In an attempt to save on costs, millions of Canadians are using self-directed investing platforms to manage their own investments. These robo-advisors and online brokerages have made investing more affordable than ever before. But while you may save money on your investments, they don’t offer financial planning advice.

That’s where a Certified Financial Planner (CFP) comes in. In this article, I’ll explain how the CFP role works and why you may want to consider the services of a financial planner who has received the CFP accreditation.

What Is a Certified Financial Planner?

A Certified Financial Planner (CFP) is a professional who has been certified in various areas of personal finance. Some of the primary areas CFPs deal with include investment management, retirement planning, taxes, insurance, and estate planning.

To receive a CFP certification, you must meet certain requirements, such as completing a specific set of coursework, successfully passing the CFP exam, gaining relevant work experience, and adhering to the code of ethics.

How Can a Certified Financial Planner Help?

Certified Financial Planners assist clients in accumulating, preserving, and distributing wealth during their lifetime. Here are five financial planning categories that a CFP addresses with their clients.

Investment Planning

A major part of a Certified Financial Planner’s role is to guide clients in constructing well-diversified investment portfolios tailored to their unique financial objectives and risk profiles.

Tax Planning

CFPs offer valuable insights on effective tax strategies. This helps their clients minimize their tax liabilities and maximize their after-tax wealth.

Insurance Planning

A CFP should ensure their clients’ have sufficient insurance coverage, including life, disability, and critical illness insurance. Many CFPs are equipped to assess clients’ insurance needs and recommend suitable products to protect them from potential financial losses.

Estate Planning

Certified Financial Planners are trained to deal with the financial aspects of all stages of their clients’ lives, including estate planning. A CFP can work to ensure the smooth transfer of clients’ assets to beneficiaries while minimizing taxes and avoiding legal complications.

Retirement Planning

Last but not least, CFPs play a critical role in helping their clients build a financially secure retirement. They do this by assisting them to craft strategies to accumulate and preserve their wealth.

You’ll play a vital role in helping clients build a financially secure retirement by carefully crafting strategies to accumulate and preserve wealth. This includes maximizing government benefits such as the Canada Pension Plan (CPP) and Old Age Security (OAS).

How Much Do CFPs Charge in Canada?

Certified Financial Planners may be compensated in different ways, so it’s important to understand the various fee structures that may be used.

Percentage of Assets Under Management (AUM)

Many Certified Financial Planners charge a percentage of your assets under management. This fee structure incentivizes your CFP to help grow your investments since they’ll be paid more as your portfolio grows. AUM fees usually range from 0.5% to 2% of your assets. For example, if the value of your investment portfolio managed by your CFP is $200,000 and they charge a 1% AUM fee, you will pay $2000 annually.

Flat Fee per Financial Plan

Fee-only financial planners may charge a flat fee for creating a comprehensive financial plan tailored to your specific situation. This fee structure offers transparency and can range from $1,000 to $5,000 or more, depending on the complexity of your financial needs.

Hourly Fees

Some CFPs charge an hourly fee for their services. This means you’ll pay for their time working on your financial plan. Hourly rates can range from $100 to $350, depending on the experience and location of the professional.

While considering CFP fees, it’s important to weigh the costs and benefits of each fee structure to determine which one best suits your needs.

Commissions

A fee-based financial planner may earn income from commissions on selling financial products and services to their clients. This could result in a potential conflict of interest because the advisor may be incentivized to recommend financial products that aren’t in your best interests. That said, fiduciary standards bind many fee-based financial planners.

Who Should Use a Certified Financial Planner?

You can benefit from working with a CFP if you need help with:

• Setting and prioritizing financial goals
• Budgeting and cash flow management
• Investment planning and portfolio management
• Retirement planning
• Insurance and risk management
• Estate planning

If you have a small portfolio, it may not make sense to hire a CFP, as the fees may be too high. For example, if a CFP charges $2500 for a financial plan, but your portfolio is only $10,000, you won’t get enough value from their service. This is one of the reasons that many CFPs have a minimum portfolio size that clients must meet in order to deal with them.

CFP vs. Financial Advisor

When it comes to managing your finances and planning for the future, you might wonder if you need a CFP or a financial advisor. Both professionals can help you achieve your financial goals, but there are some key differences between the two.

A CFP is a highly trained financial professional who has earned the CFP designation through a rigorous certification process. They specialize in creating comprehensive financial plans tailored to your specific needs and objectives, including retirement planning, investment management, tax strategies, estate planning, etc.

CFPs are also bound by a fiduciary standard, meaning they must put your best interests first when providing advice and recommendations. This means they must be impartial and transparent about fees and potential conflicts of interest.

A financial advisor is a broader term that can refer to professionals with various levels of expertise and credentials. While some financial advisors may hold designations like the CFP, others may have no specific certifications.

While not all financial advisors are required to follow the fiduciary standard, some may choose to adhere to these principles or be held to a suitability standard, which requires them to recommend products that are suitable for your needs and objectives.

CFP vs. CFA

In your search for a CFP, you may have encountered another designation: the Chartered Financial Analyst (CFA). While both the CFP and CFA titles are well respected, they cater to different areas within the world of finance. Let’s take a closer look at the key differences between the two to help you understand which might suit your needs better.

A CFP primarily deals with your overall financial planning and its various components. They take a holistic approach by looking into your financial goals, risk tolerance, life stage, and more, helping you devise a comprehensive plan to achieve your objectives.

On the other hand, a CFA focuses mainly on investment management and the analytical aspects of finance, making them more suitable for large corporations and institutional investors. Some CFPs are also CFAs, but many CFAs do not engage in financial planning.

Where Can I Find a CFP?

Many well-known Canadian financial institutions, such as banks and credit unions, have CFPs on their staff. Browse their websites or contact customer service and inquire about the qualifications for dealing with a CFP.

You can also ask your friends, family, or colleagues who have previously worked with a CFP. Referrals can be a great way to meet reliable professionals with a proven track record of helping others achieve their financial goals.

Also, online reviews and forums can provide you with insights from people who have utilized the services of a CFP. I don’t recommend relying solely on online reviews from strangers, but it may be a good starting point.

Final Thoughts on The CFP Role

If you have a sizable investment portfolio, you may want to consider dealing with a Certified Financial Planner. As mentioned, in addition to helping you manage your investments, they can advise on several important matters, including retirement, tax, and estate planning. While costs are involved, a good CFP can make it a worthwhile investment over the long term.

FAQs

What is the cost of obtaining a CFP designation?

According to FP Canada, the CFP Exam fee is $950. However, on your journey to becoming a CFP, there will be additional courses and related fees that you will be required to pay. The total cost may be a few thousand dollars or more depending on your educational path.

If you are employed in the financial services industry, your employer may pay for some or all of the costs if they support your goal to become a CFP.

Are there online courses available for aspiring CFPs?

Many educational institutions and professional organizations offer online programs that are tailored specifically for aspiring CFPs. These programs can provide flexibility in terms of scheduling and location, allowing you to balance your current commitments with your career aspirations.

Do CFP professionals earn significantly higher salaries in Canada?

CFP professionals in Canada are often compensated well for their expertise and skills in financial planning. While their income can vary depending on location, experience, and compensation models, CFP professionals generally earn higher incomes than those without the designation.