The CFP Business Model Needs Help And Here's What You Can Do About It

Wednesday, June 22, 2011 01:51
The CFP Business Model Needs Help And Here's What You Can Do About It

Tags: CFP Board | financial planning | profitability

People who can afford financial plans don’t need them, while people who need financial plans can’t afford them.


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The grim reality of this observation struck me while writing my column for Financial Advisor in April and May. While glib, this realization is mostly unsettling.
It’s no secret that CFPs has a difficult time making money on writing financial plans. Most CFPs use a financial plan as a loss leader with investment management services, charging nothing or a deeply discounted fee for producing a comprehensive plan for a client. A work product of the CFP is not one that CFPs
As a result, other professional designations are making inroads in places where CFPs were expected to dominate. About as many Chartered Financial Analysts are now annually moving into advising individuals on personal wealth matters as there are new CFPs, and the CFA designation has a global reach and is growing rapidly.
In addition, the Investment Management Consultants Association, the licensing body of for Certified Investment Management Consultants, recently created a new designation, the Certified Professional Wealth Advisor, for giving financial planning advice to high-net worth individuals.     
All this raises questions about the viability of the business model for financial planning professionals.
Is it incorrect for CFPs to assume, as they have for 40 years, that the mass affluent—households with a net worth of $500,000 to $1 million—need financial plans?
Is the market for financial planning limited to the high-net-worth individuals with $1 million to $5 million of assets?
Let’s hope not.
The financial planning profession depends on the mass affluent embracing it. If individuals with less than $1 million of net worth are generally not going to spend the $1,000 or $2,000 that it takes to create a financial plan, then CFPs have a fundamental problem with their business model.
You can argue that CFPs earn a living advising on investment management, insurance, taxes, estate planning, and retirement, and that “modular” planning services focused on just one of these topics allow CFPs to make a living. But that is not how a financial planning professional is supposed to conduct himself.
A CFP is supposed to be the quarterback for all of the other disciplines. In fact, the reason the financial planning movement got started in the 1970s was because insurance agents and brokers came to believe that their clients needed holistic advice across a spectrum of different areas. That is the CFP’s value proposition.  
Financial planners, especially during a recession, must be able to make the mass affluent understand the value of financial planning and be able to provide comprehensive financial plans cost-effectively.
The CFP Board, however, does not do enough to support that objective.
Correct me if I’m wrong please, but the CFP Board requires just 30 hours of continuing education credit every two years (corrected an earlier version) to maintain a CFP license, and the 30-hour requirement has been in place for many years. That’s not good.
The 30-hour CE credit requirement was created in an era when you actually had to travel to a place, perhaps in another city, to attend a CFP educational event. But that is a relic of the past.
Now, you can fax in a quiz, submit an online form, or request CE credit by email, and you never have to go anywhere.
Moreover, the information revolution keeps making knowledge obsolete over a shorter time frame. To not make the professional education requirements more demanding in this dynamic environment makes little sense.
Since the body of knowledge required to master financial planning is changing at a faster rate and professional education is more accessible now, adding 10 hours to the CE requirement for CFPs is only right. The CFP Board, which is supposed to have the public’s best interest at heart, has not done what’s in the public’s interest by maintaining a 30-credit educational requirement.
In light of the speed of changes that affect financial planning, the improved accessibility of educational programs, and the serious business challenges CFPs are facing, the CFP Board should not only increase the CE requirement to maintain a CFP designation but it should establish a practice management curriculum. CFPs could be required to take 10 hours additional of educational credits every two years about how to make their businesses more profitable.
Under current rules, the CFP board gives its licensees no CE credit on courses that deal with marketing, sales, and technology. With the business challenges CFPs are facing, that‘s unwise. Why not require CFPs to learn how to make the offering of financial planning services more profitable? That would benefit consumers as well as the profession.
CFPs need to get some help from the CFP Board with creating a successful business model that works for the profession and for consumers.
What can you do about it? Tell the CFP Board that you believe CFPs should be required to take more CE credit and that you want CFPs to receive CE credit for learning how to run their firms more profitably.  You can email for the Board of the Directors of the CFP Board of Standards at This e-mail address is being protected from spambots. You need JavaScript enabled to view it  


Comments (13)

Good thinking, Andy. However, increasing mandatory regulatory control of what a CFP should do and how is a little statist for me. The CFP model is not broken, it is simply focused on those who have assets to manage or who can pay for expensive financial products. What people want and need is financial advice! We could decide to give it in the amounts and the ways that they want it, finding pricing and methods that work for a lot more people. Using web-enabled programs like Silver to sandbox the concepts that stump the public while avoiding comprehensive financial plan sales. Comprehensive knowledge and data aggregation for the professional so that he or she can give good advice that does no harm is a prerequisite, of course. Right now great swaths of our economy are re-engineering their business practices, products and services to fit into the new reality using the new media and web technology to do so. We've got the vocabulary and soul-orientation to do lots of good. It's time to put the rest of the puzzle together so American families don't have to go through this terrifying transitional economy alone. But, the companies with the money to support the status quo are paying for the meetings where this might happen, and dramatic change and reformation is not on their want list. It is a puzzlement.
kevinpaulcondon , June 22, 2011
What a thoughtful comment! But what I'm saying is the CFP model is broken if, as you say, "it is simply focused on those who have assets to manage or who can pay for expensive financial products." The market for financial planning, I believe is not supposed to be limited to millionaires. I don't know if you can have a profession if it only serves the wealthy. The 30 year period that ended around 2000 and that set the economic scene in which the financial planning movement was born is very different from now. The business model of CFPs needs larger appeal than just HNWIs with at least $1 million to manage.
agluck , June 22, 2011
I am not certain the problem is accurately portrayed here Andy. Your expectations are of an engaged professional society, but the CFP is no more than a simple membership sales organization.

CFP's focus is on membership fees, not planning, families or practioners.

brentb843 , June 22, 2011
I fail to see what upping the CE requirements will do toward fixing the CFP model in addressing middle class needs. It seems that a big step toward this is public financial education starting in high school. I don't think the CFP Board has any stake in this.
lynnn516 , June 22, 2011
Wealthy individuals not only benefit from planning, but they by and large receive it, and pay appropriately for it.

At the high end, additional fees can be assessed, we do it sometimes on an hourly basis and sometimes on a % of assets basis. Of course, our straight investment management cost is below many other advisors. And many advisors who charge a high percentage cost include planning for no additional fees.

We are also able to do fine with middle income folks and can generally get through appropriate planning for $300-$600. And for those who do not engage us for investment management, we are working on automating follow up planning meetings each year or two- kind of like dentists with regular checkups.

The reason we are not further along with middle income folks is that we spent most of our process development time on the services for upper income. Part of the reason is that we are expanding at a good clip with mostly wealthy individuals. But another reason is not wanting to compete with loss leader sales people who give away planning to show the need for some product purchase. A commission person who stands to make $3000 selling product to a middle income client is going to be much more willing to spend a ton of time with a middle income client then we are for the $300-$600 that we consider an appropriate cost.

And I would say this is a primary if not the primary reason that affordable fee financial planning for the masses isn't more widespread.

If we eliminated commissions like Australia, then you'd see an explosion of fee only planning for middle income- and we'd all be amazed at how efficient those services would get.
bramsay , June 22, 2011
Upping the CFP CE requirement and giving CFPs CE credit for learning about how to run their business better would promote education in the profession about ways for advisors to be more efficient and successful. If the CFP Board wants advisors to be successful, advisors must learn how to run their businesses better and find effective solutions to problems in the CFP business model. I hope the connection is clear to you.
This would allow more advisors to learn how they can succeed in serving the huge market of the mass affluent, the sub-$1 million with assets segment of the population.
For example, advisors could get CE credit for attending a session about how to create systems for advising on a retainer, batch processing portfolio statements, financial plans and other crucial documents. This would help promote the services provided by CFPs to a much larger segment of the population. For CFP to become accepted as a profession, it must be accessible to all segments of the population. That's not the only item on the list of what must be done to professionalize financial planning, but gaining acceptance among the mass affluent is certainly an important item on that list.
By the way, in other professions, such as CPAs, CE credit is awarded for continuing education on practice management.
agluck , June 22, 2011
Small point Andy, but I think the requirement (unless it has changed this year with everything else) is 30 CEUs every TWO years (yes, it's worse than you thought)! Tim
timknotts , June 22, 2011
If a financial planner were to charge what his or her planning services were worth, most middle income people could not afford the services. The fee would be too large a percentage of their income/assets. How many hours go into creating an in-depth financial plan? Multiply those hours by a reasonable professional hourly fee, and it's easy to have a bill of several thousand dollars.

Now, take a family making $100k annually with average assets. If typical, their inflows are very close to equaling their outflows. From where do they get the money to pay for professional planning services? Do they charge it, adding to their debt load? And how many of these clients would it take to allow a planner to make a decent living?

This, I think, is the biggest problem with financial planning as a separate discipline. As has been stated, most who need it cannot really afford it (and often do not want to pay for it). Likewise, many planners cannot afford to live only on providing planning only services to those who would perhaps benefit most.

Realistically, the average planner (not investment adviser/manager) has a hard time working with truly high net worth individuals. There are not that many of them relative to the number of planners. So the average planner has to work with the mass affluent and people who have lesser income/assets. Run the numbers and it's easy to see the financial difficulty for such planners.

Andy, I think, is right to say that the model needs to be fixed. Financial planning (as a separate and distinct discipline) has no real career path. In the U.S., you go to work for a wirehouse/brokerage firm or insurance company and hope you can eventually do some real planning. Selling investment/insurance is not at all bad, but it's also not at all financial planning (in and of itself). Few financial planning (only) firms of any size exist to hire aspiring planners. This means that a planner has to open up his/her own shop and go the entrepreneur route. Hard for reasonably new planners to do.

Many (most?) financial planners do need more practice management and business building guidance. CFP Board has been dragging its feet on qualifying these topics for CE credit to the detriment of practitioners. Making the CE requirements a bit more robust would help to elevate "CFP" to the level of other peer professions (in Colorado, CPAs must complete 80 CE hours every two years).
michaels0330 , June 23, 2011
BRamsay's comment on getting the government to regulate how planners are paid does not thrill me. Reducing the choice of how an advisor gets paid by clients is not the solution. I don't care how a planner is compensated as long as the planner behaves with integrity and professionalism.

The AUM model of compensation is wrought with ethical pitfalls and conflicts, and and arguably promotes abuse about as much as commissions.

Unless the government mandates that all advisors get paid on a retainer or hourly basis, abuses will persist in both the fee-only and commission compensation structures used by advisors.
agluck , June 23, 2011
We already had a bit of this discussion. Upping CE requirements won't make planners better or the public more aware. (I took 14 hours online two days ago. Cost me $60.00 and took me twenty-five minutes). The profession (if it ever was a profession) has morphed into one where Financial Planning now means gathering and managing assets. Advisors are ignoring all of the other aspects that planning is supposed to involve.

Certainly the problem won't be fixed by government regulation. Maybe the business model never worked but it seems to work less effectively now.
randyafox , June 24, 2011
Andy, you've thoughtfully articulated a major problem with the financial planning industry that only someone who cares about the industry and the public interest would even bother to notice.

Increase continuing ed? Fine. Focus on practice management hours? Sure. But despite how well you've laid out the problem and earnestly suggested solutions I disagree that compensation models don't impact the industry's ability (or inability) to arriving at proper pricing.

I also disagree that charging a pre-set fee that is 100% invoiced every quarter for services that can be terminated at any time with the click of a mouse is even remotely as prone to abuse as non-invoiced compensation charged by nearly all financial planners. Whatever their imperfections, charging based on net worth or AUM in the form of a pre-set fee is only half of the equation anyway - invoicing is the other. Commission, trails, and wraps muddy the playing field and until financial planners invoice for their services like other professionals, they'll just have to play in the slop.

In the meantime, how long must a fee-only financial planning purist accept the fact that after he introduces himself at a chamber of commerce meeting or similar function he'll be followed up by 10 of his "peers" who say, "Oh I do what the first guy does, only I don't charge a fee because I want my clients' hard earned money working for them." That's how it works. That's the environment we're in. Of course, in reality, the other financial planners invariably sell insurance at 70% - 100+% of first year premiums or annuities at an 8% commission, so even a $100,000 investment lands them a nice $8,000 check. Meanwhile our fee-only financial planning purist doesn't get a second look when he suggests charging $500 for a financial review.

In such an environment there's no possible way for market forces to arrive at proper pricing for such a dramatically misunderstood and underappreciated service. Not surprisingly, the financial planning purist is forced to look further up the ladder for clients wise enough and sophisticated enough to understand and appreciate the value of unbiased, expert advice (even though it would be more satisfying to help those of more modest means). Eventually, our young planner starts to lose faith in his profession and drops his FPA membership. Then he starts to question how many more times he can stand being asked, "Oh, you sell insurance?" after cautiously mentioning he's CFP(r) licensee. "When do I just finally drop the CFP(r)," he starts asking himself, "When do I just join or open an RIA and not actively market financial planning so I have a chance at making a living without becoming a product vendor?" How long before our young planner finally throws up his hands and gets so tired of competing against the "free" salesmen that decides to virtually leave the profession, focus on his technical skills, start the CFA program, and open what is primarily a money management firm (with planning snuck in on the side)? In my experience it takes about 14 years. Those a bit sharper than me perhaps a bit less.

The solution? Well, let's just watch what happens in Britain and Australia soon. Within 18 months both countries have laws taking effect that ban financial advisors from accepting commissions. Perhaps the profession will finally be allowed to emerge in these countries while also doing a tremendous service to their publics. We'll see.
stevenw224 , June 26, 2011
I am coming to this conversation a bit late but I wanted to comment anyway. You make a valid point when you ask the CFP Board to make room for practice management CEs in its arsenal of educational requirements to retain the CFP certificate. Unfortunately, the CFP Board seems to be run by those whose purity of purpose leaves no room for the mundain business of keeping yourself in business as a CFP in order to offer highly "professional"services to the public. We are not to be credited with any professional interest in developing a better business model for our "practices", an efficient way of providing those needed services to the public or a means of providing continuity of service as a retiring advisor seeks a successor. All of these pracitce management issues impact the very heart and soul of providing the "professional" services which the Board so highly prizes. What possessed the board to adopt this bizarre stance I cannot fathom but it keeps our profession from growing. Otherwise excellent CFPs are leaving the profession because they can't make the "business" work. This leads to clients being left stranded and deserted and therefore mistrustful of working with anyone else least it happen again to them.
Yes the CFP profession is in trouble and much of the blame can be laid at the feet of the Board for attempting to drive the philistines from temple because they have the temmerity to suggest that any true professional is also a sucessful business person. Looking at other professions one would realize that SROs encourage business developement and provides numerous ways to improve the professional Business model and credit it as professional developement.
One of our first steps in fixing the problems of the CFP profession is to convince the Board that it is fundamentally wrong to deny CEs for practice management.Then we can address compensation models, practice models, succession planning, technology integration and all of the other issues that plague us as "professionals."
mitchellkeil , June 28, 2011
It's hard to say this because these people are my friends, who I respect and care about. But here goes.

The leadership of the financial planning profession are great people who give a lot of themselves. But they are generally an elite group of successful practitioners. They often take a leadership role because they have successful businesses.

They don't need the practice management help.

This perhaps could explain why more attention has not been paid to helping financial planners succeed in business.

agluck , June 28, 2011

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