This is a guest post by Paul Williams from Provident Planning on how to become a Certified Financial Planner. He’s a fee-only financial planner in Lancaster County, PA, and regularly writes about personal finance from a Christian perspective. If you want to become a CFP®, he’d be happy to talk with you.
I was excited when Sam invited me to write a guest post for Financial Samurai on how to become a CERTIFIED FINANCIAL PLANNERTM (CFP®). I’ll finally finish the requirements in Novemeber 2010 and be eligible to call myself a CFP® after I fill out the last bit of paperwork.
Sam mentioned he’d like to become a CFP® after he retires from his job, so he’s curious about what he’d have to do. I’m sure some of you might also be interested in becoming a financial planner if you’ve got a strong interest in personal finance.
This post is going to be about the process of becoming a CFP® rather than deciding if you should even become a CFP®. That’s a very different question and one you should have an answer to before you start the process of becoming a CFP®. It’s certainly not a cheap certification to get (in money or time).
How To Become A Certified Financial Planner
Fulfill three requirements to become a CFP®:
That’s the order that the CFP® Board lists, and I’d say it’s probably the best order to follow. You can fulfill the experience requirements before you take care of the education or exam requirements. But I think you’ll have an easier time with all three if you focus on the education part first and then complete the exam while you are working in a financial planning firm. (It also makes it easier to get hired!)
The Education Requirement
There are actually two parts to the education requirement. Before you can take the CERTIFIED FINANCIAL PLANNERTM exam, you must complete a CFP® Board registered program first. This amounts to at least 15 credit hours of material.
You’ll cover topics like the basics of personal finance, insurance planning, employee benefits, investment planning, retirement planning, tax planning, and estate planning. I fulfilled this requirement by getting a bachelor’s degree in financial planning, but a simple certificate will suffice for this part of the requirement.
You can get around all or part of this requirement if you hold certain certifications or degrees. Here’s a short list of ways you can automatically qualify to take the CFP® exam:
- Certified Public Accountant (CPA) License
- Licensed Attorney
- Chartered Financial Analyst (CFA®)
- Chartered Financial Consultant (ChFC)
- Chartered Life Underwriter (CLU)
- Ph.D. in business or economics
- Doctor of Business Administration
Also, you can request a transcript review to exempt you from some of the required courses if you’ve taken classes that cover the required topics. You’ll have to review the topic list I linked to earlier to see if they’ll qualify. Then you must send in an application along with a $100 fee, your transcript, and course descriptions from the course catalog or the course syllabus if the title doesn’t clearly convey the content you covered. You’ll need to take additional courses to fill out any of the topics you haven’t covered.
If none of the exceptions applies to you, you’re just going to have to plan on taking the courses from scratch. The easiest way to do this is through a CFP® Board registered program since their curriculum has already been approved.
The CFP® Board’s website lists registered programs a number of different ways so you can find one that works for you. The American College and the College for Financial Planning are popular distance learning options. They’ll run you about $800 – $4,000 depending on what you choose. If you decide to go for a degree program, it’ll be much more.
I mentioned there are two parts to the education requirement. The first is clearly related to financial planning but the second requirement isn’t. You must have at least a bachelor’s degree in any field of study before you can become a CFP®. You don’t have to have one before you take the exam, but you do need it before you’ll get the final approval to call yourself a CERTIFIED FINANCIAL PLANNERTM. After you take the exam, you have five years to complete the bachelor’s degree requirement and the experience requirement.
Obviously, completing the education requirement will help you get a job in financial planning. But it’s not absolutely necessary if you can draw on some relevant experience and can convince someone to hire you. But we’ll talk about experience in a bit.
I completed both parts of this requirement by getting my bachelor’s degree in financial planning at Virginia Tech, which is a CFP® Board registered program. Go Hokies!
The Exam Requirement
The CFP® exam is a three-part exam that lasts a total of 10 hours. Let me tell you – it’s intense! You’ll spend 4 hours on a Friday afternoon for the first part followed by 6 hours on Saturday for the last two parts. I finished each part early but not by much.
There are a total of 285 multiple-choice questions in the entire test and each part has its own case study with several pages of information and 15-20 questions. Most of the questions on the test cover multiple financial planning topics (similar to the real world), so you’ve got to be ready to analyze the situation and pick the best answer.
The Certified Financial Planner exam has about a 42-66% pass rate depending on the year. If you fail, you’ll have to wait about four months to take the exam again because it’s only offered in March, July, and November. If you don’t like tests, you’re not going to like the CFP® exam.
However, it’s not impossible to pass. I recommend taking the exam as soon as you finish your studies. The information will be fresher. And it’s also good to be working in the financial planning industry since you’ll start applying the information immediately. It just makes it easier to understand the complex questions and remember what you’ve learned.
You’ll want to get good review materials and study, study, study! I spent about 1-2 hours every weekday for about four months before I took the exam (and I passed the first time). I used Kaplan’s Certified Financial Planner review materials without the live review class. Basically, I went the self-study route because I’m good at studying on my own and sticking to a disciplined schedule.
The CFP® exam costs $595 to take (that’s just the exam fee – and it’s higher for international locations). Review materials and/or classes will run you anywhere from $400 to $1,400+ depending on what you choose. Yes, that’s nearly $1,000 just to take one of the most stressful exams of your life. Fun!
You don’t find out what your score was – just whether you passed or not. If you fail, you’ll get a list of general areas (not specific questions) you need to improve on for the next exam.
The Experience Requirement
You’ll need three years of full-time, relevant work experience to get your CFP® certification. It doesn’t have to be full-time, but if you work part-time it needs to add up to 6,000 hours of work. You can count experience gained up to 10 years before or 5 years after you pass the CFP® exam. If you take more than five years after the exam, you’re going to have to ask for an extension or risk losing your candidacy. (And yes, that means taking the CFP® exam again!!!)
So what counts as “relevant” experience? The CFP® Board says that work experience is defined as “the supervision, direct support, teaching or personal delivery of all or part of the personal financial planning process to a client.”
Teaching experience only counts if it is done at the college level for credit and at least one year of it must be for a CFP® Board registered program. Supervision, direct support, and personal delivery are things that would happen if you’re working in the financial industry.
However, you don’t have to be paid for your experience to count. Pro-bono experience qualifies as well but you must have a real client (duh…) and you must be acting as a financial planning professional offering comprehensive, objective advice. Internships and residency programs through the Financial Planning Association can also help you fulfill this requirement.
Your work experience must involve at least one of the six elements of the financial planning process:
- Establishing and Defining the Relationship with the Client
- Gathering Client Data Including Goals
- Analyzing and Evaluating the Client’s Financial Status
- Developing and Presenting Financial Planning Recommendations and/or Alternatives
- Implementing the Financial Planning Recommendations
- Monitoring the Financial Planning Recommendations
There’s more information available on each of these steps on the CFP® Board’s website.
My advice for completing the experience requirement? I do not recommend working on your own or working for a brokerage type company (you know the kinds I’m talking about, right?). You’ll have to focus most of your time on sales and not comprehensive advice.
Instead, I’d recommend finding a fee-only financial planning firm you can work with. Also, be sure you agree with their investment philosophy and compensation methods. It’s just not pretty when there’s not a good fit.
Find the best financial planner you can and try to work as a paraplanner (assistant) to them. This will help solidify your studies and the exam materials while also preparing you to deal with your own clients once you’ve finished all the CFP® requirements. Having a good mentor will help so much more than classes and exams ever will.
Yes, you can work with clients before you finish the CFP® certification (assuming you have your state licenses), but you’re more likely to make mistakes and miss opportunities for your clients. There’s a reason they’ve included this experience requirement!
Miscellany On How To Become A CFP®
If you take more than a year to finish all the CFP® requirements after passing your exam, you’ll have to start doing continuing education. That’s a requirement once you do become a CFP®, so you might as well get used to it. It’s just something to keep in mind.
After you’ve completed all the requirements (and any continuing education requirements you accrued), you’ll have to pass the Candidate Fitness Standards and a background check.
Basically, if you’ve been convicted of a felony for certain crimes (financial or violent), had two or more bankruptcies (personal or business), or had a financial or other professional license revoked, then you’re not going to be approved for CFP® certification. You should probably make sure you can pass this requirement before doing anything else…
Your final application requires a $100 fee for the background check plus a $360 biennial certification fee, which you’ll continue paying as long as you’re an active CFP®. Total cost to become a CFP®? Anywhere from $2,260 up to $20,000+ depending on what route you take.
Assuming your background checks out good, then you’ll just have to agree to the CFP® Board’s Standards of Professional Conduct and you’re in! Wasn’t that easy? A Certified Financial Planner is a rewarding career that can help people get financially ahead.