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The pandemic has caused havoc in the financial markets. Certain existing frameworks and theories about asset allocations have been turned upside down. The daily news about stock market volatility has made a lot of people anxious about their portfolios. After all, bear markets tend to destroy retirement savings and inheritance money.
Amidst the volatility, personal finance professionals have the challenge of convincing their clients to stick to their plan and not let emotions get the better of them.
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Investors are asking their financial advisors questions about risk management strategies and steps taken to protect assets. The pandemic has led, according to a survey conducted by the CFP Board, to an increase in queries and interactions between investors and their CFPs. But, before we think about financial planning and asset allocation, ask yourself one thing, what is CFP?
What is CFP?
CFP stands for a Certified Financial Planner. It is a designation awarded by the Certified Financial Planner Board of Standards, Inc. (CFP Board) to those individuals who successfully pass the CFP Exam, have formal educational qualifications, have relevant work experience, and demonstrate professional ethics.
To better understand what is CFP, we need to know what a CFP does. A CFP guides individuals on all aspects of their financial lives. By taking a holistic view, right from what your financial goals are, how you file your taxes, and how you make investments, a CFP advises actions which co-ordinate all aspects of your finances.
In that sense, a CFP has more training and experience than a financial planner
Simply passing the 170-question CFP exam is not the only pre-requisite to earn a CFP designation. A CFP has to continue his/her education in order to sustain the designation and the skills needed to succeed as a financial planner.
The CFP Board awards the CFP designation in the US, while 25 organizations affiliated with the Financial Planning Standards Board (FPSB) award the designation to candidates outside the US.
The educational requirement for a CFP candidate can be broken into two parts. The first part is a bachelor’s degree (or higher) from an accredited institution, which can be a college or a university. The second part of the requirement is to take courses in the area of financial planning.
Some of the major topics include general principles of finance, investment and securities, insurance, tax planning, estate planning, retirement planning, asset protection, inheritance and gift tax, transfer tax, financial consulting, and employee benefits planning.
The work experience requirement can be fulfilled in two ways. The first way is to demonstrate at least three years of full-time work experience in the financial planning industry.
The second way is through two years of apprenticeship in which the candidate works directly under the supervision of a CFP professional to deliver on all aspects of the personal financial planning process.
In order to demonstrate professional ethics, both candidates and CFP holders must disclose their involvement in government inquiries, bankruptcies, criminal proceedings, and customer complaints. Such disclosures are required to be done on a regular and on-going basis.
The CFP Board also conducts its own background checks on candidates before granting the final certification.
All CFP candidates have to renew their certification each year. Renewal can be done by paying an annual fee as well as completing 30 hours of continuing education every two years.
Questions to ask any potential certified financial planner near me
So you are convinced about the positive role that a CFP can play in helping you plan your finances. If you are seriously considering hiring the services of a CFP, it is recommended that you first prepare a list of questions to ask any potential CFP. This step is important because the list will help you in selecting the best person that you can build a relationship with.
Observing how each CFP answers your questions will give you an insight into how each candidate thinks and whether that person is the right fit for you. After all, your money is serious business and you would want a credible person helping you make the significant decisions.
The great thing about preparing a list of questions in advance is that you only need to do so once. You can then use the same set of questions with every CFP that you speak with. A list of questions to ask any potential CFP can include:
- What is your educational background?
- When did you get your CFP and what got you interested?
- Post your CFP exam, how much work experience have you had?
- Since your CFP certification, what continuing education have you had to keep up with the changing world?
- What is your philosophy towards investing and financial planning? You ask this question to understand the mindset of the CFP who you are speaking with. You want to know whether they are aggressive in their approach or conservative.
- What are the services you offer? Remember that financial planners are not authorized to sell stocks or insurance products without holding a valid license. Giving out certain types of investment advice also requires registration with relevant authorities.
In general, you want to make sure that the CFP you are speaking to is ethical and performing services that he/she is legally allowed to. You are also learning the breadth and depth of areas that he/she is operating in.
- What type of clients do you work with? You want to know whether the CFP has handled clients with high account sizes that run into a few million. Handling a few thousand dollars is very different from handling 4 or 5 million dollars.
You want someone who has experience in handling large accounts. You can also ask if the CFP has a minimum net-worth criterion for accepting new clients. To learn more about how this influences portfolio performance, click here to read our exclusive guide.
- Who will I be speaking to if we work together? Some large financial planning setups have multiple people working as a team. That can be great from the point-of-view of having multiple skill sets under one roof.
However, you do not want to be sold on the service by a stellar CFP only to then discover that you will work mostly with a junior associate.
Therefore, clarify at the very beginning who you will be working with, the CFP who you are speaking with or an assistant. Also, clarify how many meetings you will have with your CFP every year or every quarter, whatever the case may be. There should be no grey area. Everything should be specified in facts and figures.
- How soon do you return calls at the most? This is important because money matters are critical. Therefore, you want a response in a reasonable time-frame when you decide to pick up the phone and get in touch with your CFP.
You do not want to seem too fussy, but if a CFP gives you a commitment that he/she will return calls within 8 hours or 24 hours (or any specific time frame), then that gives you confidence about the ability of the CFP to deliver.
- What do you charge for your services? This is a really important question. You want to know whether the fee structure is hourly, milestone-based, or commission-based. Some CFPs follow a hybrid model which is a mix of two structures. Also, clarify if there are any other extra fees/charges and whether the fees include taxes. To learn more about the difference between fees and costs and how these influence your returns, order a free hardcover copy of our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million.
- Who is your independent custodian? A custodian is the institution or party that would actually hold your investment. The custodian could be a brokerage or an asset management firm. You want to make sure that the custodian is independent of the CFP and that there is no conflict of interest. You do not want your CFP to be directly holding your funds.
- Do you have any proceedings currently, or have you had them in the past, for unethical or unlawful activities? Is there any such event that you want to disclose to me before we begin working? You want to evaluate how honest the CFP is.
You can conduct background checks on CFPs through the CFP Board, FINRA, and insurance/securities department within your state. However, you want to hear directly from the CFP if they are confident enough to admit any unfortunate past events.
If you want to learn more about how to separate a qualified financial advisor from an amateur, click here to read our exclusive guide.
Traits and qualities that we should look for in any financial planner
After going through the list of questions above, you probably get a hint of the traits and qualities that we should look for in any financial planner. Firstly, you want your financial planner to be well-qualified. This could mean a degree from a recognized school, a CFP designation, and quality work experience managing the accounts of clients whose profile you fit into.
Your financial planner should be passionate about learning, even if he/she has been practicing for years. As they say, there is no age limit to constant learning. Having a positive attitude towards continued learning is critical in this industry because it is the only way a financial planner can stay well-informed about changes in the industry and regulations.
Next, you want your financial planner to be inquisitive. They should, ideally, be asking you a lot of personal questions. They should be making an attempt to know your financial life inside out. It is only when they know your situation thoroughly can they advise you correctly.
Your financial planner should listen as well as he/she talks. The financial planner should be attentive to your goals and your needs. You should see clear indications that the person cares about your thoughts or your choices.
For example, if you are passionate about ESG investing, then the financial planner should be able to advise you in a way where you can practice your personal beliefs and values while still make smart financial choices. You shouldn’t be just another number for the financial planner.
Hiring a financial planner who is dedicated toward your goals can make a big difference. It is something we recommend to all high net worth individuals. To learn more about this, click here to read our guide on the 5 critical shifts that can help high net worth and ultra-high net worth families.
Finance can be a dry topic. There are plenty of technical terms and sometimes, you need some teaching as well. You hire a CFP not only to advise you but to also inform you. Therefore, you want your financial planner to have some ability to teach you.
The person must be able to break down complex concepts into simple “bite-sized” chunks which you can digest. Think about your trusted family doctor and how well he/she explains an illness to you. You want to see that sort of skill in your financial doctor i.e. your financial planner.
Thus, the traits and qualities that we should look for in any financial planner are wide-ranging but quite logical if you think about it.
If you want to learn more about how to find an experienced financial advisor for individuals having $10 million in liquid assets, check out our exclusive guide on the subject.
Finding the best CFP near me
The internet is a powerful resource. Finding the best CFP near me is as easy as going online. Some useful search engines are The Financial Planning Association, Google, Garrett Planning Network, NAPFA, and Boomrater. These websites allow you to search for CFP based on a zip code or geographical area. NAPFA shows CFPs that advise on a fee-only model.
They do not cross-sell any insurance or investment products. Garrett Planning Network, on the other hand, has a database of CFPs who work on an hourly basis.
You can also check out the CFP Professional website where you can search for CFPs by zip code. Those who live outside the US can look for the Financial Planning Standards Board (FPSB) website for their individual countries.
Another great way to finding the best CFP near me is to speak with family and friends. Chances are, that they may already be working with a great CFP. Use your network and ask around. You will not only discover new CFPs, but you will also get a first-hand review of their services.