There are many different types of professional designations used in many various industries. In finance, and specifically in the investment world, the amount of designations can make someone’s LinkedIn profile look like alphabet soup. There are certain designations that hold more weight. But, when it comes to financial planning, the CFP® or CERTIFIED FINANCIAL PLANNER™ designation is second to none.
What is a CERTIFIED FINANCIAL PLANNER™?
All financial advisors have to take a licensing exam to be able to call themselves a financial advisor. They can take either the Series 65 or Series 66 exam. These financial exams are not just tests you study for overnight. They take months to prepare for, in most cases.
The CFP® is a completely different level from the Series tests! I would compare them to a kid that first learns how to hit a baseball in little league. They may have the basic fundamentals down and a general understanding of the game. However, they are not even close to being a major league baseball player. That take years of experience, practice and hard work to get to that level. And, for Major League Baseball, it takes a lot of generic luck just to get there.
What’s a CFP®?
Thankfully, the CFP® doesn’t take genetic luck. But, it does take about a year’s worth of classes. Additionally, you must take at least 3 months of intense studying to pass the 6 hour exam.
My point is that there’s level to this! A CERTIFIED FINANCIAL PLANNER™ pro has a well-rounded knowledge base, not just about investment portfolios, but how a person’s finances holistically work together.
The areas that a CFP® pro has to be sufficient in are the following:
- Principles of Financial Planning
- Risk Management & Insurance Planning
- Investment Planning
- Tax Planning
- Retirement Savings and Income Planning
- Estate Planning
- Psychology of Financial Planning
Dan Westfall: CFP® Pro
As a CFP® pro myself, I’ve heard many advisors that don’t have the designation say “I could pass that exam after studying for a month because I’ve been doing this for years.” Or they say “I don’t need that knowledge because I focus on investment management or retirement income.”
My response to the first excuse is always, “No f*cking way!” These are the financial advisors that don’t take the profession and their role to clients seriously enough to grow professionally. This is the main reason that you should never use a financial advisor that isn’t a CFP®.
Certified Financial Planners
Many advisors will claim to not need the CERTIFIED FINANCIAL PLANNER™ certification. This is because they only focus on investment management or retirement income planning. These “financial advisors” are doing their clients a disservice because managing investments or retirement income planning are likely just part of what that client really needs regarding their personal finances.
A great example is, if that investment manager is managing their clients million dollar+ portfolio, but doesn’t know that the client only has liability insurance for $500k. That client is at risk of losing a large amount of money, if they were held personally liable for an event such as a slip and fall at their house or car accident. This could be simply avoided by getting the proper amount of coverage through an umbrella insurance policy. Information a CERTIFIED FINANCIAL PLANNER™ would know.
Work with a CERTIFIED FINANCIAL PLANNER™
I often come across accountants or CPAs that dabble in financial planning and/or investment management. A licensed accountant or CPA is often confused as someone that knows about investing just as financial advisor is sometimes confused with someone that handles tax returns. As part of the CFP exam, Tax Planning is a large section. Nowhere on the CPA exam is there anything about investment management or financial planning.
CPAs work in finance, typically dealing with tax planning ,which would be at a higher level than any CFP® pro. However, they are not financial planners or investment managers. An accountant or CPA can over step their knowledge base when they give clients financial planning advice. A good CPA will acknowledge that’s not their world, just as a good CFP® will acknowledge that high level tax planning should be done with a CPA. The person that attempts to do both likely isn’t great at either.
Most people want to work with someone that has a niche investment strategy, 40 years of experience, and a close office location. But, the most important aspect, when a person is looking for a financial advisor, is to look at the letters behind their name. If there’s no “CFP®” designation, let them be and chuck up the deuces. Move on and find someone held to the highest standards of the CFP® designation.