What is a Financial Planner? (2024)

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• A Certified Financial Planner (CFP) is a trade-industry designation for advisors and other professionals in the financial field.
• CFPs must have a certain amount of experience, pass a rigorous exam, and commit to ongoing financial education.
• CFPs advise their clients on topics like retirement, investments, tax planning, and risk management.

Financial planners are financial experts who take your whole financial life into consideration when developing a financial plan and strategies for long-term and short-term goals. They often offer services for tax planning, retirement plans, budgeting, investment guidance, insurance, and more.

There can be some variance in financial planners' expertise, credentials, fee structure, and other areas, but in general, these professionals can often help you better position yourself for financial success.

Here, we'll take a closer look at what a financial planner does, the benefits of working with a financial planner, and how to choose a financial planner.

Definition of a financial planner

The term financial planner is somewhat open to interpretation, and technically anyone can call themselves a financial planner. Typically, though, a financial planner is a type of financial advisor who specializes in helping you set financial goals and develop strategies to reach them.

"Establishing goals will help you keep on track for financial success by holding you accountable," explains Jordan Gilberti, CFP and senior lead planner at Facet. "It serves as a way to measure progress, tweak the plan as needed, and curb spending toward aspects that we may not prioritize as much as reaching our goals."

This focus on goals from financial planners can differ from some financial advisors who don't focus on the big picture but instead have narrower focuses, like just setting up investment accounts.

A financial planner, however, often helps across many aspects of one's financial life, such as creating a budget, setting up a plan to reach retirement goals, saving for a down payment on a house, saving and investing for educational expenses, setting up accounts based on optimizing taxes, creating a will and other estate planning documents, and more.

In other words, all financial planners are typically seen as financial advisors too, but not all financial advisors are financial planners, because that implies a broader focus on preparing for goals.

Roles and responsibilities

Financial planners often wear many different hats as they help individuals and businesses optimize their finances both in the near term while also preparing for the future. Specifically, some common roles and responsibilities include:

Creating financial plans

Financial planners, as the name implies, often specialize in financial planning, which simply means making a plan to reach your financial goals over time, like establishing a strategy to retire by age 65 with enough money to also pay for your children's college education.

"The purpose of a financial plan is to achieve personal and professional goals through strategic allocation of resources, management risks, enabling us to live our lives to the fullest," says Gilberti.

Because everyone's goals and resources are different, financial planners can help people use tools like retirement accounts and investments strategically to achieve what they want in the long term.

"The critical step to make sure a financial plan is successful is to make sure that the data going into the plan is accurate," says Chloe Wohlforth, CFP and partner at Angeles Wealth Management. "Taking time to identify what expenses truly look like today and then think how those numbers might change in the future is key to the validity of the plan and therefore its successes in keeping clients on course."

You don't have to hire a financial planner to make a financial plan, but their expertise means they have a full picture of the tools at your disposal and the smartest way to use them. Some people also like working with a financial planner for sheer accountability. Sure, you could create your own financial plan — but will you?

Investment advice

In addition to creating overarching financial plans, financial planners also often provide investment advice. But rather than telling you hot stock tips, they often provide more overarching advice and might set you up with investment accounts and broad investment plans.

For example, a financial planner might help you open an individual retirement account (IRA) and a brokerage account, while helping you choose diversified investment funds that you can pretty much set and forget.

Retirement planning

Retirement planning also tends to be connected to investment advice and long-term goal setting that financial planners assist with. Yet many financial planners go beyond what a simple retirement planning calculator can do in terms of calculating how much you need to save and invest to have a certain amount of income by the time you retire.

Instead, financial planners can often go deeper by helping you envision what you want your retirement to look like and figure out how to make that a reality. For example, maybe you haven't been saving enough for retirement, yet you know you want to retire in a warm-weather place. So, a financial planner might help you explore destinations that have benefits like low housing costs and low taxes so that you can still enjoy retirement based on a realistic retirement income for your situation.

If you run your own business, a financial planner also might help in areas like figuring out if and when to sell the business or pass it on to family members.

Tax planning

Financial planning also tends to overlap with tax planning, although financial planners often provide more general tax support and can connect you with accountants or other tax professionals if needed.

Still, financial planners can often help in areas like choosing how to structure your investments to minimize taxes, such as by putting more money into tax-advantaged retirement accounts and using investment strategies like tax-loss harvesting.

Plus, a financial planner might help you better plan for income taxes, property taxes, and other types of taxes that can affect your budgeting and other areas of your financial life.

Estate planning

Lastly, financial planners often help with estate planning, though here too they might provide more general advice and connect you with experts like estate planning attorneys if you need more help.

Some estate planning tasks for financial planners might include setting up a will and trust, although their role might be more around the initial steps of establishing these, while a lawyer helps you finalize these documents.

Financial planners can also help with estate planning such as by coming up with strategies to leave an inheritance for family members or charitable organizations.

Benefits of working with a financial planner

Working with a financial planner can provide many different types of benefits such as:

• Expert advice: Just as you might go to a mechanic for their expertise on vehicles vs. what you could do on your own, or even someone like a career coach for their expertise in helping you navigate the professional world, a financial planner can provide you expert advice across critical areas such as investing, retirement planning, tax planning, and estate planning.
• Potential for more savings and higher returns: While not guaranteed — and much depends on what you decide to implement — a financial planner's expertise can potentially translate into more money in your pocket through a combination of greater savings and better investment returns. For example, if a financial planner helps you create a more realistic budget you can stick to, while setting you up with automatic retirement contributions, you might save more than you could on your own. And if the planner helps you choose appropriate investment funds, that might mean better investment returns than if you just followed a friend's stock tips, for instance, or if you underinvested by keeping too much money in cash.
• Accountability: A financial planner can help you set clear goals, and by doing this with a professional, rather than on your own, you can gain the benefit of accountability. You might have regular check-ins with your financial planner, such as semi-annually, and that can help you stay on track with your goals and adapt when necessary.
• Risk management: If you don't know what you're doing financially, you might be taking on more risk than appropriate. For example, if most of your investments are tied up in the stock of the company you work for, then you're putting both your income and most of your investments at the mercy of that company. Rather than risking that a downturn in that company leads to a significant loss of income and investment value for you, a financial planner might help you reduce risk through diversification. Conversely, some people aren't taking enough risk, meaning they're limiting their ability to grow their investments and reach retirement goals, so a financial planner can help you course-correct.
• Time savings: Sometimes working with a financial planner pays off strictly from a time-savings perspective. Rather than doing all sorts of research yourself, along with spending time managing accounts and filling out paperwork, a financial planner might be able to handle more of your financial life for you, similar to how a tax preparer can save you time with your annual tax return. To that point, some financial planners are capable of preparing your tax return.

Types of financial planners

Although financial planners typically have a more specialized focus on planning than general financial advisors, there's still a lot of variance among planners. Sometimes these differences stem from the types of certifications they receive, which affects their training and course of practice. While financial planners can have more than one certification, some of the more common types to note include:

Certified Financial Planners (CFP)

A Certified Financial Planner (CFP) certification from the CFP board is one of the most widely recognized financial planning credentials. To become a CFP, you need to meet standards across education, examination, experience, and ethics. CFPs act as fiduciaries, meaning they put clients' best interests first.

"A fiduciary is a legal and ethical standard that requires financial advisors to act in their clients' best interest at all times," says Wohlforth.

Quick tip: CFPs have to complete 4,000 to 6,000 hours of experience related to the financial planning process as either a professional or apprentice. That's in addition to around 12 to 18 months of coursework and holding a bachelor's degree or higher from an accredited college or university.

Chartered Financial Consultants (ChFC)

The Chartered Financial Consultant (ChFC) designation is another popular financial planning credential. In many cases, ChFCs are also CFPs, as completing the ChFC coursework qualifies you to take an accelerated path toward CFP certification.

ChFCs need at least three years of financial planning or related work experience to use this designation, along with completing the coursework, exams, and agreeing to the code of ethics from The American College of Financial Services.

Accredited Financial Counselors (AFC)

The Accredited Financial Counselor (AFC) certification is another credential that a financial planner might have, and financial planners who become AFCs often take somewhat of a psychological approach to finance, because as the name implies, there's a counseling component to the certification. Also, AFCs often work with military members or non-profits, though they're not limited to working with these clients.

How to choose the right financial planner

To choose the right financial planner, it's important to consider what you're hoping to get out of working with this professional, as well as comparing factors like their experience, education, and reviews.

Some people might prefer a more generalist financial planner, for example, while others might want someone who's both a CFP and a Certified Public Accountant (CPA) to help with more complex tax planning issues.

Remember, a financial planner works for you and you need to feel comfortable with them. Don't feel like you have to hire any one person over another. Go with whoever has the best qualifications to help achieve your goals and the right chemistry to build a long-term professional relationship.

More specifically, consider factors such as the following when choosing a financial planner:

Fiduciary

Many people want their financial advisor or planner to be a fiduciary, which typically means that they put your interests ahead of their own. That may sound like something that any financial planner or financial consultant should offer, but not all do. The good news is that some designations, like CFP, indicate that the planner is a fiduciary, but you should also review their website and simply ask them if they're a fiduciary.

Credentials and certifications

As mentioned, there are several different certifications that financial planners might have. One isn't necessarily better than others, as it depends on factors like your financial needs. But you'll likely want to review a financial planner's credentials and certifications to find someone who you're confident has the background needed to help you with your finances.

Experience and expertise

Like with hiring any professional, you'll also want to take their experience and expertise into account. While hiring someone with more experience and expertise is often beneficial, that could mean the financial planner charges more, or they might not have as much time to meet with clients as someone who's new to the business, so you'll have to weigh these types of factors.

Fee structures

While many financial planners are fee-only, which means they only make money from client fees instead of commissions and other payments from selling you financial products, you still may want to clarify that to help understand your financial planner's incentives.

Client reviews and testimonials

Lastly, see if you can find any client reviews and testimonials to help inform your decision. Not all financial planners have public reviews, so it can be a little hard to judge, but if you find some on Google reviews or Yelp, or see testimonials on their website, that could be another data point that goes into your decision.

CFP frequently asked questions