What Is a Financial Planner?

A financial planner is a qualified investment professional who helps individuals and corporations meet their long-term financial objectives. Financial Planners do their work by consulting with clients to analyze their goals, risk tolerance, life or corporate stages and identify a suitable class of investments for them. From there they may set up a program to help the client meet those goals by distributing their available savings into a diversified collection of investments designed to grow or provide income as desired.

Financial planners may also specialize in tax planning, asset allocation, risk management, retirement and/or estate planning.

Key Takeaways

  • Financial planners work closely with individuals and corporations to help them achieve their financial goals.
  • Some financial planners may hold a "CFP®" credential as a professional designation to establish their qualifications and knowledge-base.
  • Financial planning includes help with budgeting, investing, saving for retirement, tax planning, insurance coverage, and more.

Should You Be A Financial Planner?

Understanding the Role of a Financial Planner

A financial planner must be qualified with sufficient education, training and experience in order for clients to place trust in of the financial planner's recommendations. To help convey their qualification, the practitioner may carry one or more professional designations.

Financial planners explicitly providing financial advice and managing money for clients are considered fiduciaries. This means they are legally obligated to act in the client’s best interests and they can’t personally benefit from the management of client assets. They are expected to manage these assets for the client’s benefit rather than their own. Fiduciary specifics can vary. For example, registered investment advisers (RIA) are fiduciaries under the Investment Advisers Act of 1940. They are regulated by the Securities Exchange Commission (SEC) or state securities regulators.

Many RIAs are fee-only advisers, meaning they can’t work off commission or sell a client any investment products that aren’t in the client's best interests. Financial planners don’t have to be RIAs to work under this business model. Fee-only financial planners generally make their money as an hourly rate, an annual fixed retainer or as a percentage of the investment assets they manage on behalf of their clients. They also have a fiduciary duty to their clients over any broker or dealer.

Financial planners working off commission generally earn money as payments from companies whose investment products they recommend. They can also earn money by opening accounts for clients.

The CFP® Designation

The most commonly held is the Certified Financial Planner (CFP®) designation issued by the Certified Financial Planner Board, a non-profit, certifying and standards-setting organization that administers the CFP exam. Certified Financial Planner is a formal credential of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement. Owned and awarded by the Certified Financial Planner Board of Standards, Inc., the designation is awarded to individuals who successfully complete the CFP® Board's initial exams, then continue ongoing annual education programs to sustain their skills and certification.

A CFP® may to much more than simply advising on available investments. Whether providing help on budgeting, retirement planning, education savings, insurance coverage, or even tax-optimization strategy, “finances” doesn’t mean just one thing for most people — and “financial planning” means much more than just investing.

Choosing the Right Financial Planner

You should interview at least three financial planners before choosing the one that's right for you. Be sure to get the answers to the following questions:

1. What are your credentials?
2. Can you give me references?
3. What do you charge?
4. What is your area of expertise?
5. Will you act as my fiduciary?
6. What services can I expect?
7. How will we settle disputes?

To check the status of a CFP® and for a guide on choosing the right adviser to work with, visit the CFP Board of Standards website.