How important is it for your financial advisor to have the Certified Financial Planner credential?
My short answer to this question: not as important as most CFP certificants would have you believe.
While the Certified Financial Planner certification (CFP) holds a lot of value and must be taken into consideration when choosing a financial advisor, it shouldn’t always be the deciding factor. Many would say the opposite, but I think the conversation around the importance of having a CFP certification should be more nuanced than it currently is.
In this article, I’m going to talk about why I think choosing a financial advisor is equally dependent on a multitude of factors, rather than just one. These factors include your compatibility with the potential advisor, how they can meet your specific financial needs, and how their clients speak of them.
What Makes Me Qualified to Provide an Alternate Perspective?
Good question. Any time someone is providing insight on how to select a professional advice giver, it is critical to understand how the insight is derived.
I have had the CFP designation for 15 of the 19 years I’ve been a practicing financial advisor. Therefore, I’ve experienced my fair share of the world of personal financial advice. I understand the benefits of having a CFP, its particular uses, and when having it doesn’t necessarily matter.
What Exactly is a CFP Certification?
Let’s make sure everyone understands what we’re working with here.
What is a CFP certification? What does it mean to obtain one? And why is it important to ask if the person you’re considering to be your financial planner has it?
First of all, the CFP designation is the most widely recognized credential throughout the business of helping people with their money. Getting a CFP certification means the person has a four-year bachelor’s degree, completed six specific college credits, and has a minimum of three years of experience helping people directly with their financial planning.
Additionally, the person receiving the CFP certification must complete the continuing education requirements and adhere to a fiduciary standard that requires them to agree to do what’s in the best interest of their clients as well as disclose any conflicts of interest that may come up.
After these requirements are met there’s a comprehensive exam, given three times a year, that must be passed. Over the years, the pass rate has fluctuated, but it ranges between 65 and 70% (it’s not an easy test).
What Are the Benefits of Working With a Financial Advisor Who Has a CFP Certification?
The number one reason: you know they have reached a certain standard of education and experience. They likely take the job seriously and are committed to continued education.
CFP is a legitimate credential, and those who have it have worked hard to get it. It’s important enough that if you’re deciding between two potential advisors and they’re equal in every way except that one has a CFP credential, you should go with that person.
However (and this is where the nuance comes in), if both potential advisors seem competent and come highly recommended but you just feel more comfortable with one of them, go with that person, regardless of whether or not they have the CFP certification.
Choosing a Financial Advisor: Subjective vs Objective Criteria
Finding a financial advisor is tricky. There are a lot of different variables that determine a good fit, and many of those variables are subjective. They have to do with whether that person can meet your particular needs, if you think they’re trustworthy, and whether you like them. All of those factors are difficult to give specific advice on because they have to do with how you experience someone.
The possession of a CFP certification, on the other hand, is an objective variable; someone either has it or they don’t. When dealing with such a big decision as choosing your financial advisor, objective criteria can be helpful. Does the person you’re considering have a CFP certification? It should be pretty easy to figure out. You’ll either see it in their email signature, their business card, or their website.
As I mentioned earlier, my middle-of-the-road stance on whether your financial advisor needs to possess a CFP is not the most common one. This is clear if you Google the question ‘how to choose a financial advisor?’ because the most common suggestion will be to choose someone who has a CFP certification. Understanding when that is good advice and when it doesn’t necessarily matter is vital to make a fully informed decision on your financial advisor.
Why a CFP Certification Isn’t Always Necessary
So, now that we know how much work it takes to earn a CFP certification, why do I think your financial advisor doesn’t always need to have one?
Eligibility
There are often legitimate reasons why someone decided not to get the CFP. It’s possible they couldn’t afford a four-year college and therefore were not eligible. Another possibility is that they fast-tracked it through community college to start their business and have worked hard at the self-study aspect since then.
Niche Focuses
Those with a very niche financial planning focus–those dealing with oil companies, ex-pats, or dual-income executives–may be so specialized that their clients don’t care if they have the CFP certification or not. Their specialization speaks for itself when it comes to their professionalism and expertise.
Timing
If they began working as a financial planner many years ago, they are less likely to have their CFP, as it’s only been in recent years that most people (professionals AND the public) have considered it essential. When I first started practicing almost twenty years ago, no one was expected to have a CFP. What we were expected to do is figure out how to develop/grow a client base right off the bat. On-the-job education is always critical for financial advisors, and those who have been in the advice game for years upon years might not deem it necessary to get the certification now. And that by no means is a reason not to work with them. They’ve already been there, done that — and don’t necessarily feel like they need or want the certification to prove it.
Collaborative Practice
Collaboration is sometimes a huge part of how a financial advisor does their job. If that’s the case, and they’re good at building relationships with other professionals, then they can surround themselves with people who are credentialed in the specifics of what they do. If they can make sure everyone who works on their clients’ behalf is well-credentialed, they may not need to have the designation themselves.
Curious? Ask Questions
The best way to figure out whether you want to work with someone who doesn’t have their CFP is to go ahead and ask them why they don’t have it. You can say, “Hey, when I search online I get a lot of articles telling me to pick someone with a CFP credential. You don’t have that, could you tell me why?” This is a fair question as well as a great way to get their feelings on the subject.
As they answer, ask yourself, are they being defensive or dismissive? Do they have a good explanation? Are their explanations thoughtful? Are they disparaging of the credential? Listen to what they say and judge for yourself. How they answer is just as important as what they say.
Wrapping Up: Trust Your Gut
At the end of the day, there’s no hard and fast rule when it comes to choosing the right financial advisor for you. As with most things in life, it depends.
While choosing an advisor who has the CFP designation may be the right answer in many cases, it’s important to understand the scenarios in which it may not be so as not to miss out on someone who might be a good fit for you.
Do your research, keep an open mind, and trust your gut. If you do all three, you’ll be far more likely to find an advisor that you can work best with to help you achieve your goals.