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So You Want to Be a Certified Financial Planner (CFP)?

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The other day I was thinking about how to make some extra money on the side. As much as I love frugality, making more money is a great thing too. One idea that may seem completely obvious to you, but slipped by me, was to formally help people manage their money. I've been writing here for 7 years about my own money and occasionally answering reader questions (hint: mail me your questions). If I can parlay this knowledge to looking at a person's finances directly and helping them out, why not? It would be a win for them and perhaps I could make a couple of hundred dollars in the process.

In a strange way, this would almost piggyback on my computer science degree as I love to optimize systems. (In this case, the system would just be the other person's finances.)

So the first thing that I did was research what I'd need to be a Certified Financial Planner (CFP). It looks like there are three main parts:

  • Take the Classes
  • Pass the Exam
  • Meet the Experience Requirement

Taking the classes wouldn't be a big deal to me provided I can take them online. You could even get an accelerated business degree online if you had enough time. Honestly, I didn't get too far into this one due the third item on the list. It did look like most of the things that you'd expect like classes in retirement planning, investment planning, estate planning, etc. Investopedia says that the average student will spend 1,000 hours on the coursework. That's about a half year presuming that you do it full-time, 40 hours a week.

In addition to the coursework, you must have a Bachelor's Degree or better. So you are pretty close to a 5 year Master's level program, perhaps a little less.

After that you have pass the exam. That makes sense, I've got no problems with that.

Then you get to the back breaker, the experience requirement. After you have done all that work, you then have to report your experience to the CFP board. There are two main ways to get experience, the 3-year (6,000 hour) plan and the 2-year (4,000 hour) plan. The 2 year way requires an apprenticeship under a licensed CFP. The 3-year plan allows you to do your work without a licensed CFP watching over you. One thing that hurts from my perspective is that I have to do all the prior work before knowing if my extensive work as a personal finance blogger counts as any experience. I'm not trying to be negative, but I imagine that they laugh at it, despite my following. It's clearly not individual planning experience like they are looking for, but it's not like I am the Average Joe who is looking to be a CFP.

The experience requirement also has to be completed within 5 years of taking the test, so if you wanted to take some time in between to pursue other endeavors, you risk having to start all over again (or at least having to pass the test again).

So adding it all up, it's a 3.5 year full-time commitment (I'm going to be conservative and assume that I can't find a CFP to be an apprentice under). If I wanted to put that much time into something, I'd go with business or law school. There's even a pharmacy school option for those who excel at that kind of thing. The median CFP salary of around $67K simply doesn't warrant spending nearly 8 years of education. I guess there's a difference in that you can still make money while you are getting experience. I'm not sure how much money you can make while you are getting your experience.

Given the requirements, I can't understand why anyone would pursue the career. Maybe he/she had a Bachelor's Degree that isn't in demand? Even so, why not going into some of the above professions if you are looking to maximize your income potential.

At this point, I probably don't need to put this in writing, but this clearly not the kind of thing that I can do part-time to earn some extra money. As a software engineer with around 10 years of experience (admittedly I'm rusty since I've been focusing on personal finance), it would be kind of foolish to put this effort into something that would pay me less than I made 2 years out of college and far less than I could expect today. I suppose this is why I see some of my favorite personal finance gurus like Clark Howard label himself as a "Money Coach." Jean Chatzky and Suze Orman don't have the designation either. If you look at famous personal finance gurus, it's rare to find one with a CFP degree.

To a certain degree I understand the need to be stringent with the requirements. You are dealing with people's money and (not that) indirectly their livelihoods. It's a huge responsibility. However, the rewards don't seem to match the requirements. Not to be complete jerk, but I've listened to generic (not individualized) advice from many CFPs and found myself amazed by their advice. I've seen some suggest that managed mutual funds are worthwhile based on their past performance. I've seen others suggest that they saved a couple of thousand of dollars in their 20's and suggest that is definitively going to be worth hundreds of thousands of dollars later in life. It might be, but they are certainly make a ton of assumptions about investing performance (and almost always ignore to point out inflation).

This isn't to say that all CFPs are giving out questionable advice, but their extensive requirements are certainly not in keeping my own self-education, standards, and ethics.

The requirements are so restrictive that they exclude a lot of very obviously qualified candidates. I'm reminded of the famous Groucho Marx' quote "I don't care to belong to any club that will have me as a member." Except in this case, I wonder if I should employ someone to give me financial advice who chooses a profession that seems to vastly undervalue his/her time in relation to the education required to give such advice.

[Editor's Note: This title is a nod to Hero's Quest, one of my favorite Sierra On-line games... and yes, I don't recognize the copyright lawsuit that made them change the name. Since they had previous hits with King's Quest, Police Quest, and Space Quest franchises, Hero's Quest was a natural name.]

Last updated on September 1, 2015.

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16 Responses to “So You Want to Be a Certified Financial Planner (CFP)?”

  1. TC says:

    I also have looked in the CFP plan, am a software engineer, and went “psht, no way am I going back to school for that.” It’s nice that I learned so much to make sure I don’t screw up my own finances, but that’s probably because nobody cares about my money more than I do.

  2. Laurie Py says:

    My experience is that these CFPs are also hooked up with an insurance broker and the first thing they do is try to sell you life insurance (not the term kind). Maybe this is how they bridge the salary gap? I am happy that we learned early that no one will care about your money as much as you.

  3. Amit says:

    I tried to look at something similar – working as a mortgage broker on the side. Unfortunately, I couldn’t figure out how to do it. I would love a post about that, for California if possible. Just like you, I can probably deal with the course work required and the exam — but any experience requirements would be hard to meet with a full-time job.

  4. Lazy Man says:

    TC, I couldn’t have said it better. That would have been a very short article though.

    Laurie, I hope that CFPs aren’t pushing some kind of complex life insurance product that is more in their interest. Sounds like a conflict of ethics, which I think is one of the sections of study.

    Amit,I might have been able to fulfill that request a year ago before I left California.

  5. Kirk Kinder says:

    Lazy Man,

    I think you are looking at the CFP the wrong way. As a CFP, it is a designation that shows a dedication to the industry I work in. There are 600,000 “financial advisors” in the country. Most of these folks take a regulatory exam and then can call themselves an advisor or planner.

    The CFP allows folks in the industry to show that they took the extra effort to study the necessary topics for their clients. If you were choosing between someone who has a CFP or hasn’t taken the time and effort to earn the designation, who would you choose. It isn’t really built for someone looking to work part-time. The same could be said for tax preparers. Most tax preparers that work at H&R Block have a basic understanding of taxes. They could take the extra time to get the Enrolled Agent designation, but most don’t because the time it takes to earn it aren’t worth the effort.

    Does this mean CFPs all offer great advice or know everything about money – no. You still have commissioned salespeople who get the designation in hopes the designation can mask the sales pitch. If I had the choice between a commissioned planner with a CFP or a fee-only planner without, I would take the fee-only planner since the compensation structure aligns with the client.

    However, I do think the CFP shows that planners are serious about their profession or are at least willing to put in 1000 hours for their career. I am sure there are software designations that do the same in your field. You may have already known the programming language, but you get the designation as it adds validity to your resume. Does it mean the designation makes you a better software engineer or programmer, maybe not. You do it for the resume.

    When hiring a planner, you need to look at background, philosophies, fees (especially HOW they are compensated), working arrangements, regulatory record, and chemistry with the planner. Don’t just assume a CFP is worth his or her salt.

    • Lazy Man says:

      I can look at your statement about dedication to the industry in two ways:

      1. From my perspective, I have 7 years of being a noted personal finance blogger, many more hours of this than many CFPs. However, I doubt that I’d get any credit from the CFP board for it. In addition, I wouldn’t even know until I put in all the other requirements.

      2. From an outside perspective, I still think after a BA you are better off going to pharmacy school, law school, or pursuing a doctorate in any other STEM study.

      It’s a little like a fluent French and English speaker being required to live in France for three years to be a translator to show dedication. If you are fluent and know your stuff, you know your stuff. Kind of silly to have the “go live in France” requirement to prove to me that you really want to be a translator.

      To me it isn’t about taking the time to earn the designation, it’s the bottom line of whether they know their stuff. If I’m hiring a CFP, I want to know that they know their stuff, not that they did some three year requirement because a board of people said so. I’m less trustful of the CFP designation now than I was when I researching it, because, once again, someone interested in money should choose a career with a better income/schooling&requirement ratio.

      In software engineering you can go get a certificate, but there isn’t really one body that validates them. A local night school might offer a certificate in Java, but that really carries no weight. It’s all about what you can do.

      I really wouldn’t mind the 1000 hours. I would be very willing to do that. I’m not saying this toot my own horn, but I’ve always been extraordinarily gifted when it comes to book smarts. What’s 1000 hours for the average person, might seriously be around 300 hours for me with my personal finance background. (Maybe not, I’m just making an example that I would probably be on the short end of that.)

      As Mark Cuban has said, “The older you get, the more you value your time. You quickly learn that your most valuable possession/asset isn’t one you put on a balance sheet or in your home. It is time. Every minute , hour , day is one you will never get back and there is nothing you can do to earn another.”

      So I (not so respectively) say that some organization needs to take a hard look in the mirror when it is asking someone to give up 3 years of value in their life to get three letters that aren’t worth nearly as much as a PhD or a Esq.

  6. I think the great thing about the internet is that we have access to unlimited materials full of great information. Sometimes it takes a while to find the quality stuff, but it is out there. Due to this fact, individuals who in the past cornered the market on this knowledge now have to compete with people like you.

    Its a really interesting development.

  7. Evan says:

    If you have J.D. you don’t have to do the education part – just have the sit for the brutal 13 hour exam.

    It didn’t seem like you took to heart Kirk’s comments but he is absolutely correct. The only people that get the designation are the ones that are already in the industry. In addition there are other designations that might even be harder. Sometimes you’ll see CLU/CHfC (Which may be considered harder since you have more requirements and tests after each class) but the marketing behind the CFP is so much better. Also, there are just pure shit designations where you just have to sit behind a desk for 3 hours.

    You write about money A LOT so if I had to guess you understand the ins and outs of personal finance more than lets say 92% of of the CFPs out there…the layperson does not know that. To the layperson you are a blogger and they are a professional. It is unfair, and absolutely not true but it is what it is. Probably more so b/c there is no name attached to the site.

    In my opinion it would be worth looking into if you were working part time in the financial industry.

    • Lazy Man says:

      I realize that Kirk is correct. I’ve just always felt that if you know your stuff that should be all that matters. There should be a way to prove to someone that I know my stuff. Right now it seems the options are:

      1) CFP (or other harder certifications)
      2) “Money Coach”

      Basically my dog (if he could talk) could call himself a money coach. Calling yourself a “money coach” doesn’t convey to a prospective client that you know your stuff. Then there’s the CFP which does the job of conveying to prospective clients that you know your stuff, but it has that added 3-year experience requirement. It seems like there should be some middle ground that can show prospective clients that you know your stuff, but aren’t going to commit to doing this for the rest of your life.

  8. TC says:

    Lazy Man, Certified Money Coach (CMC)

  9. TC says:

    Oh wow, I didn’t think to look to see if it was real. Might I postulate that too many designations of “know your stuff” certification might be just as harmful as too few.

  10. MJS says:

    Another “inside” perspective. I spent 9 years in financial services including 7 at 2 different AAA rated companies. I can tell you that your median salary is way off from my experience. I think the site you used confused or didn’t take in to account the four forms of compensation (salary, fees, bonus, commission). At my last job, I worked with a CFP who made 70k base, 60% bonus (40k give or take) and then basis points in fees on other products sold. We weren’t a sophisticated operation and he was making 130k plus. At the big company, where I spent most of my career, most of the CFPs were in the mid six figures and several were in the seven figure range. All on commissions and fees, so any base salary table would have adjusted their comp to zero.

    Also, most people don’t want to work with a part-time CFP. At least none of the people that would make you any money. Add in the fact that only a narrow few people know or care about CFP designation. In 9 years, I had one prospect (granted he was a billionaire friend of the family) who didn’t give me business solely because I lacked a CFP. Most of my larger clients interviewed me, gained an idea about what I knew, and gave me their business accordingly.

    Lastly, I saw someone post about CFPs pushing high commissioned products like permanent life insurance. I won’t get in to an argument about the insurance, but I will say that when you work as a CFP, you are usually dealing with two separate issues of someone’s financial world. When dealing with their investments, the compensation is almost always fee based (rarely hourly wage and virtually never commission based. However, most sophisticated and successful people that have significant net worths, understand permanent insurance, understand how valuable it is and ask for it by name ( if it needs to be pushed, the client doesn’t understand it or more likely doesn’t have the assets to warrant it). They know financial professionals make a commission on these products, but they don’t care. If they need it, they’re willing to pay someone to make sure they have the right kind and the right amount. It takes a certain kind of person, and I’ve seen them, to think that a professional shouldn’t be compensated for their advice, even if it is in the form of a commission.

    • Lazy Man says:

      Hmmm, I had a reader tell me that they have the more difficult to get CPA and barely make more than the median salary for CFP that I posted. I guess it ranges quite a bit. He’s kind of in middle America and not in Boston like you MJS (side note: I know MJS personally).

      I get the point about most people not wanting to work with a part-time CFP. However, most people don’t work with any CFP at all. In fact, I don’t know anyone who has ever worked with one. Not that they’d announce it to me, so perhaps it’s not a perfect barometer, but you’d think that at some point you’d hear someone say, “Hey, I met this guy and he really helped me put my finances in order.” In contrast, I’ve come across dozens and dozens of bloggers who decide to just write about their money because they simply don’t know how else to accomplish their goal. (Again, I’m probably unique in that aspect as I clearly associate with such bloggers.)

      Part of that might be because there’s a bit of mistrust in the industry. USAA has called me up and offered free financial advice, which included steering me toward their mutual funds. They even went to get me to index funds of theirs that would have more expenses than if I had bought nearly equivalent ETF from Vanguard through their brokerage. When I asked them to give me one reason why the person couldn’t. And I love USAA, by far the best bank I’ve ever dealt with. I don’t know if the guy was CFP, but it sure looked like he was putting his company ahead of the best decision for his client. Admittedly, I agreed completely with the indexes and it was probably a good overall idea, just not optimal execution.

      I believe there’s room for someone like me to work in this space and help a lot of people. They wouldn’t need to be worried about me pushing any specific company products, I’m not affiliated with any particular company. I want to do something more in the range of a money coach for people who don’t make big incomes. I wouldn’t be interested in the trying to put together a tax strategy for someone who has 25 million dollars.

      I think almost everyone agrees in compensating professionals for their advice, but it becomes quite dicey when that advice can be swayed by a commission. I wrote about P2P lending with Prosper a ton before they had an affiliate program (a program that paid for referring them). When I continued to write about Prosper, I got readers suggesting that I was doing it to make the commission. It’s a natural thing to expect if you didn’t know I had been writing about it previously. Coming from their point of view, how do they know I sincerely believe in the advice as being the best advice or if I’m just selling them up the river for the best price? I don’t think they can know, and I don’t think they should have to have that fear.

  11. […] [email protected] Man and Money writes So, You Want to Be a Certified Financial Planner (CFP)? – So adding it all up, it’s a 3.5 year full-time commitment to be a Certified Financial […]

  12. Joseph says:

    Very late to this party, but had a question for you Lazy Man.

    My wife and I are ‘retiring’ next year at the ripe old age of 35 and I’m considering something similar myself.

    Did you ever consider just registering a small RIA LLC. Take the series 65 and go to town advising people for a fee on their finances. This is the only true LEGAL requirement for offering investment advice.

    Unlike the law or medicine the CFP board has no legal teeth at all. They can’t stop you from doing anything. They’re not government affiliated like the Bar, just a private org that’s done some great marketing over the years (they started out as part of a for profit college). Given your blog I imagine a lot of folks wouldn’t care at all that you didn’t have CFP behind your name.

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