The alphabet soup of financial credentials may cause some confusion as to how a certified financial planner is different than a certified public accountant and what each service provides. Here’s a glimpse of how these professions differ, how they might work together and which one to call for your specific financial planning questions.
What Is a CFP?
A certified financial planner, or CFP, specializes in providing comprehensive financial advice to individuals and families. Their planning includes retirement investing and withdrawals, tax strategies, education funding, health care and long-term care funding, debt management and other services.
To earn a CFP certification, candidates must pass a stringent exam, administered by the CFP Board. The exam covers investments, retirement, tax strategies, estate planning and insurance.
Many CFPs work at firms that also manage assets, making coordination between the plan and the investments an easy process.
A CFP must adhere to a fiduciary standard, meaning they are required to put clients’ interests above their own. In practice, that often means not taking a commission for selling investment products.
What Is a CPA?
A certified public accountant, or CPA, is a professional accountant who has met specific licensing requirements. They must pass the Uniform Certified Public Accountant Examination and fulfill additional state-specific education and experience requirements.
CPAs are trained in various accounting areas, including auditing, tax preparation, financial reporting, and consulting services. They can work in private practice, for a large accounting or consulting firm, or even in a corporate role.
CPAs bring expertise in tax planning, budgeting and financial analysis to the table, making their knowledge a key component of comprehensive financial planning.
CFP Versus CPA: Which Is Better for Retirement Planning?
While CFPs and CPAs specialize in different areas, they overlap in other ways and have complementary skills.
“CFPs have a broad base of knowledge spread across the many different topics relevant for financial advice such as investments, insurance, estate planning, retirement planning and taxes,” said Stephen Kates, a principal financial analyst at Annuity.org in Charlotte, North Carolina, in an email.
“CPAs focus specifically on taxes and tax law,” he said, adding that CPAs usually don’t focus on the intricacies of retirement planning.
Kates notes that many CFPs work closely with their clients’ accountants or CPAs during the retirement and income tax planning process, to be sure all data sources are coordinated and that both professionals are working with the same set of assumptions.
“While most people with simple yearly tax filings may not need a CPA, it doesn’t hurt to consult one as you plan for retirement,” he said. “Most financial planners have an understanding of tax rules but do not complete tax returns and will not offer tax advice. This is where a CPA working in concert with your planner will be of the most benefit.”
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Do You Need Both a CFP and a CPA?
Because the two perform different job functions, working with a CFP and a CPA often makes sense.
“A similar question is: Do I need a doctor and a dentist? The answer is yes,” said Melissa Murphy Pavone, director of investments at Oppenheimer & Co. in Westhampton Beach, New York, in an email.
Begin the planning process with a CFP and then bring in a CPA, Pavone said.
“By establishing a team, the client will benefit from a comprehensive and coordinated approach,” she explained.
Working together, a CFP and CPA can help ensure the best chance for a successful retirement outcome. That generally involves minimizing a retiree’s tax burden and ensuring the retiree doesn’t outlive their money.
When comparing CFPs and CPAs for retirement planning, it’s important to think about their distinct strengths, said Eric Ludwig, director of the Center for Retirement Income at the American College of Financial Services in King of Prussia, Pennsylvania, in an email.
“CPAs excel in tax planning, offering insights into tax efficiency, a critical component of retirement strategy,” Ludwig said. “However, their focus might not fully encompass the wider spectrum of personal financial planning issues like that of CFPs.”
Ludwig noted that CFPs receive extensive training in areas crucial to retirement, including investment, estate planning and retirement strategies, all of which emphasize tax efficiency.
“Importantly, choosing between a CPA and a CFP doesn’t have to be an either-or decision,” he said. “Each professional brings valuable expertise to the table.” Ideally, leveraging the strengths of both a CPA and a CFP could provide the most comprehensive approach to retirement planning.
“A CPA can optimize your tax situation, while a CFP helps to ensure that every piece of your financial plan works together seamlessly,” he added.
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Should You Consult a CFP or CPA to Plan for Retirement? originally appeared on usnews.com
Update 03/28/24: This story was published at an earlier date and has been updated with new information.
