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Why a CFP® Matters Thumbnail

Why a CFP® Matters

Not all financial advisors are created equal (and that’s putting it mildly).

Unlike law or medicine – professions that require graduate degrees, specialized training, and specific certifications –there are almost no requirements preventing just about anyone from calling themselves a financial advisor. As a result, it is entirely up to individual advisors to hold themselves accountable to a higher professional and ethical standard. This is why the CFP® professional designation is so important.

To obtain a CFP® certification, an advisor must meet additional requirements for education, experience, knowledge, and ethics. These requirements include:

  • Specific coursework related to financial planning (in addition to obtaining a bachelor’s degree)
  • At least 3 years of professional experience in the financial planning field
  • A commitment to always act in their clients’ best interests (ie: act as a fiduciary)

After completing these requirements, a CFP® professional must also pass a rigorous, all-day exam with a pass rate of just over 50%. This test covers all areas of the financial planning process, including:

  • Tax Planning
  • Risk Management and Insurance Planning
  • Estate Planning
  • Retirement Savings and Income Planning
  • Investment Planning
  • Professional Conduct, Ethics and Regulation
  • Psychology of Investing and Financial Planning

As you might imagine, because all this additional work is not required, most financial advisors don’t bother. However, things are beginning to improve. As more people learn about the value provided by a CFP® professional, they are beginning to demand more from their financial advisors. While the number of financial advisors holding a CFP® certification in 2022 is still just 29%, that number is up considerably from 13% in 2004. As a CFP® professional myself for nearly the past 10 years, it is a change I am happy to see.

Investing involves risk. No investment strategy can guarantee positive results. Loss, including loss of principal, may occur. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. (C) Twenty Over Ten