By R. Nolan Lewis
The demand for financial advisors is high and is expected to keep rising, driven by an enormous intergenerational transfer of wealth. According to a study by the consulting firm Cerulli and Associates, as much as $84 trillion will change hands from Baby Boomers to the Millennial Generation, Generation X, and Generation Z by 2045.
The need for financial advisors is expected to increase, with the U.S. Department of Labor
projecting a 16% growth rate in this field through 2032. However,
another study shows that only about one in four advisors have the Certified Financial Planner (CFP®) designation, even though having it ensures that the advisor has gone through a rigorous program to provide the sound financial advice that would be most beneficial to people.
Whether you are a Baby Boomer nearing retirement who wants to make sure you do not outlive your money, a young doctor or attorney with a large student debt burden, or simply married with kids, building a financial plan is a key step towards building confidence in your financial future.
A CFP® works closely with clients to construct, implement, and monitor comprehensive financial plans, ranging from basic budgeting to complex tax and estate strategies designed to efficiently pass down assets to heirs. But what does the CFP® designation truly represent? Let's dive in!
The certification represents dedication and expertise to the planning profession. To obtain it, CFP® candidates must complete extensive education, including coursework in general financial planning, insurance, investments, tax planning, retirement, and estate planning. All candidates are required to pass a comprehensive exam, gain relevant work experience, and adhere to rigorous ethical standards before receiving the certification.
Many individuals who have obtained the CFP® attest that the preparation and completion of the exam is the most challenging part of the certification process.
According to the CFP Board, the passing rate has ranged from 56% to 68% since 2016 - an improvement from the past, when it had been as low as 42%. The exams are designed to ensure candidates deeply immerse themselves in all aspects of financial planning. While advisors typically begin their careers by taking exams such as the Series 7 to become registered representatives (financial professionals who work for broker-dealers) the CFP® exam is quite different. For example, the exam requires critical thinking to analyze case studies that represent real-life scenarios, whereas industry entry exams are typically based on multiple choice questions that depend on memorization.
This may be a factor in the percentage of wealth professionals who have the certification. Many advisors either lack the time to commit to a demanding test, believe their experience supersedes the need for the certification, or primarily focus on investment management rather than on financial planning.
When selecting a Financial Planner, trust plays a critical role throughout the life of the relationship. Individuals who hold the CFP® are required to provide advice in a fiduciary capacity, which means that they have a legal obligation to act in your best interests. This ensures that their advice is tailored to you and your unique financial needs while minimizing any conflict of interest between the advisor and client. Many individuals are unaware that not all advisors are held to the same standard of care. Some are held to the Suitability standard and others to the Fiduciary standard.
Suitability means that the advisor's recommendations only have to be “suitable” based on the client’s goals and concerns. There may be more than one suitable option for the client, and not all may cost the same.
In contrast, Fiduciaries act in the “best interest” of their clients, which is defined as the best possible option, including its cost. In short, suitability can find what works, but best interest finds the best choice. The CFP® board requires all of its certified members to act in this Fiduciary capacity.
Filtering for CFP® professionals can be a great first step in helping you and your family narrow down your search for an advisor. However, that is just one factor when finding a financial planner. The advisor-client relationship is built on trust and understanding. You should feel comfortable being transparent about your situation and aspirations. Take the time to meet with multiple planners, ask all the necessary questions, and choose an advisor who aligns with your family's goals. This diligence will greatly increase your chances of receiving high-quality advice.
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