Each year, thousands of freshly certified financial planner (CFP) professionals enter the industry.
In 2022, more than 9,600 new certificates were issued, which was a gain of 5% in a single year.
As the CFP designation has grown in popularity, more than 213,000 worldwide professionals now hold the title. The U.S. has the largest community of certified financial planners, with more than 95,000 spread across the country.
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But this onslaught of newly minted CFPs may have some professionals asking the question: Are all these new CFPs a good thing for the industry?
Are financial advisors better off with more colleagues and CFPs in the practice? Or will the growing number of CFPs dilute the industry? This happened across the street with the law profession, which has suffered from an overcrowded field of eager new professionals.
To answer this question, SmartAsset spoke with Chris Radford, president of AE Wealth Management. A financial advisor for more than 30 years, Radford has worked with both institutional firms such as PNC Bank and AIG and many small and independent advisories. Today he specializes in helping financial advisors grow and develop their businesses. Here are his thoughts.
More CFPs Could Be Good News
Financial advisors shouldn’t worry about the growing number of CFPs, Radford says. In fact, he sees this rise in fresh designations as a good thing for the profession.
The key to understanding this is to remember that professionals don’t need CFP certification to work as financial advisors.
Despite its prestige, the CFP is not a licensing course. It offers additional training and education in a program that is widely respected, but licensing and registration are handled through the Financial Industry Regulatory Authority (FINRA). So as more professionals get their certification, it doesn’t represent a boom in the field overall.
The number of financial advisors in practice hasn’t surged to lawyer-like proportions, and practitioners shouldn’t worry about their bargaining power collapsing.
A More Skilled Group of Professionals
Instead, the growing number of CFP certifications represents a field growing more professional and more skilled every year. The same pool of financial planners is out there, but they’re getting better at their jobs.
The CFP “educates the advisor on a comprehensive list of subjects,” Radford says. “When a senior advisor comes to us and says, ‘Where can my daughter or son … where can they get experience? Where can they get training and learning?’ It’s the first thing we suggest.”
The CFP course covers a range of subjects, from retirement and insurance to tax planning. This is particularly useful in an industry where many people come from niche-specific backgrounds.
A financial advisor might come into practice from insurance, or they might have worked as a broker. This makes many advisors particularly skilled in their fields, but clients often need more than that. They need a comprehensive perspective that can help tie their needs together.
“It’s really a great way to learn the nuts and bolts of being a financial advisor,” Radford says. “When I look at an advisor that is a CFP … they are in a better position to provide a more comprehensive review of the client. We absolutely have to look at the client’s insurance needs, long-term care needs, guaranteed income needs, aside from just investing in the markets.”
Clients May Start Paying Attention
While practitioners may not need to worry about the growing number of CFPs on the market, clients should be paying more attention. Even though the professional designation has been around in one form or another for decades, and means a lot to other financial professionals, it hasn’t made a big dent in the public yet. Not many clients specifically look for the CFP, nor do they fully understand the benefits in the same way that they do for other professions.
“I don’t think it’s a widely accepted designation for the public investor yet,” Radford says. “That’s taken longer than expected. I thought originally we’d see this rise to the level of a CPA or even an attorney … (But) I don’t know that it translates to the public, that they look at the CFP and say, ‘I’m getting a well-rounded advisor that can help me with all my financial needs.’”
Instead, he says, like with many professions, clients tend to look for their financial advisors based on personal relationships. They ask friends and relatives for referrals. The problem is that this can obscure the advisor’s credentials, which means that clients don’t tend to look for certifications like the CFP.
Radford does see that changing, which is a good thing for the industry and clients in general. The more that clients understand the CFP, the more they’ll look for it in their own advisors. And the more they look for the CFP, the more financial advisors will pursue it and step up their own expertise.
“The good thing is that as the use of financial advisors starts to move down, and more and more people are using financial advisors, I think the CFP will become more and more important,” he says.
There are more CFPs on the market than ever before. That doesn’t mean the financial advising field is getting diluted. Instead, this is a step toward building a stronger financial services industry overall.
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