Certified Financial Planner vs. Financial Planner: What's the Difference?

Regulatory oversight

CFPs face oversight from the CFP Board, which can investigate complaints and revoke certifications for ethical violations. Financial planners without formal credentials may have limited or no regulatory oversight, depending on the services they provide and the licenses they hold.

This means there may not be a good way to file a formal administrative complaint against a standard financial planner. You may have to resort to leaving reviews online or working with an attorney to pursue legal action to hold the financial planner accountable for their actions.

How to verify a financial planner's credentials

Before working with any financial professional, you should verify their credentials and check their background. This process protects you from unqualified advisers and helps ensure you're working with someone who meets professional standards.

Step-by-step verification process

1. Use FINRA BrokerCheck: Visit FINRA's BrokerCheck to research any financial professional who sells securities or provides investment advice. This database shows licensing information, employment history, and any regulatory actions.
2. Check the SEC database: Search the SEC's Investment Adviser Public Disclosure database for registered investment advisers. This shows their business practices, fees, and any disciplinary history.
3. Verify CFP status: Use the CFP Board's verification tool to confirm whether someone actually holds the CFP designation and check if they're in good standing.
4. Research additional credentials: For other designations, check FINRA's professional designations page to understand what each credential means and verify it with the issuing organization.

Red flags to watch for

Though it’s good to use your instincts, there are a few red flags that you should watch for when interviewing different financial planners, especially ones without the CFP designation. Watch for professionals who:

• Refuse to provide credential information. This may indicate that they’re hiding something from you or may try to take advantage of your situation.
• Have multiple regulatory violations. If a financial planner has a history of regulatory violations, the chances are good that they’ll continue acting in a way that violates those regulations. This could put your finances at risk.
• Cannot explain their qualifications clearly. Experienced financial planners should be able to explain their qualifications in detail. If they gloss over their qualifications or can’t explain them in a way that makes you confident in their ability to manage your money, look elsewhere.
• Promise unrealistic returns. Financial planners should never make promises that are too good to be true or are impossible to keep. If your financial planner promises unrealistic returns or returns that aren’t consistent with the market, keep looking.
• Pressure you to make immediate decisions. Making decisions on money isn’t something you should do lightly or quickly. If your financial adviser pressures you to make an immediate decision on anything without giving you time to weigh your options, they’re not working in your best interest.

As you start looking at different financial planners, watch for these red flags. If you notice even a single one, you may want to look elsewhere.

How to choose the right financial planner for your needs

Selecting the right financial professional requires careful evaluation of their qualifications, approach, and compatibility with your financial goals. The initial consultation process gives you the opportunity to assess whether they're the right fit for your specific situation.

Ask the right questions

• What are your qualifications and credentials? Ask for specific information about their education, certifications, and experience. Professionals with formal designations demonstrate a serious commitment to the financial planning profession and have met established standards.
• Are you a fiduciary? This question determines whether they're legally required to act in your best interests. If they're not a fiduciary, understand what standard of care they must meet and how this affects their recommendations. Note that all Certified Financial Planners are fiduciaries.
• How are you compensated? Financial planners typically make money through commissions earned on products they sell, direct fees from clients, or a combination of both. Understanding their compensation structure reveals potential conflicts of interest that could influence their advice.
• Will you be my primary point of contact? Some firms hand off client accounts to other professionals. If you prefer working with one person consistently, clarify this arrangement upfront.
• What is your investment philosophy and process? Your adviser should clearly explain their approach to financial planning and investment management. 

Schedule a consultation

It’s a good idea to schedule a consultation with every financial planner or CFP that you’re considering working with. The consultation is your opportunity to ask them about their experience, their values, and their philosophy. You can also use the consultation as a chance to make sure you’re comfortable with them as a person.

Come prepared to interview the professional by researching their background beforehand. Ask a few questions to which you already know the answers so you can assess their competency and openness.

Discuss their typical client profile to ensure you're a good fit for their practice. Some advisers specialize in certain areas, like retirement planning, or work primarily with high-net-worth individuals.

Evaluate their approach

A qualified financial planner should be able to explain complex concepts in terms you understand. They should ask detailed questions about your financial situation, goals, and risk tolerance before making any recommendations.

Pay attention to whether they're trying to sell you specific products immediately or taking time to understand your complete financial picture first. Professionals focused on your long-term success will prioritize comprehensive planning over quick sales.

When to choose a CFP vs. a financial planner

Different financial situations call for different levels of expertise and credentials. Understanding when you need the comprehensive training of a CFP versus when other financial professionals might suffice helps you make cost-effective decisions while ensuring you get appropriate advice.

When you should choose a CFP

CFPs give you access to better expertise and ensure that you’re getting the best treatment possible. Here are a few situations when choosing a CFP will be a better fit.

• You have complex finances. If you have multiple income sources, own a business, or need comprehensive estate planning, a CFP’s broad training across all financial planning areas can set you up for success. As a general rule, the more complex your finances are, the more you’ll likely benefit from working with a CFP.
• You want a fiduciary relationship. If you’re worried about your financial planner acting in a way that benefits them first, you’ll want to look for a CFP. CFPs are required to act as a fiduciary, putting your interests ahead of their own at all times.
• You want a comprehensive plan. CFPs are trained to look at your complete financial picture, making them ideal for coordinating retirement planning, tax strategies, insurance needs, and investment management.
• You’re making major life transitions. During divorce, inheritance, job changes, or retirement, CFPs can help navigate the complex financial implications and coordinate various aspects of your financial plan.

When you should choose a standard financial planner

There are some situations where a standard financial planner may be acceptable and could work better for your needs. Here are some situations when choosing a standard financial planner could be a better fit. 

• You need specific expertise. If you need targeted help in one area like tax preparation or insurance planning, a financial planner with specialized credentials might be a better choice. 
• Your finances are simple. For straightforward situations like basic budgeting, debt management, or simple investment advice, professionals with less comprehensive credentials may meet your needs.
• You’re looking for a specific product. When you're looking for specific financial products like life insurance or annuities, licensed professionals who specialize in these areas can provide appropriate guidance, even if they’re not a CFP.

How LegalZoom supports your financial and estate planning journey

While choosing the right financial planner is crucial for managing your investments and retirement planning, comprehensive financial security also requires proper estate planning. LegalZoom's estate planning services complement your financial adviser's work by helping you document your wishes and protect your assets for future generations.

Our platform makes it easy to create essential estate planning documents like wills, trusts, and powers of attorney. Many financial planners recommend that their clients have current estate planning documents in place, and LegalZoom's step-by-step process makes this accessible and affordable.

Certified Financial Planner FAQs

What is the most recognized credential in financial planning?

The CFP designation is widely considered the most recognized and respected credential in financial planning. It requires comprehensive education, examination, experience, and adherence to ethical standards, making it the gold standard for financial planning professionals.

Is a certified financial planner worth it?

For most people seeking comprehensive financial advice, working with a CFP is worth the investment. The fiduciary standard, extensive training, and ongoing education requirements provide valuable protection and expertise. However, the value depends on your specific needs and the complexity of your financial situation.

Can anyone call themselves a financial planner?

In most states, yes. "Financial planner" is generally an unregulated term, meaning anyone can use it regardless of their education, experience, or credentials. This is why verifying credentials and understanding what qualifications your adviser actually holds is so important.

How do CFPs compare to other financial designations?

CFPs receive broad training across all areas of financial planning, while other designations may focus on specific areas. For example, ChFC (Chartered Financial Consultant) covers similar ground but with different requirements, while RICP (Retirement Income Certified Professional) specializes in retirement planning. The CFP's comprehensive approach and fiduciary requirement often make it the preferred choice for general financial planning needs.

What do CFPs typically charge for their services?

CFP compensation varies widely based on their business model. Some charge hourly fees, others use flat fees for specific services, and some charge ongoing management fees as a percentage of your assets under management. Fee-only CFPs don't earn commissions, while others may combine fees with commission income.

How do I find a certified financial planner in my area?

Use the CFP Board's Find a CFP Professional tool to locate CFPs near you. You can search by location and filter by specialties, compensation method, and other criteria. Always verify their credentials and check their background through FINRA BrokerCheck and SEC databases before making your decision.

Marcia Layton Turner contributed to this article.