Certified. The word has an air of authority around it. But what does a financial planner even do? Are they different from a financial advisor? And what’s involved in getting “certified?” All questions that we’re going to walk through in today’s post 🙂
What does a Financial Planner do?
A financial planner’s job is to help individuals and companies put together a strategy to meet their long-term financial goals. Often, financial planners will take a broad approach to your finances, helping you map out everything from budgeting, to saving, investing, and even estate planning.
Is Financial Planner a designation?
Nope, it sure isn’t. Almost anyone can call themselves a financial planner, though the winds of change are beginning to blow across this topic. For now though, the term is pretty much unregulated, which means it’s up to you to do your due diligence on their qualifications.
Ok, so what is a financial advisor then?
The term “Financial Advisor” is an even broader term that gets applied to anyone who helps manage your money. They might help you manage investments, create tax and estate plans, or sell insurance, among other things.
Depending on where you live, people may require a license to call themselves a Financial Advisor. That’s not true in Canada as of yet, but in the US you require something called a FINRA Series 65 license to use the term.
Clear as mud, right?
Think of it this way: “Financial Advisor” is an umbrella term that can describe just about anyone who deals with your finances in some way. “Financial Planner” is a subset of that group that focuses specifically on your long-term financial goals.
Said another way: all Financial Planners are a type of Financial Advisor, but not all Financial Advisors are Financial Planners.
How do you go from “Financial Planner” to “Certified Financial Planner?”
In Canada, there are three types of certifications that you can chase down as a financial planner. There’s the Certified Financial Planner (CFP), the Personal Financial Planner (PFP), and the Registered Financial Planner (RFP).
The RFP designation has been in decline in Canada in recent years; you won’t find many folks with the RFP designation anymore. The PFP designation is often the one used by employees of major banks, and was designed to serve that purpose.
The CFP designation, on the other hand, is an internationally-recognized standard that is held by over 18,000 professionals in Canada. It’s earned and managed by the Financial Planning Standards Council, a non-profit focused on making sure that consumers have access to the highest-quality financial advice available.
This, ladies and gentlemen, is the designation you’re looking for if you want to use a Financial Planner instead of a Financial Advisor. I’ve looked into the requirements: a rigorous curriculum that takes several months to properly digest, two series of exams, and three years of relevant work experience post-exam to apply for your certification. Then, once you’ve earned your letters, you still need to take ongoing training each and every year to ensure you stay current on your expertise.
On top of that, CFPs agree to be bound by fiduciary duty, which means they are obliged to put your interests ahead of their own. This is the same standard that lawyers, accountants and health care practitioners all hold themselves accountable to.
This is what separates those with the CFP designation from others who call themselves financial planners. It’s an important distinction!
Wrapping it Up
Next week, I’ll publish a post (update: here it is) that walks through all of the questions you should ask someone when you’re trying to decide if they should earn the privilege of managing your money. Like choosing a good veterinarian, realtor, or doctor, a little research goes a long way!
