Are Certified Financial Planners (CFPs) a Good Investment?

CFPs (Certified Financial Planners) are highly qualified specialists who can assist you in all facets of your financial life. However, they ask a high price for their expertise. Is it a good idea to hire a CFP?

Financial planners go to tremendous lengths to obtain the Certified Financial Planner (CFP) designation from the Certified Financial Planner Board of Standards, a non-profit organization based in Washington, D.C. that has very high standards for ethics, enforcement, and education. In addition to achieving minimal academic and experience criteria, the financial professional must pass a 10-hour exam covering a broad range of real-world financial planning knowledge. They must also follow the board's code of ethics and conduct regulations in order to "put customers' interests first."

In a practical sense, the CFP focuses on investment. So if you work with a CFP, you expect guidance in areas ranging from estate planning and insurance to risk management and retirement. They also offer tax planning, and it’s common to find CFPs who also work as CPAs.

The big advantage there is that the CFP/CPA will know your entire tax situation — not just how you plan to maximize investments, but how you file with the IRS as well. In such cases you benefit from an integrated tax strategy that sidesteps hiring two different professionals to work on separate aspects of your tax life.

how much they charge – and how they make their money.

Typically, CFPs work on a “fee-only” or “commission-only” basis, or a hybrid. With fee-only, expect to pay between $125 and $350 an hour. Yes, that’s a lot — but the CFP (and combination CFP/CPA) can make and save you a lot of money. Here’s the rub: You may need a connection to get in, as fee-only CFPs often reserve services for wealthy clients.

In the commission-only situation, the CFP makes money on the products they sell. Commissions might range from 0.5% – 1.25% on products that include insurance, mutual funds, and annuities.

That’s not at all suspicious – and CFP ethics rules offer peace of mind. But ask the CFP first thing if they have business relationships that could pose conflicts of interest.

If you want total impartiality, you can find fee-only CFPs (along with standard financial advisors) through the National Association of Personal Financial Advisors.

If you contact a CFP by word of mouth, ask the person who referred you how much they pay versus the returns they see. Another way to find a CFP is to consult the CFP Board’s website. While you’re there, check out their video showing how easy it is to get fooled by a con artist with a fake firm and bupkis financial experience.

CFPs versus other financial planners

Sometimes picking a CFP boils down to risk tolerance—theirs. If you want to invest aggressively, as many millennials do, a conservative CFP may not help you.

Another concern involves areas of specialty. It’s not as though the CFP Board stamps CFPs from a factory mold. They vary widely in focus and specialties, so it’s always possible that a standard financial advisor will share your vision more closely.

Remember that even though different types of financial advisors could suit your needs, a CFP will always have more training and retraining, as they also commit to continuing education. Mentorship, internship and corporate training—widely variable in quality—pave the way for many financial advisors. For them, a CFP designation represents a next step up in knowledge and qualification.

And while even the most experienced advisor is beholden to no one, CFPs have a fiduciary duty to put clients first. Only the most reckless CFP would risk title and income by going back on their pledge to ethical practices.

If you’re considering a CFP, here’s what you need to do:

Research your options through reliable portals.

As mentioned above, you can search the CPA Board and NAPFA to find viable candidates.

The Paladin Registry (which works in partnership with Money Under 30) also lists top CFPs and advisors in your area.

Ask yourself whether you can afford it.

Fee-only CFPs are expensive compared to their financial advisor counterparts, though CFPs will have broader skill sets and a professional commitment to continuing education.

Check out their other qualifications.

Especially if the CFP doubles as a CPA, your tax strategies as an investor and a taxpayer become more integrated and can lead to more robust returns on both sides.

Match strategies.

Though CFPs will broaden your knowledge base, think twice if their objectives don’t match yours.

Ask questions, trust instincts.

Don’t let prestigious titles mesmerize you. While CFPs are held to the highest standards of conduct, ethics, and knowledge, you make the call. Meeting face to face lets your intuition and intelligence work in tandem. Someone else’s go-to guy or gal may not be the one you’ll want to go with.

Summary

Yes, CFPs are worth the investment but not just any one. If he were to retire, finding a replacement would be hard because, in finances, as well as in life, it’s all about relationships: The right CFP literally has to be the right person.

‍