The Certified Financial Planning (CFP®) Board has funded millions of dollars into an aggressive ad campaign over the last couple of years. Let’s find out why and what the big deal is?
The CFP® designation
The CFP designation is a mark that can be placed after one’s name, after successful completion of the CFP Board’s program requirements. Stringent? To a point, but they don’t require many years of study compared to an attorney or doctor. Typically, the CFP program can be completed in a year which requires a total of 250 hours of study. That study time is equivalent to 10-11 days.
Typically, the CFP program can be completed in a year which requires a total of 250 hours of study. That study time is equivalent to 10-11 days.
The designation is similar to a medical professional going through many years (not hours) of education, then placing M.D. after their name. The CFP mark requires 250 hours of study on topics such as estate planning, financial planning, social security planning, and tax codes. Once the CFP Board of Standards has been met, a candidate will take a 170 question exam broken into two 3-hour sessions, with a 40-minute break. There is a lifetime maximum of 5 attempts should one fail the exam. Once an applicant has passed the exam, yearly continuing education (CE) of 30 hours is required as well as payment of the annual certification fee, which was raised to $355 per year in 2018 from $325.
So what’s with all the noise?
Not too long ago, the CFP board invested millions of dollars in marketing campaigns. With TV advertising adding to consumer confusion, one noticeable commercial seen late at night was a disc jockey claiming to be a financial professional. He talks to clients about retirement, a 401(k), and asset allocation. He then asks the clients if they would trust him as their financial adviser. Every client he poses the question to says, yes…I would trust you. Then, the character flips on a TV to reveal his true identity, jumps out of his chair and starts dancing, while at the same time telling clients that he’s actually a DJ. The video also shows him in his DJ attire with a photo next to it in his business professional attire. His haircut is also noticeably different. “Can you tell the difference?” If you haven’t seen the commercial, click here to view it. It definitely gets a chuckle however, there is a problem with this ad in that it’s somewhat misleading. First of all, it seems (to me at least) that the character is not even licensed as a financial professional in the first place. Conducting business as a financial professional without the proper license and/or credentials is illegal. Just like claiming to be an attorney or doctor without having a license is also illegal. A broker representing a dealer must be licensed with the Financial Industry Regulatory Authority (FINRA), and an Investment Adviser (advisor – both spellings are correct) or Investment Adviser Representative (IAR) must be licensed with the Securities and Exchange Commission (SEC). Forget the CFP designation for just a minute; doing business without a license will most certainly land an individual in a mountain of legal troubles both civilly and criminally!
Additionally, the CFP board is implying that their mark automatically assumes an individual will engage in higher ethical standards and trustworthiness, which is simply preposterous.
Additionally, the CFP board is implying that their mark automatically assumes an individual will engage in higher ethical standards and trustworthiness, which is simply preposterous. I’ll explain further. There are many cases of unscrupulous individuals that have attained the CFP mark and then gone on to engage in fraudulent acts against their clients. This is no different than an attorney or medical doctor with a professional designation (J.D., M.D.), defrauding their clients. Some of these fraudsters even practiced while not being licensed at all. We’ve heard the many stories of those people as well. Even more issues have come to light with the CFP Board in a recent article published by Forbes Magazine, where author Jeff Camarda states: “The financial advisory world was rocked by the Wall Street Journal report that thousands of CFPs, nearly ten percent of Certified Financial Planners, promoted as clean on the CFP Board’s “find a planner website,” actually were not clean but had public records of misconduct ranging from customer complaints to crimes. Red flags include thousands of client disputes, fines and suspensions – even criminal child pornography – and including over a hundred felony charges or convictions.” There is no proof that CFP training will enhance an adviser’s bottom line with a client, nor that a CFP is free of any other of the red flags mentioned previously…none whatsoever!
Too much information
The CFP designation provides a financial adviser with a wealth of information. Is it information on steroids and information overload? Probably, and that is our opinion as well as many others in the industry. No financial professional can ever know everything about the industry. It’s just simply unrealistic. And really, you should always be cautious of the know-it-all anyway. If a doctor specialized in the practice of psychiatry, you would not ask that same doctor to help you with your allergies. Doctors typically have a practice and specialize in one or two areas. Even a general practitioner, “jack-of-all-trades”, will refer a patient to a specialist if needed. This applies to attorneys as well, who also specialize in certain areas of the law. What are we getting at here? Any professional should know their practice while having some knowledge in other areas of their industry. However, specializing in one or two areas and being a master of those just makes more sense, as opposed to attempting to master it all. Speaking from many years of experience in the financial realm, we don’t want to know everything (especially tax codes), nor do we have the desire to attempt and know it all. For estate plans and tax codes, we have our own network comprised of an estate attorney and two CPAs. We feel more confident in referring clients to the professionals that specialize in those fields, as opposed to being a CFP and attempting to know everything ourselves. Again, it’s just not realistic! Is the designation an attention getter? Maybe. But also know there is never a guarantee (except death and taxes) that a CFP will be competent, let alone will conduct themselves in a “fiduciary” capacity – which is legally in your best interest as set forth by the SEC. Even more alarming is the article published in Forbes Magazine as mentioned above. Apparently, it seems that the CFP mark cannot be trusted as the “Gold standard”, or any other standard for that matter.
CFP’s, RIA’s (Registered Investment Advisers), and IAR’s (Investment Investment Advisers) do have one thing in common though…kinda.
CFP’s, RIA’s (Registered Investment Advisers), and IAR’s (Investment Investment Advisers) do have one thing in common though…kinda. That commonality is to always do what’s in their “client’s best interest.” Now, this is where things certainly get a little hazy with the CFP Board and their definition, compared to the SEC’s legal definition of a “fiduciary standard”, which has now been adopted in Reg BI. The SEC adopted the legal definition of the “fiduciary standard”, which simply means to always do what’s in a “client’s best interest”. There is no confusion or other legal interpretation for this standard of care. We also discuss this in more detail in another article we wrote titled: RIA vs. broker-dealer: Which one is best? As mentioned by John H. Robinson, in his article titled on the Advisor Perspectives website: Why the CFP Board Should Not Govern the Financial Planning Profession, he in fact brings up some very valid points: “The CFP® Board wants its credentials to be a mandatory requirement for all advisers who hold themselves out as financial planners. If its lobbying efforts to this end are successful, the Board would then become the de facto regulator of the financial planning profession, which is the organization’s goal. But the Board’s disingenuous position on the fiduciary standard and its long history of putting its own interests ahead of those of consumers and its members make the Board decidedly unfit for this role.” Mr. Robinson continues to state in his article that “The suggestion that non-CFP financial planners are unregulated and unqualified is a common theme in the CFP Board’s multi-million dollar public awareness advertising campaigns.” Mr. Robinson certainly nailed these issues squarely on the head. How?
The SEC already regulates the industry with an iron fist, especially coming out recently with Regulation Best Interest (BI) as mentioned previously, which affects broker-dealers, hybrid advisers, IAR’s, and RIA’s. We discuss Reg BI in an article we wrote back in July here. As of June 1st, 2020, these brokers, dealers, and Investment Advisers must now provide Form CRS to existing and potential clients, also known as the Customer Relationship Summary. This form must detail the client relationship, as well as any potential conflicts of interest, and describe the standard of care a client can expect to receive. So, as you can see, the SEC really has a more stringent requirement for financial advisers compared to the CFP Board, in that CFP’s do not have to outline the relationship, any conflicts of interest, or standard of care. However, under the SEC’s recently published regulation, they will also have to comply if selling financial advice per the Investment Advisers Act of 1940, but not with the CFP Board of conduct per se if selling insurance, such as annuities.
So, what now?
We congratulate anyone that has earned any of the whopping 203 designations now recognized at the FINRA consumer information site. Unfortunately, all of these designations have also caused a myriad of confusion with the investing public. As with any occupation, knowledge really comes from experience. Is the financial adviser with that CFP designation relatively new to the industry? Are they a broker or insurance salesman? Or, are they a seasoned veteran with many years under their belt and conducting business without the CFP designation? It’s reported that approximately 30% of all financial advisers in the industry have the CFP designation. Of that 30%, 85% represent a broker-dealer (wear two hats) and 15% operate as a fee-based RIA (wear one hat). We discuss the hat wearing game in our article mentioned previously, “RIA vs. broker-dealer: Which one is best?”
The bottom line is this: It’s safe to say you are in good hands when dealing with an IAR or RIA. Just remember that RIA’s and IAR’s, those who represent an RIA, are subject to more regulation by SEC standards than the CFP Board of conduct standards. Lastly, there is no confusion in the “fiduciary standard” set forth by the SEC. Contact us for more information.
Posted from Admin at Association Financial Services, LLC