What is a CFP®?

Investing is inherently complicated enough without the “alphabet soup” it is served with. The reality for most investors is that the myriad acronyms, idioms and initialisms related to investments and investment professionals makes the endeavor even more confusing.  Here’s an example of a statement full of that alphabet pasta:  “As a CFP^®, CPM or AIF, an IAR of an RIA should remain compliant with SEC rules when recommending IPO’s or ETF’s to investors, and be familiar with a company’s EBITDA, P/E, CAGR and ADY when selecting LCG equities.”  That’s clear, right?  For most, probably not.  My hope in this month’s Investor’s Edge column is to provide some clarity.  As a CFP^® professional, I think it is timely to explain what the CFP^® certification is and what a Certified Financial Planner does.  As more people call themselves “financial planners,” finding the right professional to address your financial planning needs isn’t always easy. Become familiar with the planner’s business style and understand the level of services he or she provides.  As noted below, only a professional advisor who has satisfied all the CFP^® certification requirements is a Certified Financial Planner.

For the decades I have served clients as their investment advisor, I’ve always said, “I seek to understand before I am understood.”  The inference of that statement is my intention to convey to a client the importance I place on learning all I can about them in order to recommend a suitable investment plan before emphasizing what I do and how I do it.  When offering insight to what I am and do as an investment advisor, I strive to help clients understand my expertise as a Certified Financial Planner (CFP^®) and Certified Portfolio Manager (CPM).  They are significantly different.  Here’s more on what is a CFP^®.

The Four E’s of a CPF^®:  Education. Experience. Examination. Ethics.

Education:

The educational curriculum includes 72 Principal Knowledge Topics under the categories below, as well as a comprehensive financial planning capstone course. These financial planning topics are:

• Investment planning

• Tax planning

• Retirement planning

• Estate planning

• Insurance planning

• Financial management

• Education planning

In addition to completing a comprehensive financial planning curriculum approved by CFP Board, those seeking CFP^® certification must have a bachelor’s degree (or higher) in any discipline to become certified. Once certified, CFP^® professionals are required to complete continuing education coursework, including a CFP Board approved ethics course, to further their competence in financial planning and remain current.

Experience:

CFP^® professionals must complete thousands of hours of professional experience related to the financial planning process prior to earning the right to use the CFP^® certification marks. As a result, CFP^® practitioners possess practical experience, in addition to financial planning knowledge.

Examination:

This is the hard part. To become certified, one must pass a comprehensive 6-hour CFP^® Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. The CFP® exam measures the candidate’s critical thinking and problem-solving ability. The exam does not test textbook theories; rather, it assesses the candidate’s ability to apply financial planning knowledge in an integrated approach to real-life financial planning situations. To develop exams that reflect the current practice of financial planning, the CFP Board conducts regular “Job Task Analysis” studies to identify the important tasks performed by planners and assess the knowledge and skills needed to perform these tasks.

Ethics:

The final step to certification requires candidates to meet the CFP Board’s Fitness Standards and commit to abide by the Board’s professional standards, known as CFP Board’s Code of Ethics and Standards of Conduct, that sets forth their duties to the public, clients, and employers.  The CFP Board routinely performs background checks of candidates for CFP^® certification and CFP^® professionals, and requires candidates and professionals to disclose various matters, including, among other things, criminal history, bankruptcies and liens, and regulatory or civil proceedings. 

CFP’s generally help clients create a financial plan to manage investments, retirement, insurance, and taxes. And, as I mentioned above, these professionals are held up to a high ethical standard. They always have a fiduciary obligation to make decisions that protect the financial interests of their clients.  As for me, I try to help investors de-mystify the financial planning process and clear away the cloud of alphabet soup.