Do I Need a CPA or CFP for Financial Advice?

Figuring out how to manage your finances can be difficult for even the simplest tasks.

When you start trying to figure out complicated investments and taxes, a human advisor may be extremely helpful.

As with any other profession, some people are more qualified to give financial advice than others. 

In particular, two common financial designations include Certified Public Accountant (CPA) and Certified Financial Planner (CFP).

Keep in mind:

Just because someone has a certification doesn’t mean they’re an expert in everything.

Instead, they’ve met the requirements to get the certification.

Understanding how designations are earned is important. It can help you understand a professional’s level of expertise.

Then, further investigating the professional can help you figure out if they’re a good fit to give you financial advice.

Here’s what you should know to get started with this process.

What Is a Certified Public Accountant (CPA)?

CPAs are licensed professionals who generally help businesses and individuals with:

  • Taxes
  • Preparing audits
  • Bookkeeping
  • Financial statements
  • Consulting

For individuals, tax planning and tax preparation services are likely the most useful.

However, business owners may also use CPAs. Businesses may use CPAs other services in addition to their tax services.

What it takes to become a CPA

CPAs get their licenses from the state they practice in. Each state has its own requirements for licensure.

Commonly, you need to complete a certain number of college credits to take the CPA exam.

The CPA exam is uniform throughout the United States. It doesn’t vary state by state.

Currently, the test covers:

  • Auditing and attestation
  • Business environment and concepts
  • Financial accounting and reporting
  • Regulation

After passing the exam, test takers must also meet an experience requirement. They may have to take an ethics course, as well, before they can get their CPA license to practice.

Once you have a CPA license, you don’t have to keep up with the new requirements to continue keeping your license. Instead, most states only require a CPA to take continuing education courses each year.

Legally, CPAs are regulated by the laws in the state they practice in.

You can likely check with your state’s accountancy board to inquire further about a CPA’s legal liability in your state.

What Is a Certified Financial Planner (CFP)?

CFPs work directly with individual clients to help build financial plans to reach their clients’ financial goals. CFPs can take a look at your whole financial picture.

Then, they can give you an idea of how you’re doing and where you should go based on your life goals.

CFPs also usually manage investments for their clients, but not all CFPs do this.

Instead:

Some CFPs may simply offer financial planning services without managing investments.

What it takes to become a CFP

Becoming a CFP isn’t an easy task, either. A person must meet several requirements before they can become certified.

A person must either currently hold or earn a bachelor’s degree within five years of passing the CFP exam.

Before sitting for the CFP exam, a person must complete a CFP Board-registered education program. Once completed, a person can sit for the CFP exam.

After passing the exam, a person does not automatically get their CFP designation.

Instead, they have to have at least three years of relevant personal financial planning experience or two years of apprenticeship.

Finally, a person must pass the CFP Board’s candidate fitness standards. This requires prospective CFPs to agree to ethical standards.

CFP candidates must also disclose criminal history and any history of being terminated from an employer. They’ll also undergo a background check.

While CFPs are regulated by the CFP Board, the CFP credential isn’t legally regulated by laws like CPAs.

That said:

Certain activities CFPs may take part in may require special state or federal licenses. Activities may also require the CFP to follow state or federal laws. Depending on what services you’re using from a CFP, the applicable laws will vary.

Major Differences Between CPAs and CFPs

As you can see, CPAs and CFPs focus on helping with finances in different ways.

To put it simply:

CFPs are more focused on financial planning and investments.

CPAs are typically more focused on taxation and helping small businesses.

How Do CPAs and CFPs Make Money and Why Does It Matter?

You should care how these financial professional are paid because it could affect the advice that you're given.

CPAs

CPAs make money by billing clients for their time.

While the below billing arrangements are most common, others may exist.

Some CPAs charge an hourly rate that can vary depending on the particular staff person working on the client’s behalf.

Hourly rates can be hundreds of dollars per hour for the CPA firm’s partners and much lower, sometimes less than $100 per hour, for the newest staff.

Of course, rates will vary depending on where you live and the firm you choose. Some CPA firms now bill on a per-project rate.

So:

Once an agreement is reached on what services will be performed, a flat fee is agreed upon. This can give you predictability about how much the services will end up costing.

Since you’re being charged an hourly or project rate for services completed, there shouldn’t be any conflict of interest between the CPAs best interests and your best interests.

CFPs

CFPs can get compensated for their services in many ways.

Part of being a CFP is meeting the fiduciary standard.

Essentially, this means the CFP should ethically manage your money with your best interests in mind.

Unfortunately:

This may not always happen due to the ways CFPs can be compensated.

Here are a few of the common ways CFPs can be compensated for their services.

  • Fee-only - This means CFPs only charge fees and do not receive commissions.
    • Hourly - The CFP bills you for each hour they spend working on your financial plan or with you.
    • Project based - The CFP bills you a flat rate to complete a project, such as a comprehensive financial plan.
    • Percentage of assets - The CFP bills a percentage of the money they manage on your behalf, often 1%.

  • Fee-based - This means CFPs may charge fees for some services and receive commissions for others.

As you can imagine, anyone earning a commission may have a conflict of interest.

If one product pays a higher commission than a similar product, it could be tempting to sell the higher commission product even if the lower commission product is a better fit for the client.

CFPs should not have an issue choosing the best product for the client due to the fiduciary standard.

With that said:

You should always be wary when dealing with any commission-based transactions.

Choosing the Right Professional for Financial Advice

Choosing whether to use a CPA or CFP for financial advice shouldn’t be too difficult.

Remember:

You consult CPAs for tax planning advice and CFPs for financial planning advice.

Though, some professionals may offer both types of advice.

When choosing a particular CPA or CFP, there are a few things you should do.

Steps to take

First, look up the person’s licenses or certifications to make sure they’re current.

Next, check to make sure there aren’t any outstanding complaints against the CPA or CFP you’re considering.

You should also interview the individual you’re considering. Make sure they understand you and your business’s needs and can perform the services you’re requesting.

Asking for references or getting recommendations from others in your industry or others in a similar position could help with this.

Should You Use Both a CPA and CFP?

There’s a strong argument that you should use both a CPA and CFP to help you manage your finances.

Only using a CPA would likely leave you without a long-term financial plan. This plan can help you navigate life and plan for your future. Without one, you may not be as financially successful.

Only using a CFP may leave you missing out on tax planning. Depending on your situation, good tax planning could save you a large amount of money.

That said, you may not need these services at this point in your life.

CPAs and CFPs can help those with complex situations take some major work off of their plate.

If your situation is straightforward and you educate yourself, you might not need these professionals right now. 

If you do hire a CPA and a CFP, you still need to monitor them.

As far as taxes go, you’re still responsible for the tax return you file. You need to review what the CPA prepares.

When it comes to your investments, no one cares about your money as much as you do. These licensed professionals should hold themselves to higher standards. Even so, you need to remember they’re running businesses to make money.

Related Articles

How to Apply for New Loans After Defaulting on Student Loans
Key Questions to Ask Before Refinancing Your Student Loans
Can You Have Too Many Credit Cards?
How to Avoid Credit Card Skimmers
What Happens If You Lie About Your Income on a Credit Card Application?
Can Your Credit Card Company Raise Your APR Out of Nowhere?

Ask a Question