How to prepare for CFP exam
How to prepare for Certified Financial Planner (CFP) exam: Tips and FAQs
At the most basic level, the CFP designation assists in helping financial planners and advisors better understand their client’s overall financial situation to know how best to act and plan around it. With the overall goal being to improve a client’s portfolio or financial position for retirement, financial planners, financial advisors, tax planners, investment managers, and wealth managers all stand to improve their professional value by receiving the CFP designation.
At the most basic level, the CFP designation assists in helping financial planners and advisors better understand their client’s overall financial situation to know how best to act and plan around it. With the overall goal being to improve a client’s portfolio or financial position for retirement, financial planners, financial advisors, tax planners, investment managers, and wealth managers all stand to improve their professional value by receiving the CFP designation.
However, the CFP designation can be difficult to obtain. With a difficult test standing in the way of the designation, it is important for CFP hopefuls to understand what they are getting themselves into and how to best study for the exam.
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- What to Expect From the CFP Exam
- How to Prepare for the CFP Exam
- 1. Do not focus on memorizing concepts
- 2. Learn the CFP board's reasoning
- 3. Enroll in a review course
- 4. Do not cram for the CFP Exam
- How to Succeed on CFP Test Day
- 1. Answer every question
- 2. Stick to your gut
- 3. Study up on taxes
- 4. Take care of yourself the night before
- FAQs
What to Expect From the CFP Exam
The CFP exam is made up of five components with equal importance. These components are investment, tax, retirement, insurance, and estate planning. Concepts like education planning, ethics, and the financial planning process are also included in the exam. The test is around six hours long, with two broken-up sections that take three hours each, with a 40-minute break in between the two sections.
This exam costs between $825-$1,025 and is administered three times per year, allowing the candidate to take the exam in March, July, and November.
With over 170 individuals multiple choice questions with several short and extensive case studies sprinkled in between, this test is long and tedious. Time management is extremely important to master for this exam in order to not run out of time when answering questions. While the case studies are short, they are detailed and allow the individual to showcase their financial knowledge of the course material and apply it to a real-world scenario schene in the financial world.
Worth over 20% of the exam, the two case studies should not be overlooked and should be an important factor in your preparation for the exam. With the CFP exam all about applying one’s financial knowledge to real-world financial situations that have the possibility to come up as a financial planner or advisor, analyzing a hypothetical client case study and determining the next best possible steps is essential in order to not only pass the CFP exam but also to succeed as a financial planner or advisor. Memorization of this topic won’t be enough to succeed in the exam, as mastery of the material is crucial to apply your financial knowledge to the case study and assisting a client with the best possible next steps of action is vital to success.
For this past March in 2022, the CFP pass rate was reported to be at an overall rate of 65%, with the first-time exam takers reaching a rate of 67%. While this pass rate is much higher than other exams like the CFA or the CPA, the pass rate is not an indication or a reflection of the exam’s difficulty.
How to Prepare for the CFP Exam
While the CFP exam is only six hours in length, an average of over 1,000 hours of studying is required in order to pass the exam. While that amount of time may seem overwhelming, that time goes by quickly when considering the pre-study steps, reviewing the Candidate Handbook, reviewing the education course materials, question bank time, and other practice exams and reviews. This means that starting to study early for the exam, way before the exam date, is important in order to succeed and pass the test. This number is also reflective of the overall experience when in the financial planning or advising space. Financial professionals with years of experience might need around 1,000 hours or less, while students just out of college might need more than the recommended 1,000 hours. Candidates who have taken other insurance or FINRA-administered securities exams may also find it easier to study for the CFP exam; however, while there is some overlap between the exams, a majority of the material is applied differently on the exam than for most securities examinations. Below are some tips for individuals to maximize their studying in order to successfully pass the CFP exam.
1. Do not focus on memorizing concepts
Many securities exams or insurance licensing exams focus on short and long-term recollection of facts and terminology; however, the CFP exam emphasizes a greater degree of application of the course material and financial knowledge learned while studying for the exam. In order to succeed and pass the CFP exam, candidates must not only know and understand the full CFP curriculum, but they must also be able to explain, synthesize, and apply it to real-world financial scenarios and situations. This means that standard studying for typical financial exams could be counterproductive for the CFP exam. While a great deal of memorization is required for the CFP, individuals who do not understand the material completely and do not practice recalling and applying the material to financial scenarios will feel unprepared for the CFP exam. Practicing hundreds if not thousands of industry-related practice problems and quiz questions that have the same difficulty level as the test is crucial in order to successfully apply your financial knowledge on the exam. Practicing questions helps individuals learn the material instead of just memorizing it.
2. Learn the CFP board's reasoning
Many CFP first-time test-takers will be surprised by the unconventional methods the CFP Board uses to grade exam answers. The CFP Board uses a specific rationale when creating the correct graded responses for test questions. In order to have the greatest chances of succeeding and passing the CFP exam, students should learn, understand, and apply the correct rationale as closely as possible to the CFP Board.
3. Enroll in a review course
The CFP Board offers review courses to candidates looking to take the CFP exam. These review courses are excellent ways to prepare for the exam. The specialized exam instructors who teach these review courses often provide students with inside tips on the reasoning behind the CFP questions and answers. They also help students walk through the case studies and even indicate how much weight each section will be awarded on the exam. Given the wide coverage of material in the CFP curriculum, some concepts will either not be focused on at all or assigned very few questions for the exam. By understanding the likelihood of each topic being featured or covered on the exam, individuals can more effectively prepare and structure their studying and optimally prepare for the exam.
4. Do not cram for the CFP Exam
Some candidates take up to five years to complete the CFP curriculum and coursework required to take the CFP exam. Other students can take up to five months of intensive studying before passing the CFP exam. Each individual requires a different amount of time to study for the exam, yet on test day, all candidates answer the same set of exam questions when test day arrives. CFP exam circulars and preparation manuals caution against students cramming for the exam. Cramming for the exam leads students to a decreased chance of passing the test as students are recommended at least 10,000 hours of study, which can be hard to do when studying for just five months. Yet, students still often cram for the exam with varying levels of success. Before cramming for the exam, consider the amount of work you have already done in your preparation for the test, how much work experience you have in the financial planning space, and what other certifications or designations you have studied for or received in the past five years. Only after considering these factors will you know if you are ready to take on the CFP exam in a short amount of time.
Given the number of hours required to study and master the material provided for the exam, it is essential to create a strategic study plan that one can follow to study for the test. Spending too little time or too much time on any given subject can have a detrimental effect on one’s preparation for the exam. Therefore, devising a study plan based on the weight the CFP Board allocates to each section of the exam is a good first step of action when beginning to study for the exam.
The topics are weighted as follows:
- Professional conduct and regulation—8%
- General principles of financial planning—15%
- Risk management and insurance planning—11%
- Investment Planning—17%
- Tax planning—14%
- Retirement savings and income planning—18%
- Estate planning—10%
- Psychology of Financial Planning—7%
Learning the basics of each section first while then working deeper into each category based on its weight and your professional familiarity with them can enable you to absorb more knowledge and details while learning how to apply it to real-world financial scenarios.
How to Succeed on CFP Test Day
When it comes to multiple-choice testing, applying certain testing strategies to questions asked on the exam can give you an edge over other test-takers. Below are some tips for sticking to the day of the exam.
1. Answer every question
Every question on the exam should be answered, even if one has to guess. One has a 25% chance of blindly guessing an answer correctly while leaving a question unanswered gives the candidate a 0% chance of getting the question answered correctly if one were to skip the question. Candidates on the CFP examination are never penalized for guessing an exam question, so you should respond to every question, even if you have no clue what the answer could be. If you are able to safely eliminate one or even two of the possible answer choices you know to be incorrect, the chances of selecting a correct answer increase significantly to 33% or 50%, respectively.
2. Stick to your gut
The first response chosen during a multiple-choice question is typically the most accurate or correct answer choice. If you have time at the end of the test, you can go back to look at your most questionable answers to see if there is something that you missed or want to change. If you are unsure of an answer, it is best to guess the answer to the question and move on to the next question. Instead of wasting precious seconds on tougher questions, it is often better to answer them quickly and move on to easier questions. This way, one is able to answer all of the easier questions correctly and, if there is time at the end, can go back to review the harder questions at the end to save time.
3. Study up on taxes
When it comes to the CFP curriculum, candidates tend to agree that the tax section of the exam is the most difficult to learn and apply to real-world financial situations. It may be worthwhile to focus a majority of your efforts on this section when preparing for the exam and spend extra time studying your tax knowledge before beginning the CFP curriculum. One useful way to study could be to take the IRS Enrolled Agent exam first before studying for the CFP exam, as the majority of the material from that test is also present on the CFP exam.
4. Take care of yourself the night before
For a student to succeed on the CFP exam, it is important for them to have a good night’s rest the night before, eat a healthy breakfast, and wear comfortable clothes. Each testing center is different; however, many are known to have uncomfortably hard chairs and intensely bright lights. With the hard work one does to prepare for the exam, students should feel confident in their ability to pass the test, even with the uncomfortable circumstances of the testing environment around them.
Read more: How to Become a Financial Planner
FAQs
The range of at least 250 hours to 1,000 hours of study is required for the CFP. The CFP Board recommends studying for at least 250 hours. A study found that 76% of candidates who passed the exam studied at least 10 hours or more per week, while 62% of students who failed studied 10 hours or more hours per week.
Candidates who passed the CFP exam claim that the two best ways to prepare for the exam was by taking a review course and focusing on practice study questions with equal difficulty to the test. 69% of candidates who passed the CFP® exam took the CFP Board Practice Exam during their preparation for the test.
While self-studying is the most affordable exam preparation option, it is also difficult to do. Making sure that one is studying the correct material and keeping oneself accountable in their preparation can be a challenging task; however, there are plenty of candidates who have gone this route and have been successful.
Overall, the CFP exam is shorter and less rigorous than the CFA program, with higher pass rates. However, both designations are different and designed for different roles in the professional financial world, so receiving the correct designation for your position is important regardless of difficulty.
Comparatively, the CFP is an easier exam than the CPA. The historic pass rate for the CFP exam has been above 60%, which indicates that the test difficulty level for the exam is considered to be hard but moderate.
The CFB Board allows individuals to attempt the CFP® exam a maximum of five times in one’s lifetime. If one has attempted the exam four or more times prior to January 1, 2012, one may be permitted a maximum of two additional attempts for certain circumstances. One may only attempt the exam a maximum of three times within a 24-month period.
- Certified Financial Planner Board of Standards (CFP Board). “What You’ll be Tested On.”. https://www.cfp.net/get-certified/certification-process/exam-requirement/about-the-cfp-exam/what-youll-be-tested-on
- Kaplan Financial. “Frequently Asked Questions About the CFP® Exam.”. Accessible From: https://www.kaplanfinancial.com/resources/getting-started/frequently-asked-questions-about-the-cfp-exam
- Certified Financial Planner Board of Standards. “About the Exam.”. Accessible From: https://www.cfp.net/get-certified/certification-process/exam-requirement/about-the-cfp-exam
- Certified Financial Planner Board of Standards. “Historical Stats Website Document_2022,” Page 1. Accessible From: https://www.cfp.net/-/media/files/cfp-board/cfp-certification/exam/historical-stats.pdf?la=en&hash=1CA6555342571EA8BA3F2779890EF645
- Financial Industry Regulatory Authority (FINRA). “Qualification Exams.”. Accessible From: https://www.finra.org/registration-exams-ce/qualification-exams
- Certified Financial Planner Boards of Standards. “CFP Exam Preparation.”. Accessible From: https://www.cfp.net/get-certified/certification-process/exam-requirement/cfp-exam-preparation
- Kaplan Financial. “CFP Exam Prep Review.”. Accessible From: https://www.kaplanfinancial.com/cfp/exam-prep-review
- Internal Revenue Service. “Enrolled Agent Information.”. Accessible From: https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information
