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What Is a Financial Planner?

Rebecca Lake
what is a financial planner

If you need help managing your money, you might be considering a financial planner. In a nutshell, a financial planner helps individuals create customized plans for meeting their financial goals. A financial planner is one type of financial advisor. If you’re considering working with one, here are the most important things to know.

What Do Financial Planners Do?

Financial planners can offer a variety of services but it comes down to one thing: helping their clients create a comprehensive financial plan. For example, some of a financial planner’s duties might include:

  • Analyzing your budget and spending habits to find areas where you could trim expenses.
  • Helping you create a strategy to build both short- and long-term savings.
  • Reviewing your retirement goals and helping you build your savings plan appropriately to reach those goals.
  • Offering advice on how best to save and pay for college.
  • Discussing the various steps of estate planning and creating a financial legacy for your heirs.
  • Offering guidance on how to best make use of life insurance or annuity products.
  • Helping you fine-tune your tax strategy.
  • Helping you to create an exit plan if you own a business.

Regardless of what a financial planner does, their overall purpose is helping you get from Point A to Point B with your finances. This is slightly different than what a financial advisor does. An advisor’s job, broadly speaking, is to help you manage your money. So, for example, your advisor might offer investment advice on which stocks or mutual funds to add to your portfolio.

Certified Financial Planner Designation

Some, though not all, financial planners may hold a Certified Financial Planner (CFP) designation. This designation sets them apart from other financial planners that aren’t certified.

A financial planner can become certified by completing a certification process through the CFP Board. There are four key requirements to become a Certified Financial Planner.

Education

Financial planners must complete a college-level program of study in personal financial planning, including a financial plan development capstone course registered with the CFP Board. You must also have a bachelor’s degree or higher from an accredited college or university. For example, a financial planner might earn their degree in business, economics, finance or a similar field.

Exam

Like other professional designations, financial planners are required to complete an exam as part of the certification process. This exam is administered three times annually by the CFP Board and is broken up into two three-hour sessions. The fee is $725 and the exam itself covers eight topic areas, including investment planning, tax planning, estate planning and professional rules of conduct.

Experience

The CFP Board also expects financial planners to have real-world experience. Candidates for the CFP designation must have at least 6,000 hours of experience through the Standard Pathway or 4,000 hours of experience through an Apprenticeship Pathway.

Ethics

Lastly, financial planning professionals who hope to become certified must agree to follow the standards of ethics and practice outlined in the CFP Board’s code of conduct. Financial planners are also required to disclose relevant background information regarding things like criminal and civil complaints or regulatory actions they may have been involved in.

What is a Certified Financial Planner?

what is a financial planner

The key difference between a financial planner that has a CFP designation and one that doesn’t is the designation itself and what that involves. If you’re working with a financial planner that’s certified, that automatically tells you that they’ve been through the rigorous education and testing process required by the CFP Board and that they’re held to a higher ethical standard and code of conduct as a result.

In terms of the services a Certified Financial Planner can provide versus a financial planner without the designation, there may be a little difference or a lot. A CFP, for example, may continue offering comprehensive planning services or they may choose to specialize in one particular area, such as retirement or estate planning.

How are Financial Planners Paid?

One of the most important things to keep in mind when hiring any financial professional is how much you’ll pay for their services. There’s no one standard rate scale that financial planners follow. Depending on the scope of the services a planner offers and whether or not they’re certified, they might charge:

  • A percentage of the assets under management
  • An hourly fee
  • A flat fee for one-time consultations
  • A quarterly or annual retainer fee

If you’re shopping for a financial planner, be sure to ask whether they’re fee-only or fee-based. Fee-only financial planners only receive fees from the clients they serve; they don’t get any commissions or income associated from the products they sell, such as mutual funds or annuities.

A fee-based financial planner, on the other hand, does profit directly from the same of certain investment products. Understanding the difference can help you avoid potential conflicts of interest, since a fee-only financial planner isn’t obligated to suggest or recommend a particular investment with the goal of earning a commission.

The Bottom Line

what is a financial planner

Do you need a financial planner? It depends on how comfortable you are managing your money on your own.

A financial advisor, for example, can help you decide how to allocate your portfolio or give you stock recommendations. A financial planner, on the other hand, could help you do those things while also telling you how to mold your portfolio. They can assess your risk tolerance or time frame for investing and saving.

When comparing financial planners, it’s important to do your research. Ask questions about the range of services they provide and the kind of clients they typically help. If you’re a millennial needing guidance on retirement planning, for example, you might want someone who works with retirees. The more you know about a financial planner before you commit, the better change you’ll one who meets your needs.

Financial Planning Tips

  • Ask for recommendations from friends and family or use online screening tools to help narrow your search. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, start now.
  • Research a financial planner’s fee structure to get an idea of how much you’ll pay. If a planner’s fee schedule isn’t transparent, as them directly how much they charge and whether they’re fee-based or fee-only.
  • Check their credentials to see if they have the Certified Financial Planner designation or any other professional designations. You can also use FINRA’s Broker Check tool to research a financial planner’s background and check for any disciplinary or legal actions that have been taken against a specific planner.

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