There are many different roles within the financial industry. Individuals looking for specific advice or guidance need someone who has the knowledge and experience within those areas of service. Since many of these specialties and professions overlap, the financial industry can get a little confusing. While many people are familiar with the term financial advisor, not many realize the subtypes and certifications that are involved. If you’re looking for help, consider contacting a CFP®.A CFP®, or certified financial planner, is a specific type of financial advisor who has undergone rigorous testing and been awarded certification through the CFP Board. This certification is the standard of excellence for financial planners and indicates the gold standard for knowledge and expertise in the field. Certified financial planners are also held to the highest fiduciary standard. To give you more information on the benefits of a CFP®, we’ll delve into what a certified financial planner is and how they differ from other financial professionals.
Understanding the Role of a CERTIFIED FINANCIAL PLANNER (CFP®)
A CERTIFIED FINANCIAL PLANNER™ works to help individuals create, alter, and maintain financial plans that align with their short- and long-term goals. At the start of a relationship with a CFP, you’ll discuss any financial goals, hurdles, and your current financial standing so they can better understand your risk tolerance. This allows a CFP to gain insight into your individual circumstances so they can create the right investment portfolio for your needs.From there, your certified financial planner will work on an ongoing basis to advise you on investment opportunities, how to plan for retirement, what steps to take to save for a down payment, and more. Certified financial planners can further their specialization if they want, or they can focus on serving a specific subset of clients. If you want to work with a CFP®, just make sure that they work within the field you need served such as retirement planning, estate planning, divorce, et cetera.
The Difference Between a CFP® and a Financial Advisor
While a certified financial planner may sound similar to a financial advisor, they’re not necessarily the same. A financial advisor is someone who provides financial advice or general guidance to their clients in exchange for compensation. They tend to offer several different services and may specialize in one area, but they are considered to be more of a “one-stop-shop” profession.A certified financial planner is a type of financial advisor. They hold a certification through the CFP Board that denotes a very specified level of credential. This includes years of experience, knowledge base, and most importantly, a fiduciary obligation to their clients. This means that certified financial planners must always act in the best interest of their clients, no matter what.
Differentiating a CFP®, CFA, ChFC, and a CPA
There are a lot of different abbreviations for professions that circulate throughout our vocabulary. While some of them are well known, like a CPA, others aren’t heard as often. To make sure that you fully understand the differences between some of the professionals that are commonly interchanged in the financial industry, it’s important to define them. To start, we’ll differentiate between a CFP®, CFA, ChFC, and a CPA.
- CERTIFIED FINANCIAL PLANNER (CFP®): as we’ve discussed, a CFP® is a financial planner who has undergone years of experience, proven their knowledge, and demonstrated rigorous educational, training, and ethical standards throughout their work. CFPs help serve their clients’ best interests in a range of services.
- Chartered Financial Analyst (CFA): a chartered financial analyst is someone who specializes in investment analysis and overall portfolio management. Due to the nature of their work, CFAs are most commonly used as corporate-level financial advisors. In contrast, CFPs work mainly with individuals as their financial advisor or liaison.
- Chartered Financial Consultant (ChFC): chartered financial consultants are actually very similar to certified financial planners in that they each undergo similar coursework. However, ChFCs are not as common and tend to have more training in what’s considered “modern” financial planning topics. ChFCs are therefore specialized in areas such as behavioral finance, same-sex marriage or divorce, and more.
- Certified Public Accountant (CPA): while many people think of CPAs strictly as accountants, that’s not always the case. A financial advisor who carries a CPA certification will be able to help you make the most out of your tax situation through optimizing your benefits while minimizing your taxable income. Not all accountants are considered CPAs, yet there are a surprising number of financial advisors who are.
When to Hire a CFP®
Becoming a CERTIFIED FINANCIAL PLANNER™ requires a lot of hard work, dedication, and a full understanding of the financial industry. It often takes up to 24 months for certification and testing after obtaining an undergraduate degree. This means that CFPs are definitely worth the investment—especially if you need help with your finances. Since certified financial planners are held to the highest ethical standard, you can rest assured that you’re getting individualized service aimed to help you achieve your goals. If you need assistance with organizing your finances, planning for a successful retirement, balancing or rebalancing investment portfolios, or getting started in any of the above, a CFP® can help.
William Bevins is a CERTIFIED FINANCIAL PLANNER (CFP®) and fiduciary advisor with over 25 years of experience within finance. He offers a range of financial services including financial planning, wealth management, retirement planning, and more. To learn more or to book a free consultation, contact the office of William Bevins today.