Is The Certified Financial Planner Designation Out Of Synch With Today's Financial Advice Consumer?

Monday, March 12, 2012 13:54
Is The Certified Financial Planner Designation Out Of Synch With Today's Financial Advice Consumer?

Tags: CFP Board | financial planning | investment advisors | profession | profitability

“The revolution that began in December 1969,” according to the opening page of "The History of Financial Planning: The Transformation of Financial Services" (John Wiley and Sons, 2009), “was intended to help ordinary Americans gain control over their financial destinies.


In their book about the origins of financial planning, H. Oliver Welch and E. Denby Brandon don’t explore this idea because it was a given that financial planners would serve the masses. But CFP licensees must come to grips with the fact that serving “ordinary Americans” is fallacious.


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 The economic reality of America today forces CFP professionals to go up-market. CFPs can’t as easily make a living serving ordinary Americans as they could in the 1960s and 1970s, when the CFP movement began. In fact, CFPs face growing competition in serving the mass affluent.
Look at this TV ad that the CFP Board is running now on national TV, called “Let’s Make A Plan.” It’s about planning. Truth is, however, most of the clients CFPs want don’t need a plan. They have enough money not to need a plan.
While budgeting is one of the key words in the value proposition outlined in the CFP Board’s ad campaign ad, most investment advisors prefer clients that don’t need a budget. Should the CFP mark be marketed to the masses, as it is done now in a CFP Board TV campaign?

Which brings me to my question: Are CFPs burdened by a curriculum and history that is out of step with today’s consumers of professional financial advice?
Most other professional designations for financial advisors are not burdened by the CFP designation’s history of targeting the middle class. Teachers, middle managers, and factory workers were never thought to be ideal clients on which to build a professional practice by CFAs or CIMAs, two designations that have shown strong growth among private wealth advisors seeking licensing in the last few years. In fact, one new designation is marketed specifically as an up-market version of the CFP. 
“The Certified Private Wealth Advisor® (CPWA) designation program is an advanced credential created specifically for wealth managers and advisors who work with high-net-worth clients on the life cycle of wealth: accumulation, preservation, and distribution,” says the website for the Investment Management Consultants Association (IMCA), which licenses CPWAs. “Candidates who earn this designation learn to identify and analyze challenges facing high-net-worth clients and learn to develop specific strategies to minimize taxes, monetize and protect assets, maximize growth, and transfer wealth.”
CPWA is marketed essentially as a CFP for advisors serving high-net-worth individuals. In fact, a prerequisite for being a license CPWA is that you must already be licensed as a CIMA, CIMC, CFA, CFP, ChFC, or CPA.
“As the premier credential in this arena,” says IMCA’s website, “the CPWA designation program offers a challenging educational program focused on advanced wealth management topics, including: behavioral finance, charitable and estate planning, planning for closely held business owners, planning for executives, portfolio management, retirement planning, risk management, and tax planning.
This CPWA credential is a new one. IMCA’s main credential currently is the CIMA. About 80% of its members hold the Certified Investment Management Analyst designation, and 5% are in the process of getting the designation, according to a story I wrote a year ago.
CPWA candidates must complete a pre-study educational component. Part of the $8,000 fee IMCA charges for the CPWA education program pays for reading materials, assignments, and online quizzes for the pre-study program. Much of the fee pays for room, board and tuition for a required five-day in-class program at The University of Chicago Booth School of Business. Renewing your IMCA membership and CPWA license costs $495 a year, plus you need to attend a minimum of 40 hours of IMCA –approved continuing education programming every two years.
Point is, this designation is arguably more in tune with today’s wealth manager, who no longer can earn a living serving “ordinary American,” as the CFP designation once envisioned.
What do you think? Is the CFP designation out step with the needs of financial advisors and today’s market for financial advice?  


Comments (7)

Jay Hutchins
The CFP designation has become an entry point into the planning profession. Sort of a bachelor's degree. The continuing education requirement is simply too weak to indicate a meaningful level of continued competence. NAPFA registration also requires CFP as a pre-requisite, with 60 hours of CE every two years spread across all planning areas. CFP remains a valuable designation. But, if I were a HNW prospect I'd be looking for someone with a master's degree or its equivalent designation. CPWA sounds like one reasonable course of study.
Jay Hutchins , March 12, 2012
Jeff Weiand
Andy, on several occasions you have written from the premise that (and I'll quote) "most of the clients CFPs want don’t need a plan. They have enough money not to need a plan."

This premise must come from the fact that perhaps you define financial planning as whether or not someone is going to run out of money or not. And if that's the case, I would like to suggest that you to do a little homework and find out what financial planning is really all about. If you do take the time to learn what Financial Life Plannning, in particular, is all about, I am convinced that your premise will be forever shattered. Otherwise, your premise is about as absurd as me saying, if your company has enough money, you don't need a website.

If you care to, please entertain me and answer this question - what is financial planning to you?
Jeff Weiand , March 12, 2012
Jeff: Thanks for questioning me on this.

I could be wrong.

Nah! I'm right.

Your analogy is, at best, flawed, and may explain why we are not seeing eye to eye.

I'm not saying someone with a $5 million net-worth does not need professional financial advice.

I’m saying they don't need a comprehensive financial plan.

Those are increasingly the best clients for private wealth managers -- ultra-HNWIs -- and advisors now serving HNWIs must be marketing, prospecting, and developing services for that market if they hope to win them as clients.

These individuals are not worried about paying for kids’ college or weddings. They're not even worried about funding retirement. Yet Retirement Planning is one of the five main areas comprising financial planning. (That’s how it’s taught to CFPs, as I recall.)

To use your website analogy, I'm saying that advisory firms don't need search engine optimization of their websites if they are not accepting new clients.

Thanks again for your thoughtful question.
agluck , March 12, 2012
Okay, I'll bite. Andy, you talk a fair amount about "a living" and why it's incompatible with the modern mass market. How much money are we talking about here that the hypothetical average planner needs or wants?

Teachers made the equivalent of about $45,000 a year back in the late 1960s. That number really hasn't changed. As far as I know, they still have pretty good retirement, health and other benefits. They were never ideal super-clients, but they weren't bad then. Find 100 of them, charge 1% of their salary and a little bit for AUM, grow as they grow, live like they do.

If the "ordinary Americans" model worked back then -- and that's an assumption, maybe the model was always broken -- then it's not the teachers who've changed. Maybe it's the planners who've gone up market on their own.

Nothing wrong with that. But given the curriculum, I wonder if it wouldn't be easier to give the CFP back to the mass market and to professionals who like helping everyday people with cash flow, credit management, retirement planning, education funding, and so on. That's the "bachelor's degree." Personal finance.

Build higher-level offerings and certs on top of that, but recognize that audience is always going to be by definition much more rarefied, much less scalable, and priced accordingly. Estate, trust, philanthropy, dynasty, family office. Nothing wrong with that either.
ScottMartin , March 13, 2012
barry korb
Interesting. Divide might easily be measured by looking at those who use cash flow planning vs goal based planning. Or could see it as a divide between need to focus on retirement panning/employee benefits/insurance vs investments/estate issues. Might also add a middle group (shrinking in size(?)) who have not yet firmly entered the high net worth group. Personally, I came to the field from the financial planning side, not the investment side. The issue from my perspective is, given the drum beat, power and effectiveness of sales driven product marketing, how to educate the middle class as to the value of competent, objective, comprehensive advice that puts their interests paramount. The market is there, the value is there, a good living can be made -- Barry Korb,
barry korb , March 17, 2012
Not sure if it was you who said, "Those who need a plan, don't have the money or are no willing to pay for a plan. Those, who have money and can afford a plan, don't need it." Such the CFP paradox that you are going to make a living in selling plans. And if you are going to spend your time serving clients, who do you want to serve? Those with money and can pay me a reasonable fee or those with no money and therefore little to pay me. In my 18 years in business, I cannot remember a single client asking for a plan. The higher the asset level of the client, the more is confused on the conversation of paying for a plan. Not that all planning is unwarranted, but your observation has been our experience. Also, the financial crisis of 2007 - 2009 left little answers for clients facing a meltdown in our equity markets.

As one poster has indicated though, a designation such as CFP or CIMA have become somewhat of hurdle that management will look at for hiring and promotion. Just means the individual is book smart and has the ability to learn, study, test. Doesn't mean he will be any good at investment advice. Those are both hard tests for sure.

From the client's perspective, the consumer still does not know the difference between broker, RIA, commissioned sales rep, CFP, CIMA, etc. It is all a fog to them and then we get more and more proliferation of three / four letter designations.

From a company's perspective, given you have two prospects - one has a designation and one doesn't, it will be a no brainer who gets the job or promotion. It shows a level of seriousness about the profession. It does not guarantee that person's advice will be any good. The industry has tried to make the CFP into a CPA like designation. They are totally different - one is tax law and dealing with the IRS. The other is a financial weatherman which the CFP does a poor job preparing a candidate for navigating markets. My two cents.
kennyl512 , March 17, 2012
Jeff Weiand
Andy, I'm in agreement that they probably do not need a big fat 100 page "financial plan". In fact, that's probably not very helpful to anybody. There's a reason why we call it "planning" instead of "plan" because real planning is not something you only do once. True financial planning is ongoing. Most importantly, regardless of a person's net worth, a planner still must review all facets of one's financial situation to ensure they are set up, coordinated and protected properly. Does their Will align with their wishes? Are their health powers and medical directives in order? Are their assets titled correctly? Have they set up or considered legacy and/or charitable planning? Are their trusted advisors working in concert with one another?

If the comprehensive plan, for which you say is not needed for the high and ultra high net worth client, is actually the process we go through to ensure that all the bases are covered, do you still feel that it is not needed? I sure hope not. You would probably be surprised to know that having a high or ultra high net worth does not automatically correlate into knowing or being confident that someone actually took the time to perform a comprehensive review of their entire situation. And to not do so would be negligent in my opinion. A comprehensive plan in this marketplace that we're discussing is making sure everything is in order - well beyond simply running cash flow projections to see if they can afford Harvard or not.

Thanks again Andy. Always fun!

Jeff Weiand , March 19, 2012

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