There are many types of financial professionals working under various job titles, such as ‘investment adviser’, ‘financial adviser’, and ‘financial planner.’ Each one may be offering a different service or combination of services while sharing a similar professional title. Which is why it can be very confusing and sometimes misleading for the average consumer to know which type of financial professional they are engaging.
It is important to know what to look for and which questions to ask when deciding which financial professional is right for your unique needs. Choosing to work with a NAPFA-Registered Financial Advisor and Certified Financial Planner TM professional can provide the confidence that you will be getting advice from a qualified and experienced adviser who is working in your best interests at all times.
With over 100 different financial designations in the industry, it is not always easy to know which set of letters after the professional’s name indicate a high level of ability and specialization compared with those that sound good but do not require much more than a class and a fee.
The Certified Financial PlannerTM designation is often regarded as the standard in the industry. According to Investopedia, “This credential stands as proof that the adviser has met rigorous academic and ethical requirements and has the necessary expertise to help clients meet their financial goals.”1
The CFP® marks can only be used by those who have met certain requirements known as the “Four E’s” of certification: education, experience, exam, and ethics. Below are some basic details of each of the current requirements2.
Education: The education requirement for attaining CFP® certification includes two main parts:
- Complete college or university-level coursework through a program registered with CFP Board, addressing the major personal financial planning areas identified by CFP Board’s most recent Job Analysis Study; and
- Verification of a regionally accredited college or university bachelor’s degree or higher (accreditation must be recognized by U.S. Department of Education at the time the degree is awarded).
Experience: CFP® certification indicates to the public the ability to provide financial planning unsupervised, and CFP Board requires the equivalent of three years full-time professional experience related to the financial planning process, or two years of apprenticeship experience that meets additional requirements.
Exam: The CFP® Certification Examination is designed to assess the ability to integrate and apply a broad base of financial planning knowledge in the context of real life financial planning situations and determine a competency level necessary to practice independently as a financial planner.
Ethics: CFP® professionals agree to adhere to the high standards of ethics and practice outlined in CFP Board’s Standards of Professional Conduct (“Standards”) and to acknowledge CFP Board’s right to enforce them through its Disciplinary Rules and Procedures (“Disciplinary Rules”). This demonstrates to the public that the CFP® professional has agreed to provide personal financial planning in the client’s best interest and to act in accordance with the highest ethical and professional standards for the practice of financial planning. CFP® applicants must also pass a background check before they can use the marks.
In addition, the CFP Board adopted the Code of Ethics to establish the highest principles and standards, centered around seven Principles: Integrity, Objectivity, Competence, Fairness, Confidentiality, Professionalism and Diligence. CFP® professionals must also complete 30 credit hours of continuing education every two years, notify the CFP Board of complaints and criminal charges, and could have their right to use the CFP® marks revoked.
All CFP® professionals agree to provide services in a fiduciary capacity, meaning they must put the client’s interests first, otherwise they must disclose any actual or potential conflicts of interest. This means that it is possible to be certified and still operate with an inherent conflict of interest, such as commission-based sales, as long as the conflict is explained to the client. This issue can be reduced by seeking-out one of the 1,300 NAPFA-Registered CFP® professionals.
The National Association of Personal Financial Advisors (NAPFA) is the country’s leading professional association of fee-only financial planners. To become a NAPFA-Registered Financial Advisor, the professional must have their CFP® certification, at least three years of experience in financial planning, be compensated solely on a fee-only basis (receiving no other financial reward from any sources other than the client), and adhere to the NAPFA Fiduciary Oath3. It is NAPFA’s core position that the fee-only engagement is the best way to remove the potential for conflicts of interest that are inherent in a commission relationship.
The search for the right financial professional for you can be a challenge. Educating yourself on the main differences and knowing which questions to ask can increase your chances of making the best choice. No matter what your needs are, competence and loyalty should always be top priorities.
The CFP® marks and NAPFA membership make a powerful combination of proven ability and commitment to the client. For more information, please read NAPFA’s Pursuit of a Financial Advisor Field Guide4 or give us a call to review your questions.