How to Meet the CFP Experience Requirement

How To Become A Certified Financial Planner

Fulfill three requirements to become a CFP®:

  1. Education
  2. Exam
  3. Experience

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 to Becoming A CFP

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.

How New Financial Planners Can Get Started

There are still plenty of opportunities and options for getting your first job in financial planning even if you’re not a student or didn’t go through a degree program specifically for planning.

XY Planning Nework co-founder Michael Kitces advises getting started with CFP® certification if you haven’t secured that already. Your next step: get job.

Don’t spend too much time trying to find that perfect position from the start, as it’s kind of like trying to hit a home run your the first time at the bat – trying to swing harder for the fences may increase the odds you hit it out of the park, but it also increases the odds you strike out entirely,” Kitces explains. “And you may not even realize exactly what direction you want to take your financial planning career until you’ve been doing it for a few years, and really find what you enjoy.”

Here’s how you can get a job in financial planning.

Video

The Uneven Application Of The CFP Boards Experience Requirement For Real Experience [4:23]

Now, strictly speaking, I don’t think it’s a bad thing that the CFP Board is holding fast to its requirement for three years of real work experience. Personally, I’ve advocated in the past that I thought the three-year experience requirement may be a little bit too low, and that three years was better as the apprenticeship requirement. And that the requirement should be as much as five years of other experience or more mixed and varied experience. Because the reality is that delivering personal, comprehensive, financial-planning advice is complex stuff and it takes a lot. Not just the technical rules, but how to effectively communicate them to clients and get them to follow through and implement the recommendations you make so you’re actually helping them move forward to achieve their goals.

If you’re only doing that work on a part-time basis, it really does take a long time to build up that skill set. But the concern is that about four years ago now, the CFP Board changed their experience requirement and started to allow a really wide range of what they called “indirect support of the delivery of financial planning” to count towards the three-year experience requirement. Examples they specifically noted as now counting towards the experience requirement includes someone who worked in the employee benefits administration area or in compliance, or even a journalist who wrote about financial planning topics, even if they had never actually once sat across and advised another human being… ever.

In essence, all you had to have was industry experience – or even just writing about the industry – to qualify for the experience requirements. Or, as I heard one advisor put it at the time, the question was basically, “Have you ever spent three years inside of a building where there are people who were somehow involved in any way, shape, or form with the financial services industry? Great. Go ahead and check off your personal financial planning experience requirement.”

Similarly, a large number of financial advisors still fulfill their experience requirement by getting hired into jobs as entry-level financial advisors who are really financial salespeople, recruited by a broker-dealer or an insurance company to sell various insurance and investment products to consumers and maybe possibly along the way, do a financial plan for a few of them… maybe. Which is concerning, because when you get hired in that kind of role, the overwhelming portion of your job is not getting financial planning advice and getting experience at it. The job is mostly prospecting and trying to get 10 or 20 or 25 prospect beings or more a week on your calendar to sell something to.

And then, only a small percent of those will become clients. And many of them will just buy a single product you have available and not necessarily engage you in comprehensive financial planning, because you’re still new and you don’t have much experience and you may not have much advice to give yet and get paid for. But here’s the problem. It means that if you take a full-time financial advisor job, even if it’s mostly about prospecting for clients and less than one day a week of actually doing anything financial planning, that counts for full-time experience.

Whereas, if you have a sales job in any other industry or any other consulting job, or just any other job where you do the exact same one day a week of financial planning stuff, that only counts as a 20% job, which means you’ll have to do it for 15 years to get three years and 600 hours of experience. Even though you’re doing the same financial-planning work, it’s just the other non-financial planning work that differs. And that’s a huge concern to me, because it means that two people with the same actual hands-on financial planning experience get very different credit towards the CFP experience requirement not based on the real planning experience they’re getting, but based on what industry they happen to be doing their non-financial planning work in, in the meantime.

Which means part-time planning where the rest of your time is prospecting is okay. But part-time planning where the rest of your time is doing something else that gets money and puts food on your table, because it actually pays you more and you need to provide for your family, doesn’t count. And that’s, I think, created a…what is entirely unintentional but a very dramatic bias against career changers coming into the industry and creates really bizarre and not-so-healthy financial incentives for career changers who want to become financial planners. Because it means if you could take up a badly-paying job as a financial salesperson, you can get your three years of experience in three years, even if you’re not very good at it and hardly get any clients.

But if you can’t afford to not make money as a rookie financial salesperson and you need to career-change more slowly and earn as you go, suddenly the process stretches out to 5 to 10 years or more. And bear in mind that if you do try to get your CFP exam done first – which you ought to need to help you get that first job, even on a part-time basis – now, you only have five years to finish the experience requirement instead of the usual 10, which means if you can’t do this more than three days a week, you’ll run out the five-year clock before you have a chance to finish off the experience requirement. And bizarrely, that means it’s actually easier to complete your experience requirement by not taking the CFP exam first, even though it’s easier to get the job, if you can show that you passed the exam.

What does the CFP exam cover?

The CFP exam has a total of 170 multiple-choice questions separated into three sections: case studies, short scenarios and stand-alone questions, all of which test your ability to apply financial planning principles to real-life scenarios. Here are the topics the exam covers:

  • Professional conduct: This section tests your knowledge of the laws that protect your clients and ethical guidelines you need to uphold as a CFP.

  • General financial planning principles: You may need to apply knowledge about managing debt and cash flow and communicating with clients through the financial planning process.

  • Education planning: How to save money to fund college education and financial aid are components of education planning.

  • Estate planning: You may need to know how to transfer property and what estate planning documents entail. This section may also include estate planning for relationships, such as marriage.

  • Tax planning: The exam may test your knowledge of tax law, income tax or minimum tax. You may also need to know how tax deductions work in charities or philanthropic endeavors.

  • Investment planning: In this section, you may apply your comprehension of investment risk and different investment strategies, as well as how to measure investment returns and build investment portfolios.

  • Retirement planning: Topics such as Medicaid, social security and the types of retirement plans may appear in this section.

  • Insurance planning: You may need to know the fundamentals of life, health and disability insurance. The section may also test you on how businesses use insurance.

How is it Different From a Financial Advisor?

Your financial status will always be a part of planning your future. Many of us need help with this and can find it from a CERTIFIED FINANCIAL PLANNER™, or CFP® professional. While a financial advisor may help clients reach their personal financial goals by primarily focusing on investments, CFP® professionals take a more holistic view and approach to their clients’ financial health.

A CERTIFIED FINANCIAL PLANNER™ professional can advise their clients on risk management, retirement, estate planning, taxes, insurance, budgeting and more – and how all these factors affect their client’s ability to save and grow their money.

If you are interested in working as a financial advisor, is becoming a CFP® professional worth it? A CFP® certification can elevate respect in the industry because it represents additional education and commitment to the client. In a word? “Credibility,” Facini said. “The term advisor is so loose; anyone can say it. But to be a CFP® professional, you’ve taken courses, did a capstone and then sat for the exam. Knowledge and experience, and ongoing education, are required annually, along with strong ethics.”

These good ethics are reflected in the fiduciary standards to which the CFP® professional is required to adhere. The fiduciary standard means that as a CERTIFIED FINANCIAL PLANNER™ professional, you are obligated to put your clients’ needs ahead of your own. “Some advisors only get paid through (the) commission of selling certain products they’re incentivized to sell, that aren’t necessarily in the client’s best interest,” Facini said. “The fiduciary standard has eliminated that concern. (A CFP® professional is) working with your best interests in mind.”

Stand Out from the Crowd

Of course, you’re not the only new financial planner looking for their first job in the industry out there. There is competition, which only means you need to take action to get in front of advisors that are hiring (or know someone who is).

If you go to a local chapter meeting, contact who is in charge before the event. Politely ask if you could have about 30 seconds before the meeting begins to address the attendees. Use this time to talk about who you are and what you do — explain that you’re looking for a position and would love to learn more about potential opportunities to add value to a firm.

And once you do start making connections, remember to always follow up with those advisors. Even an advisor not currently hiring can prove a valuable individual to know and develop a relationship with: advisors know other advisors, and they talk!

If you’re ready for your first job in financial planning, prepare yourself ahead of time whether you’re a student or a new planner. Then check out the job boards online or consider working with an organization that can connect you with hiring firms. And don’t forget to make a plan for attending events, meetings, and conferences to do some in-person networking!

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