Anyone can call themselves a financial planner?
Just to briefly expand on the caption above. Mr. Robinson writes "Under current SEC rules, Investment Advisor Representatives are the only financial advisor class that may hold themselves out as offering financial planning services under federal law, and the reason they may do so is that they are held to a fiduciary standard."
This is true for an FINRA registered Representative and tightly controlled by broker dealers fearful of lawsuits. Unfortunately, an insurance licensed individual with no securities license can claim that he does not offer advice as to the value of investing in regulated securities and avoid registration AND fiduciary liability while still calling him/herself a financial planner.
I recently spoke with members of the House Finance Committee considering legislation on this matter and told them it was imperative to decouple financial planning - financial planner from securities advice. Current federal and state laws require one not only hold out as a financial planner but must, in addition "offer advice as to the value of investing in regulated securities." By the way, with no securities license one can also claim to offer financial planning and not be subject to prosecution providing one doesn't actually provide the service in addition to providing advice in regulated securities, that's asinine, but true because of the additional requirement! I have given the House committee suggested language and hope they will act to finally decouple financial planning, we have 1940 standards for a 21st century profession.
A Slightly Different Perspective on the Debate
I commend Financial Advisor for bringing the debate over the credibility of the CFP designation to the forefront. Judging from the volume of responses to Dr. Basu's and CFP Board of Standards CEO Kevin Keller's editorial commentary, the topic has obviously touched a nerve. In December 2008, an op-ed piece I penned for Advisor Perspectives entitled "In Defense of Faux Planners" stimulated similar reader discussion (http://www.advisorperspectives.com/newsletters08/In_Defense_of_Faux_Planners.html). The piece was written in response to former FPA President Dan Moisand's many public references to non-CFP financial advisors as "faux planners" and to express concern over the lobbying efforts of organizations such as the FPA, the CFP Board of Standards, and NAPFA to make financial planning the exclusive domain of CFP certificants. Since I specifically referenced the CFP Board of Standards in my commentary, I sent the article to Mr. Keller at the time of publication. Similar to Dr. Basu's letter, my position challenges notion of the CFP standard on two fronts - first, that attainment of the designation necessarily leads to superior ethical conduct, and second that the CFP program is the highest academic path to financial planning proficiency.
With respect to the former, at the beginning of his rebuttal to Dr. Basu's editorial, Mr. Keller states, "When it comes to ethical behavior and a commitment to putting clients' interests first and providing financial planning services with a fiduciary duty, CFP certificants lead the way." Unfortunately, the notion that CFP certificants are somehow more ethical than their peers in the financial services industry is unsubstantiated. I know of no empirical data to support the claim that CFP certificants are any more ethical or less likely to violate client trust than either Investment Advisor Representatives (who are held to a fiduciary standard by the SEC) or Series 7 registered representatives. One needs only to consider such high profile examples as Judith Zabalaoui, James Buchanan, and Bradford Bleidt, to understand that if the threat of going to prison does not deter unethical behavior, the threat of having one's CFP designation revoked is not likely to weed out the bad apples either*. Ironically, it could even be argued that the perceived credibility of the CFP designation may even aid such nefarious individuals in committing their fraudulent acts. While the CFP Board should be commended for adopting a stringent code of ethics and for encouraging its members to adhere to a fiduciary standard, it seems naïve to suggest that ethics standards are a primary motivation for advisors to attain the designation. As Dr. Basu suggests, many advisors "...realize that a CFP credential will help grow the volume of their business or branch them into other related and lucrative products and services."
Further, Mr. Keller's contention that, "The sad truth is that anyone can call himself a financial planner," should not go unchallenged. Under current SEC rules, Investment Advisor Representatives are the only financial advisor class that may hold themselves out as offering financial planning services under federal law, and the reason they may do so is that they are held to a fiduciary standard. Traditional commission-based Series 7 registered representatives may not legally hold themselves out as financial planners unless they are also dual-registered as IARs. Most states also have regulations that limit the ability of small RIA firms (those with less than $25 million in client assets) and other individuals who fly below the SEC radar to legally represent themselves as financial planners. While I wholeheartedly agree with Mr. Keller that the fiduciary standard should be expanded to include registered representatives and even insurance agents, as the Madoff scandal clearly demonstrates, the real problem is enforcement, rather than the presence or absence of either a code of ethics or the fiduciary standard.
In terms of academic standards, a review of the CFP curriculum tends to support Mr. Keller's rebuttal that it is broad-based and not product oriented per se. However, as Dr. Basu acerbically articulates, the position advanced by some CFP proponents that the designation represents the sole legitimate academic path to financial planning competency is equally questionable. Speaking directly to some of Mr. Keller's comments, I believe he exaggerates the CFP program's academic standing and screening criteria. Dr. Basu is quite correct in pointing out that the College for Financial Planning is not academically accredited and there are no admissions standards other than a nominal three year industry experience standard (three years as a clerk in a brokerage firm will qualify). Mr. Keller defends the curriculum by stating that, "Topics include economic concepts such as supply and demand, fiscal and monetary policy, time value of money concepts..." The mere fact that that no prior college level academic experience in finance is required is testament to the fact that the coursework is largely 101 level material. To illustrate this point by example, economics represents one small chapter of the Investments section of the CFP curriculum. In contrast, econometrics and statistics alone was a semester long 300 level course in my undergraduate economics studies. This is not to suggest that the CFP program does not provide adequate training and preparation for a career in financial planning, but to assert that the CFP designation trumps a graduate or even undergraduate degree in finance or economics is difficult to defend. This was my counterpoint to Mr. Moisand's bellicose labeling of non-CFP certificants as "faux planners".
In fairness, some of Dr. Basu's ideals on the educational standards for financial planning certification seem a bit extreme as well. For instance, I can't imagine subjecting doctors, attorneys, or even business school professors to periodic recertification exams. Further, unlike all of the aforementioned professions, most financial advisors are already subject to some form of industry mandated continuing education requirement. Frankly, most informed, non-industry related persons would probably agree with Mr. Keller that the CFP curriculum adequately prepares certificants to provide financial planning guidance to the public. Of greater concern, however, are the powerful lobbying efforts by Mr. Keller's organization and the FPA to make the CFP designation a regulatory prerequisite to providing financial planning services. Those of us with accredited degrees in finance and/or economics who already practice financial planning under fiduciary standards as IARs should recognize this wolf in sheep's clothing for what it is - a backdoor maneuver to eliminate non-CFP investment adviser competitors. For my two cents, I agree that there should be some sort of regulatory standard for financial planning competency, and I do not oppose establishing the CFP designation as the minimum educational standard - as long such legislation clearly acknowledges that those of us who have invested the time and money in attaining accredited degrees in finance and economics meet and exceed the standard as well.
Thank you for the opportunity to contribute this commentary. I hope it constructively adds to the debate.
John H. Robinson
Mr. Robinson is a Honolulu-based independent, dual-registered financial advisor. He holds a degree in economics from Williams College and has written and published numerous professional papers. A paper he co-authored entitled, "Reality Check: The implications of sustainable withdrawal analysis on real world portfolios" was awarded the CFP Board of Standards' 2008 Oustanding Paper Award. He does not hold the CFP designation.
* Judith Zabalaoui was arrested in Louisiana earlier this year on charges of masterminding a Ponzi scheme. The media references her as a CFP who was hailed as one of the "early pioneers in fee-only planning". James Buchannan was an Arizona CFP who stole $5 million from his church and fellow parishioners. Bradford Bleidt was a Boston-based RIA and CFP who embezzled millions of dollars from 125 clients including a number of local churches.
A few ideas
Like many who have commented, I disagree with more of what Dr. Basu says than what I agree with. It is a worthy discussion with some valid points once you clear up the inaccuracies he conveys. I have two thoughts that I would like to suggest. The first is I believe the CFP board should institute different "levels" of certificants. All of us know that in this profession that we can't be an expert in each of the five areas the Board tests. Not if we expect to run a successful practice anyway. So if a practitioner wishes to specialize in one area, like estate planning for instance, he/she should be able to go through a curriculum that supports that specialty to show his or her advanced knowledge. I realize that this is done now, but usually by picking up different designations such as a CLU if one wants to show their specialty in insurance. My second point is with continuing education. While I agree that 30 hours of CE is not all that rigorous, you do need to take into account that many certificants hold different designations with their own requirements. CFA's, CPA's and CLU's all have various requirements as well as organizations such as NAPFA. So I would guess that the majority of CFP's go well beyond the required 30 hours. Now if only we could get tenure as CFP's, our life would be good! I couldn't resist taking one shot at the good Doctor sitting in his Ivory Tower.
In Defense of the CFP® Mark.
I was stunned that Somnath Basu's poorly constructed op. ed. article titled "Restoring Trust In The CFP Mark" complete with all its mischaracterizations and half-truths was ever published in a serious trade publication like Financial Advisor. I don't think anyone can claim that I'm in the pocket of the CFP Board so let me help them out a little here.
Mr. Basu begins his long-winded diatribe with the ever popular überschrift: "financial practitioners are sales people masquerading as planners or advisors in an industry whose ethical practices have a shameful track record" while neglecting to mention that the CFP® Certification marks were created by a few of those very same people who recognized this fact and were trying to chart a different course, both in their industry and in their ethics. It certainly wasn't academia who came up with the idea, although thanks to the interest in higher education they now have a vested interest in demanding students take even longer and more costly courses to before the Certification exam.
In Mr. Keller's (CEO CFP Board) rebuttal of Mr. Basu's article we actually get a Kum bah yah campfire moment as Mr. Keller claims to be in "complete agreement with Dr. Basu" on "the need to regulate financial planning ethics and competence." NEWSFLASH... As the recent spate of disciplinary actions against registered Investment advisers and so-called financial planners reinforces, you cannot "regulate" ethics, people either have them or they don't, regardless of method of compensation! You can test and retest competence but you can only discipline lapses in ethics after the fact.
This constant yammering about method of compensation is a marketing gimmick, another way to stand out from the herd. NAPFA populism, i.e. "get the wicked salesman", bad nasty commissions is old and tired. To most of them I say, get an insurance license and stop breaking the law! I've earned commissions and I've given advice on a fee-only basis as a registered investment adviser and in 23 years my ethics never changed, only my competence to practice and my business model have.
Contrary to Mr. Basu's opinion, the financial crisis and brutal economy have soiled the reputation of banks, mortgage lenders and fixed income ratings agencies who are seen to have breached the public's trust for the most part, not the bulk of advisers.
Mr Basu supports his argument regarding the need to "restore trust" to the CFP® Mark with two polls, a 2006 Harris Interactive poll and a November 2008 Gallup poll. I didn't know we CFP® Certificants had lost any trust recently but perhaps I didn't get the memo, so I read both those polls in detail and aside from the fact that a couple of thousand people is hardly "representative" of 300 million consumers in America, I didn't see word one about CFP® Certificants anywhere. In fact, since Registered Investment Adviser is a restricted term and financial advisor can be used by any Schmoe, or just illegally, it's a gigantic and untenable leap to conclude that CFP® Certificants were contemplated by consumers in their responses to either of these surveys.
Then comes talk of considerable damage and how it can be "repaired". Mr. Basu suggests intensive post-graduate work, complete with a board exams and the involvement of educational accrediting bodies that add rigor to the education process.
I applaud Mr Basu's attempt to drum up business for academia and his university by piling on the educational requirements but as an academic, Mr. Basu has lost sight of the fact the CFP® is a "professional" Certification mark and not an academic degree. Later he acknowledges this by writing: "For most purposes, certificate programs are generally excluded by these educational governing bodies." EXACTLY, educational credentialing bodies are not going to accredit a professional Certification mark that has continuing educational and renewal requirements and perhaps Mr Basu should join me in my campaign, started in 1996, to create a Federal Uniform Financial Planners Act, while decoupling the term financial planning/er from investment advisory services and creating a "real" profession of financial planning instead of some quasi professional non profit, copyright-controlled whatever it is we have now.
Additionally, if Certified Financial Planner were to be re-characterized as a purely academic degree and accredited by such an educational credentialing body, then anyone completing the program would have the right to use the title "Certified Financial Planner" for life with no ongoing ethics, continuing education of renewal requirements. That's when real chaos would ensue. You can't stop a convicted felon from saying he has a PhD in Finance and you wouldn't be able to stop a Certified Financial Planner from using that degree either. How would this protect consumers and "restore trust" he believes has been lost?
The idea of additional education requirements based on specialization is also an old one. In 1997 I opined in an open letter to the CFP Board and College For Financial Planning on my web site that CFP® Certification should be the "minimum" standard for all financial planners with boards of specialization, whereby no additional certification, service marks or designations should be conferred, but rather completion certificates only. Of course, this idea never took flight because the College for Financial Planning and others wouldn't have been able to make money from insurance agents, stockbrokers and NON-CFP® Certificants, hence the plethora of designations on offer nowadays from all and sundry to anyone with a few bucks.
Mr. Basu talks about the lack of academia evident in the development of the educational program, opining, what's needed is more academics and less practical assistance for practitioners and going on to say "merely having a representative member from an accrediting body in a group of practitioners attempting to create an academic program is not viable." That's hardly a fair and balanced representation of what the CFP Board does in constructing its educational requirements, particularly coming from Mr Basu. Academia is well represented, in fact, probably too well.
In his response, Mr Keller should have been quick to point out that Mr. Basu participated in the development of the AFS and CFP Board Model Financial Planning Curriculum, which provides a 21-credit-hour curriculum at the upper-division baccalaureate level or master's level and that covers personal financial planning topics deemed important for providing competent, ethical and comprehensive personal financial planning advice. In their report released in 2006 I counted 18 other PhD's (some from really excellent universities) and at least 3 Juris Doctors who also worked on this project.
Mr. Basu then wildly claims many planners who took the Certification examination before 2007 hit the pavement straight from high school or even beforehand? Not as CFP® Certificants they didn't...
Mr Basu then performs a comparative-educational-requirement analysis of financial planning vs. medicine and the law and bloviates about the mind-body connection exacerbating financial worries saying what's needed is "a grassroots movement to force regulation of the industry's ethics and competency, as well as the close monitoring of fiduciary responsibilities." Meanwhile, back here on earth and far away from academia, many of us are still trying to get the federal government to define "fiduciary" and decouple financial planner and financial planning from advice as to the benefit of investing in regulated securities so that insurance agents and stockbrokers who "hold-out-as financial planners" can be forced to register as investment advisers, act as fiduciaries and have their practices examined and audited by someone... ANYONE!
Additionally, there is not a snowballs chance in hell of the federal or any state government jumping from "registration", right over Certification and straight to licensure for financial planners, a status M.D.'s, CPA's and lawyers enjoy and anyone who thinks so is ignorant about the way government thinks about the necessity of licensure in trades and professions. I recommend Mr. Basu read "Demystifying Occupational and Professional Regulation" by Schmitt & Shimberg, as well as "Questions a Legislator should Ask" by Shimberg & Roederer at the very minimum before sounding off about professional regulation. For all the academics out there, both are published by the Council on Licensure, Enforcement and Regulation.
Then comes more talk about how corporations have little motivation to teach all the right material since that may adversely affect their own profitability, probably the first fact in his article, while failing to give credit to thousands of CFP® Certificants affiliated with many of these firms who went the extra mile in terms of education, examination and commitment to become CFP® Certificants for that very reason!
Mr. Basu's re-certification every ten years idea, which he finds "worthy of consideration" is then compared to retaking the drivers test? Boy, if ever there was a ROF LOL moment that was it. I guess Mr. Basu realized that lawyers, CPA's and Medical Doctors don't re-certify their boards every ten years either. Oh, and by the way, in California the driver's exam is a piece of cake and only retaken every renewal period if one gets a moving violation. Whereas in Austria for example, the average number of hours of classroom and hands-on driving instruction is 120 hours before testing, the driver's test includes extensive motorway driving at high speeds and one must be able to explain the inner workings of an automobile's engine, hydraulics, brakes and transmission systems on the very difficult written exam... AND it costs a fortune with driving schools making out like bandits. Hmmmmm, one wonders how well schools and colleges do when the CFP® Certification examination produces only a 54% pass rate on average.
After bloviating a little more about stockbrokers and insurance agents... I thought we were discussing the CFP® Certification process here, Mr. Basu finishes his article with "The way to resolve this issue is for the industry to step boldly in the direction of more meaningful professional education that raises quality standards and infuses investment advice with credibility and confidence." While I would agree with this statement for the financial services industry in general, I would call upon Mr. Basu and the 18 other PhD's who worked to develop standards of education for CFP® Certification as well as all the lawyers who want their say too, to represent their positions more forcefully within the framework of the Model Financial Planning Curriculum Committee to the CFP Board and stop whining like hypocrites in self-serving articles when they don't completely get their own way from CFP Board, or fully comprehend how politicians think about professional licensure. After all, when the universities and academia have vacuumed the last dollar from our pockets with their overpriced courses, we still need to "practice" with live bodies and try to earn some of it back again. I would have thought that any help a newbie could get from an experienced CFP® Practitioner would count as a blessing, we're not all evil.
Nigel Taylor, CFP® is a former president of the award winning LAS-ICFP(1999), former Co-Chair of the FPA-LA (2000), a 23 year insurance veteran and a Registered Investment Adviser.
How many of the recent scams across the financial sector were created by those w/ designations? Ethical behavior is ethical behavior. Just because you have "alphabet soup" after your name does not make you more ethical or of a higher fiduciary standard. This thing of "Independent RIAs", "FPA members" and others who think they better doesn't make it gospel. Those that I know that have gone the independent RIA route have done so, their words, "to eliminate regualtory duplication"....malarkey!
Get over your self-elevated egotistical selves.
Don't sell the ChFC short
I would like to remind Mr. Keller that a CFP does not meet the educational requirement to be a ChFC! The ChFC requires more education than a CFP, and the same amount of experience. I took the ChFC courses before I began to look at the CFP because in the 1980's the ChFC was the better mark. The CFP has improved requirements since then, so I went ahead and challenged the test a few years ago. Yes, it is a very hard test. I am not sure that taking the one test really helps retain information versus taking the 9 seperate tests of the ChFC. I also feel that it instills in some CFP's the notion that they now know everything and do not need to advance their studies. I would recommend that if a CFP is going to work with business owners that they add the additional courses to become a ChFC and possibly a REBC or CEBS. They should also complete the courses to become a CLU, since most CFP's remain dreadfully inept in the world of life, disability, and health insurance. In other words, the CFP should be viewed as a beginning, not an end.
Edward Dee Hinds, CLU, RFC, ChFC, CFP, AEP, CASL
Are you kidding
With all due respect to the many in this profession that are and are not the vaulted holders of the CFP mark. I have practiced in this arena for almost thirty years. I was a member of the IAFP for many years before the CFP members merged and made it their own. I would take this opportunity to voice the opinion that its not the designation that makes you a valuable member of my profession, but the ethics that reside within you. I have met many people over the years that are and are not holders. I once hired a CFP for my office that i soon found out I could not put in front of a client, why they had no people skills. While they were book smart and had been a product wholesaler for a number of years they had no real idea what to do for a client. Was this a "planner", I think not but they held the CFP mark. I have also been in the company of many others that either practiced with another designation or for that matter had none, they were both competent and ethical. I would certainly want those people in front of my family when I was no longer able to be there than the earlier person that was a holder of the CFP.
Once again its not the designation but the person and the ethics that reside within them that will determine who will do the best job.
I do agree that this profession has a long way to go. I am more than happy to put myself in front of a client any time against the holder of any mark. While some will find this against the CFP community I think they should really take a moment and worry about who they and not worry about if their community is being attacked. Its not.
Dr. Basu makes several important points...
While I hold the CFP designation and while I hold it in high regard, Dr. Basu does highlight several issues that do need improvement.
The CFP Mark is voluntary. The CFP Board has no power or authority to fine an errant planner nor to permanently remove an inept, dishonest or otherwise dangerous Planner from the field of practice.
CFP Board has performed many valuable services over the years. However professional regulation by means of trademark law is novel, yet less than all inclusive.
To get to where leading Planners hope to see the profession, held in similar esteem to attorneys and medical doctors, there must be more. That means a higher barrier to entry and a higher penalty for failing to uphold the standards formed by the professional community.
CFP Board has gone astray several times over the years. Fortunately CFP Board does not stand alone. The professional community (FPA and others) have supplied a check and a balance to help CFP Board stay on track. Academics like Dr. Basu likewise provide a valuable reflection that we as a community should fully consider.
Dr. Basu's comments do not sound to me to be a condemnation of CFP Board. No need to be so defensive Mr. Keller. Instead please consider his observations to be a valid identification of "growth areas".
I believe that an objective reader may conclude that the good professor has given CFP Board a B+ report card.
Now CFP Board may either grouse that it should have been an "A", or the Board may elect to be reinvigorated to do even better in the future.
Dr. Basu states "The time has come to put quality assurance ahead of greed and check all egos at the door." Of all of CFP Boards many wonderful accomplishments, checking ego at the door has never been one of them.
Let's keep the focus where it belongs - advancing the profession as much over the next three decades as we have over the past. Serious introspection and admittance of "growth areas" is a good place to start.
I wouldn't put much credibility into what Dr.Basu says. Sounds to me like another typical "academic" who could not make it in the business world, yet feels that more education from a text book is the answer to everything. Also, I love how he stated that finanical advisors should be salaried. I did not know that doctors and lawyers were salaried.
The CFP is hard...did you take it?
At the risk of sounding arrogant, I'll comment. After taking and passing the CFP exam, I KNOW how hard the exam is. The exam is MUCH harder than the Series 7 exam, than any other test that I've ever taken. Just the sheer stress alone of 10 hours worth of testing over 2 days is enough to deter most people, not to mention the 50-70% pass rate of those who do try. In my opinion, only the best of the best can call themselves CFPs. From friends who have taken just about every exam there is, only the CFA exam is harder than the CFP exam - and is typically for a completely separate group of professionals. I guarantee that those who criticize the CFP have never attempted to test...it's just too hard and too comprehensive. Each question has several "right" answers - you must pick the "best right" answer based on all financial implications and the client situation. Part of it IS a situational, case-based exam.
I completely agree with Kevin Keller when he speaks of "financial planners" versus CERTIFIED financial planners. In my market, I compete with many great attorneys, CPAs, brokers, etc. who call themselves "financial planners" in order to generate more sales. It really makes clients question the credibility of the industry and distrustful of us all. Once I explain the educational, examination, work experience, ethical, and continuing education requirements of the CFP marks to my clients, they completely understand the difference and value the designation. All are willing to pay more for a CFP than a self-proclaimed "financial planner."
If you are not a CFP, you have no right to pass judgment about the CFP exam as though you know how easy or hard it is, unless you are one of the people that I know who have failed it 3+ times and you want to write and tell people how hard it really is.
Objective & Fee-Only: CFP®, MBA, Masters of Trust & Wealth Management, Accredited Wealth Management Advisor (SM)
I resent being lumped in with members of the Financial Services Industry who hold no designations becuase they are only trying to make a quick buck.
The work required to obtain the CHFC designation is substantial. Many holders of the CFP designation also have the CLU and CHFC designations just as I do.
I am in the process of studying for the CFP exam but now wonder if those who just have the CFP designation believe they are superior to all others because of it. That would, in my opinion be a sobering and sad revelation because there are many who obtained their CFP in the days before the comprehensive exam. They obtained no further credentials. Are they really CFP'S? Are they really current?
I would expect nothing less in a rebuttal from the CEO of the CFPBOS. In an effort to oversell the difficulty of obtaining the "Mark". As Mr Keller states "[quote]It also ignores the rigorous CFP certification examination (almost Darwinian in nature) that nearly half of all first-time takers fail"[/quote] one need only visit the CFP Boards website and see that they statistics for first time takers are significantly different ranging from a pass rate of 55 to 70. Here is the link http://www.cfp.net/media/survey.asp?id=9#2
Furthermore the 30 hours of biennial CEs required are hardly difficult especially when the CFB Board chooses to be very lax in enforcing its own standards.
It is a very old line about anyone can call themselves a financial planner and yet that really is not the case,legally. Each state has requirements which may prevent just anyone calling themselves a planner.
There is no reason to lump job holders such as stock brokers and financial advisors with holders of a designation such as the ChFC unless one is attempting to be insulting. If my information is correct people who have completed the CFP education requirement through the American College do very well on the CFP exam.
In addition it the nearly 30 year history of the CFP BOS I am not sure what efforts that they have made to promote the creation of a state recognized profession of "Financial Planner". Now that the "Fiduciary" word has become the cause celebre the CFP Board comes out with the standards.
In August 06 Mr Keller was stating that their existed a Fiduciary relationship long before it was on the drawing table.
While I disagree with Dr Basu's posting on many different levels I think that Mr Keller's repsonse is equally disappointing and incorrect.
IN fact when I saw the title " Restoring Trust in the CFP Mark" I thought that it may have been an article dealing with the current CFPBOS and seeking redress their.