professional
Why should you work with a CFP® professional?
1. They Won’t Judge You
Think of your CFP® professional as a coach or teammate. It’s not their job to judge or reprimand you; it’s their job to help you create and set in motion a plan for your financial future. If you’re hesitant to work with a CFP® professional because you’re worried they’ll demand radical lifestyle changes or nitpick your spending decisions, then think again. Your plan probably won’t maintain your current financial status quo, but it won’t force you to live like a monk, either.
2. They Provide Encouragement and Coaching
Remember, “coach” doesn’t mean “scold.” For many planning clients, a plan is just the opening act; the real work begins afterward. Setting a comprehensive financial plan in motion is tough, ongoing work, and having a knowledgeable professional in your corner makes a big difference. My wife and I appreciate all the hard work that went into our plan’s development, but we’re even more grateful to have someone to whom we can turn for counsel.
3. They’re the Most Qualified Planners Out There
Your CFP® professional is more qualified to create and guide your financial plan than anyone else who calls themselves a “financial planner,” hands down. The CFP® Board’s rigorous education and experience requirements ensure that only the most qualified, committed candidates earn the right to use the CFP® mark.
4. They’re Held to Rigorous Professional and Ethical Standards
Most importantly for your peace of mind, CFP® professionals are sworn fiduciaries. As fiduciaries, they must act in their clients’ best interests, even if they have relationships with third parties such as insurance companies.
We saw this firsthand when our CFP® professional guided us through a disability insurance underwriting process that was, frankly, confusing and a bit intimidating. The process wasn’t particularly quick or easy, and it was certainly no one’s idea of fun, but at no point did we feel we were receiving biased advice. The outcome was almost certainly better for us than the DIY alternative, which – if we’re being honest – we may not have pursued to completion on our own.
5. They Can Help You Make Sense of a Sudden Life Change
It’s quite common for planning clients to seek out professional guidance before a planned life change or in the aftermath of an unexpected one. Whether you’re anticipating the birth of a child, preparing for a divorce, or are unsure how to deal with an inheritance, you can trust a CFP® professional for frank advice and comprehensive guidance.
6. The CFP® Board Cares About Consumer Protection
The CFP® Board’s Consumer Guide to Financial Planning devotes a full page to “Financial Self-Defense” and publishes a separate Consumer Guide to Financial Self-Defense to boot. Before you begin your search for a CFP® professional, give both guides a thorough read.
The CFP® Board takes a “trust but verify” approach to consumer protection. Though the CFP® mark assures clients they’re working with a true pro, it’s crucial that clients take proactive measures to safeguard their finances and personal information and to work with like-minded CFP® professionals.
Never forget that you and your family are the most important people in your financial plan. Your CFP® professional is sworn to act in your best interest, and they’re committed to providing unbiased advice and counsel to help you implement your plan and prepare for an uncertain future with confidence. But they can’t force you to do anything you don’t want to do or take full control of your finances. You wouldn’t want them to, anyway.
The power to make a plan is in your hands. What will you do with it?
Are you thinking about hiring a CFP® professional? Why?
This piece is in partnership with CFP® Board.