If you ever came across the term Financial planning or financial planner and never have figured out what do they exactly do or why are they different from a professional like a Chartered Accountant or a CFA?
Financial planning and the role of a Certified Financial Planner (CFP) are distinct from the responsibilities of professionals like Chartered Accountants (CAs) or Chartered Financial Analysts (CFAs).
A Certified Financial Planner (CFP) is an individual certified by the FPSB. Their primary focus is to assist individuals in managing their finances, and investments, and crafting a tailored plan for financial future. The roots of financial planning and registered life planning can be traced back to the United States.
The CFP Board was established early on in the evolution of the financial planning profession, emerging post-World War II to address the financial needs of Americans. In the global context, the Financial Planning Standards Board plays a pivotal role in setting professional standards and awarding the Certified Financial Planner certification.
In India, many people set aside a portion of their earnings or profits for purposes such as retirement, children’s education, and insurance. When they think about investments, they often consider options like fixed deposits, tax-saving schemes, or government bonds, typically associated with retirement planning. However, a growing number of individuals are becoming aware of alternative investment opportunities such as stocks and mutual funds, thanks to social media channels.
To make the concept of financial life planning accessible to the common man, let’s break down the process from the perspective of a CFP:
Listening: A CFP attentively listens to an individual, focusing on critical areas such as Financial Goals, investment objectives, commitments, and retirement plans.
Prioritization: Based on the gathered information, the CFP prioritizes different aspects, with a special emphasis on insurance and tax considerations in alignment with the individual’s life goals.
Financial Plan Creation: The next step involves crafting a comprehensive financial plan tailored to the individual’s unique circumstances and aspirations.
Expert Consultation: This step is crucial to instill confidence in the individual to follow the recommended financial exercises and align with the standards set by the Financial Planning Standards Board.
Time-Bound Financial Plan: The final phase of this process is to create a time-bound financial plan that suits the individual’s specific financial goals. This plan serves as a roadmap to help them achieve their financial objectives – Short Term and Long Term.
In essence, a CFP’s role is to guide individuals through the intricacies of financial planning, ensuring that their financial goals are not only achievable but also well-protected through measures like insurance and tax planning. This holistic approach sets them apart from professionals like CAs and CFAs, who typically focus on narrower aspects of financial management like Tax planning.
