Guide to Tax Professionals, Part 2: What Is a Certified Financial Planner?
Doing your taxes goes hand in hand with planning for your future financially. This Part 3 of the Guide to Tax Professionals explains what a Certified Financial Planner (CFP) is and CFPs’ role in tax planning. (Part 1, Part 2) Strictly speaking, financial planners are not tax professionals. Instead, financial planners offer many types of services related to future financial goals and long-term plans. For instance, a financial planner might recommend various types of long-term investments for retirement or suggest setting up an estate plan.
In the United States, individuals can give other individuals financial advice without meeting any particular set of national standards. However, evaluating how experienced a financial planner is can be difficult. Locating a planner holding the CFP certification is one (but not the only) method of finding a qualified individual to assist with planning.
Similar to certified public accountants, CFPs must pass an exam and meet experience and education requirements to obtain certification. The CFP governing organization, a nonprofit organization, also conducts a background check of candidates and requires that CFPs follow rules of professional conduct.[1] However, taxpayers seeking a CFP should carefully evaluate experience and credentials, as shown by a recent CFP governing board study in which a DJ with no particular financial qualifications was disguised as a financial planner and persuaded many consumers to hire him.[2]
Financial planners, including CFPs, often advise clients on topics related to taxes. However, CFPs are not tax specialists, and they cannot represent clients before the IRS. For taxpayers who plan to discuss any of the following with a CFP, additional tax expertise may be needed: buying or selling investments, forming a trust, taking money out of a retirement account, providing financial support for a relative, and much more. Often it is considerably simpler to, e.g., sell a stock than it is to determine the tax consequences of the transaction. To assist clients, some CFPs have other certifications relevant to tax advice, such as being a CPA, an attorney, or having other experience. Finding a qualified CFP may thus be only part of your financial plan.
— By Julia Damron, Esq., Barnes Law
Julia Damron is an associate attorney with Barnes Law, licensed to practice law in California.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] CFP Board, Certified Financial Planner Board of Standards, Inc., http://www.cfp.net/home; About CFP Board, http://www.cfp.net/about-cfp-board/about-cfp-board/history.
[2] Sullivan, Paul, “Deciding if a Financial Adviser Is Right for the Job”, N.Y. Times, June 10, 2016, http://www.nytimes.com/2016/06/11/your-money/deciding-if-a-financial-adviser-is-right-for-the-job.html?emc=edit_tnt_20160610&nlid=66148787&tntemail0=y&_r=2.