Often when I tell people that I am a certified financial planner, their response is:
- I know what to do.
- I know what certified is.
- I know, but I can’t afford one.
I find each of these responses interesting when it doesn’t really address the question that I asked? Let’s examine each one of these to answer the question
You may think all financial planners are “certified,” but this isn’t true. Just about anyone can use the title “financial planner.” Only those who have fulfilled CFP Board’s rigorous requirements can call themselves a CERTIFIED FINANCIAL PLANNER professional (CFP®).
I know what to do?
Let’s compare that to managing your health. Many people know that we need to consume fewer calories and get more exercise. However, statistics Americans we aren’t doing such a good job on either of those levers. There are shows like the Food Network (I watch it), that tell us how tasty butter and pork fat are. These shows do not say anything about the health benefits. However, thanks to my cardiologist and bad health, I was scared straight.
A Certified Financial Planner can provide the accountability partner that you need. This works well if there are ongoing meetings such as annual or semi-annual. News about the markets may make you uneasy and want to sell. A voice of reason may keep you invested when you should stay, rather than abandoning your strategy.
I know what certified is (you think you are so smart, Mr. Certified Financial Planner)?
In the language of financial services, certified, registered and licensed don’t all mean the same thing. Licensed generally mean that you can sell a financial product. Registration is the most confusing. In some cases, the person holding the registration must work in your best interest in some cases their own.
Most financial service professionals are not Certified Financial Planners. It requires passing coursework in broad financial categories such as courses
- General Principles of Financial Planning
- Education Planning
- Risk Management and Insurance Planning
- Investment Planning
- Tax Planning
- Retirement Savings and Income Planning
- Estate Planning
If you’re interested in a more complete outline you can find it here.
You may be familiar with professionals like doctors and attorneys needing to pass board certification on top of their academic studies. Passing the board exam is not a given. It also requires that the planner has three years of working with clients. Think of it as having to do a residency before a doctor has been given the greenlight to practice on their own. The grueling nature leads to a pass rate on the exam in the mid-60 percent. Historical pass rates are listed here.
Moreover, you may be interested that there is a Board responsible for enforcing competency standards pre and post certification.
Like doctors and other professionals, we must also take continuing education classes, at least 30 hours every 2 years. A certified financial planner must also prior to getting the credential have worked delivering financial planning advice for least 3 years. You are amongst a minority of people if you’ve spent this amount of focus time thinking about finances.
I know, but I can’t afford one (Psst, what are certified financial planner fees?)
This often comes from people who assume that they can’t afford one or who have been told they don’t have enough investable assets. While charging based on assets is popular amongst planners, all do not follow that model. Some Certified Financial Planners charge hourly, say $150 to $500. It can also be a flat fee say of $1600 to $50,000. Some charge by a percentage of income and/or net worth. For example, 2% of income or 1% of income and .05% of net worth. A $100,000 income with negative net worth, would pay $2000. In that case, a $100,000 household with little net worth would A $100,000 household with $1,000,000 net worth would be $6000.
A popular method is a percentage of investable assets. That means that your Certified Financial Planner needs to manage your assets to do this. Fees often are in the 1% to 1.25% to of the assets managed range. This may require a minimum asset value of $1,000,000 or more.
No mater how the fees are charged, they should be viewed as an investment rather than a cost. *
That sounds expensive
What I believe this comment addresses is the underlying question of: “Will I get a return for my money?”. Given the many different ways that value can be created I don’t think at the beginning of the engagement that can be determined. What I can say is that you likely have an expectation of return. In this case returns could be: increasing your retirement income sources such as Social Security for a pension, decreasing the overall cost of your child’s financial college costs, freeing up cash flow. These types of returns don’t necessarily involve the risk of putting your money in the stock or bond markets to pursue your expected returns.
The comment may also mean, I have anxiety about my money. I don’t want to change what I am doing. If that is you, consider getting a Financial Review to see if you can find an empathetic, yet fundamentally sound Certified Financial Planner to test the waters. You may find that you will become less stressed and be able to make changes that will help your financial future.
In case you were wondering, James Brewer is a CERTIFIED FINANCIAL PLANNER™ professional. Ready to start a conversation to see if from Envision Wealth Planning can help you? Connect with us here.
*You can read my blog, “Assessing financial advisory fee expected return”, for insights.