There are dozens of financial designations for industry professionals, and any planner can call himself or herself a financial planner. However, the Certified Financial Planner™ designation stands alone in its offerings and trustworthiness.
At Financial Freedom all firm members are Certified Financial Planner™ professionals. Our fee-only, retainer-based approach to your financial planning needs ensures that your needs and best interests are placed ahead of our own.
Here are five reasons why the only advisors you should consider when you are seeking financial planning services should be fiduciary Certified Financial Planners™.
1) Fiduciary Responsibility
Financial relationships involve trust, and some clients, unfortunately, may trust a financial professional who does not deserve that trust. Sometimes planners fail to meet high standards for conduct because they are not fiduciaries, meaning that they do not need to put their clients’ needs before their own.
As the public and lawmakers become more aware of the risk that non-fiduciary relationships may pose to clients, stricter fiduciary legislation has been proposed. However, currently, most personal bankers, insurance agents, and stockbrokers are only required to offer “suitable” suggestions, meaning they serve more as salespeople than true advisors. Their advice must be appropriate for the client, but the planner can also consider his or her own financial best interest in making recommendations.
However, all CFP®s, regardless of how they charge their fees, are held to a fiduciary standard. They must believe (and be able to explain why, if necessary) that their recommendations are in their client’s best interest. CFP®s also abide by a code of ethics and follow the best practices the CFP® organization has developed. In short, CFP®s provide a level of trustworthiness other planners cannot offer their clients.
2) Extensive Certification Process
Financial planners must complete a considerable list of requirements to become Certified Financial Planners™. These are called the “Four E’s” requirements: education, examination, experience, and ethics.
To meet their education requirements, planners must hold a bachelor’s degree as well as complete seven college-level financial planning courses authorized by the CFP® Board. The financial planning courses cover the basic principles of financial planning, as well as insurance, investment, estate, income tax, and retirement planning, followed up with a comprehensive capstone course.
Next, the applicant must take and pass the extensive CFP® exam. In the financial services industry, exams for popular designations like the Series 7 securities license may sound impressive, but they rely on pure memorization and require little preparation.
However, the CFP® exam is dramatically different. It is difficult (its average pass rate is a little over 50%), takes a substantial amount of preparation and studying to pass, and requires in-depth critical thinking skills. The questions are designed to evaluate test-takers on their ability to appropriately apply their financial planning knowledge to hypothetical situations.
Third, the planner must fulfill a certain length of work experience in the financial services industry. For the standard certification path, this is a minimum of three years of full-time relevant work experience.
Finally, planners must adhere to the CFP® Code of Ethics and Standards of Conduct. They must pass a thorough background check that assesses not just the criminal history of the applicant but also any financial, civil, and government proceedings, employment termination reviews, and customer complaints.
These requirements are designed to instill confidence in clients that their financial planner has the qualifications and experience necessary to manage their investments or advise them on financial decisions. Less than 20% of practicing financial planners hold a CFP® designation, meaning that these professionals are truly in their own class.
3) Ongoing Education Requirements
CFP®s are required to complete ongoing education to maintain their certification. The current requirement is to fulfill at least 28 hours of continuing education credit in approved financial planning content areas and two hours in ethics education every two years.
This requirement ensures that planners stay informed on the latest developments relevant to financial planning legislation (such as the new fiduciary rule from the Department of Labor), as well as new industry practices and potential services that could better serve clients.
4) The Industry Standard
Because the CFP® exam is difficult and the other certification requirements require significant time investments, the CFP® certification is a prestigious designation. It is the industry standard for clients looking for comprehensive financial planning, and planners are recognized as educated and experienced in all areas of personal financial planning as well as application of this knowledge, meaning that the value they provide is greater than the sum of its parts. CFP®s can synthesize their extensive knowledge to identify blind spots and areas to improve in their client’s current financial plan.
The CFP® Board is committed to ensuring that the CFP® designation remains the industry standard. It conducts ongoing research on the state of financial planning to evaluate clients’ perceptions and opinions and guide decisions in how CFP®s can better meet their clients’ needs.
A recent nationwide survey the Board conducted found that almost all respondents believed that personal financial planners should follow professional practice standards and be held to a code of ethics. The majority (85%) of respondents also reported that it was important for planners to hold an industry certification.
5) Active Consumer Protection
More than just a professional designation, the CFP® organization works actively to further the education of CFP®s, to monitor its own financial planners, and to educate the public. In its advertisements and consumer outreach efforts, the organization communicates the importance of working only with a fiduciary standard of care advisors and those who are held to high professional and ethical standards.
Holding a CFP® designation is an ongoing process that the CFP® Board oversees. In addition to requiring planners complete continuing education credits to maintain their eligibility, the CFP® Board can remove planners’ designation for other findings, such as unethical behavior that violates the CFP’s® Code of Ethics, even if the violation does not occur during work.
Due to the thorough background check, most unethical planners (such as those who “churn” their clients’ portfolios to generate transaction fees or recommend insurance policies that generate the highest commissions to the planner) will not pass the final requirements. However, for those few who slip through the cracks, the CFP® Board can quickly investigate and will de-certify planners found guilty of violating the CFP’s® ethical standards and best practices.
Certified Financial Planners™ offer a level of experience and skill no other certification in the financial planning industry can offer clients. CFP®s provide unbiased advice, the perspective of understanding all components of their clients’ financial plan, and the peace of mind that comes from knowing that the planner is monitored by an active Board that is dedicated to ensuring that CFP®s provide the highest quality advice and always work for their clients’ best interests.
Financial Freedom Fee-Only Wealth Management has been providing comprehensive financial planning for over 30 years. We are here to help you reach your life and financial goals. Contact us today to see if we are a good fit for your wealth management needs.