If you’re interested in hiring a financial advisor, you might run into someone who has the acronym CFP next to their name. CFP stands for Certified Financial Planner and designates that someone has passed the CFP exam, thus meeting the requirements of the CFP board.
With more than 100 certifications available to financial professionals, the CFP designation stands out. One of the most notable requirements of the CFP is the fiduciary—or trustworthiness—aspect. This mandates that every CFP has to put their clients’ needs ahead of his/her own.
Most financial professionals are not required to do this, which makes the CFP and its board an important and unique entity in the protection of consumer interests. (For more, see: The CFP Board: What Is It and How It Works.)
What is the CFP Board?
The CFP board is in charge of distinguishing who can be certified to be a financial planner. Its board of directors has the right to remove the CFP designation from anyone who has attained it. (For more, see: The Top 3 Financial Advisor Credentials.)
- Not every financial advisor has a CFP designation.
- The fiduciary aspect of a CFP designation is extremely important.
- There are many requirements, including a 10-hour exam, for becoming a CFP.
“Once you have passed the CFP exam, the CFP board continues to monitor advisors,” said Melissa Sotudeh, CFP and the director of advisory services at Halpern Financial. “Although it is not a regulatory body and cannot impose fines or legal penalties, advisors who violate the CFP Board code of ethics will have their CFP designation removed and be kicked out of the organization.”
When you have a profession that’s responsible for managing millions of dollars worth of investments, you need to have a responsible authority making sure people don’t abuse their power. (For more, see: The Alphabet Soup of Financial Certifications.)
The CFP designation protects the consumer from predatory financial advisors looking to make a quick buck.
History of the CFP Board
The CFP board currently has 14 members, financial professionals from across the country. The CFP is a relatively new profession; the board first created the idea of the CFP in the 1970s although financial planning had been around since the end of World War II. (For more, see: Financial Planner vs. Stockbroker: Career Advice.)
The CFP board was first started in 1985 to certify new planners and ensure there would be a fair, separate organization overseeing the profession.
The Importance of the CFP Designation
Unlike some certificates that are worth little more than the paper they’re printed on, the CFP designation is one of the most prestigious financial certificates around.
“The CFP designation offered by the CFP board is one that is actually significant because it requires so much preliminary work," said Sotudeh. "It usually takes from nine months to two years of study.”
Some requirements of the CFP include having a bachelor’s degree and taking courses about the 100 various topics that the CFP exam covers. The exam takes 10 hours to complete and has almost 300 questions. The pass rate is about 50%. (For more, see: Why Financial Advisors Need to Earn the CFP Mark.)
The exam is only offered three times a year, and it’s important for first-timers to get it right—statistically, the pass rate continues to go down for repeat takers. You’re also required to have worked in the financial industry before you’re eligible to receive the CFP license. There are other ethical requirements you must uphold and those who already hold the certificate must go through continual education requirements.
The Bottom Line
Whether you’re looking to get your CFP license or are just in the market for a financial planner, don’t skimp on the CFP designation. Those three letters show that someone is qualified in financial and investment planning, and that they provide an honest fiduciary benefit to their clients. Not everyone who calls themselves a financial advisor can say that. You can also make sure to hire a fee-only CFP who won't be paid based on how many transactions you do.
(For more, see: CFP, CLU or ChFC: Which is Best?)