I recently met with a prospective client, looking to hire a financial planner. She saw a TV ad from the CFP Board about hiring a professional planner. She visited their website and realized she didn’t know how to differentiate between them all. She wanted to ensure that the planner would help her look at all aspects of her financial life, and she realized that just because someone was a CFP® it didn’t mean they all operated in the same fashion. Her search was proving to be more difficult than she had anticipated.
It’s true, not all CFP® professionals are created equal. This article discusses why you might want to seek out a CFP® and some common differences to help you in your search. It’s important to educate yourself on what financial planning really means and to ask a lot of questions before deciding who to hire.
When looking to hire a financial professional, one of the most desirable credentials is the Certified Financial Planner™, or CFP®, designation. The CFP® mark indicates the highest standard in financial planning because CFP® professionals must meet certain educational requirements, pass a lengthy examination and have at least 6,000 hours of work experience for the standard pathway to certification. They must also adhere to specific standards of ethics and practice as outlined by the CFP Board.
Sounds great, right? The problem is that many financial professionals who have the CFP® designation use it as a marketing tool. There’s been a big marketing push to hire those with a CFP® by the CFP Board, and consequently financial firms are encouraging more of their advisors to obtain the CFP®. While there’s an educational benefit to anyone with the CFP®, it doesn’t always carry over into the work they do for their clients.
Many financial professional’s focus on investment management, not wealth management. Investment managers focus solely on your investments. They’ll likely ask you for details about investments you hold outside of their management, to ensure they consider those when determining their recommendations for you, but it’s not a necessary component of their business. Their job is to do the best they can for you in the portion of your investments they manage. They may not look beyond those investments to find other ways to help you, unless it involves bringing more of your money to them. Wealth managers may or may not manage your investments, but they look at all aspects of your financial life and advise you on them. It’s important to ask the CFP® how they work with their clients and if they’ll do financial planning for you that goes beyond the investments.
A CFP® who holds and maintains a Series 7 license is different than someone who doesn’t. One obtains the Series 7 by passing a General Securities Representative Exam, which allows the individual to sell general investment products and securities on behalf of the financial firm they work for. To take this exam, the person must be sponsored by a broker-dealer, and continue working for a broker-dealer to maintain the license. There’s a conflict of interest for a CFP® who holds an active Series 7 because they’re sales representatives of the brokerage firms they work for. Those firms push their advisors to sell certain products and find ways to generate revenue because that’s how the company and individual are compensated.
Make sure to ask how an advisor is paid, and if they receive additional compensation based on sales of certain products. Advisors are always going to tell you (or should always tell you) why something is good for you, so don’t be afraid to ask what’s in it for them. Most, but not all, advisors look out for their clients’ best interest. So, it’s important to ask these questions. This doesn’t mean a CFP® at a brokerage firm should be avoided; it means an extra layer of due diligence by the client to ensure any recommendations are in their best interest.
Not all CFP® professionals bring their clients through a comprehensive financial planning process. Below are the official steps to define a financial planning relationship, and the planning areas a financial planner should discuss with you.
- Establish and define the client-planner relationship
- Gather client data, including goals
- Analyze and evaluate the client’s current financial status
- Develop and present recommendations and/or alternatives
- Implement the recommendations
- Monitor the recommendations
Basic subject fields covered in the financial planning process typically include, but are not limited to the following:
- Financial statement preparation and analysis (including cash flow analysis/planning and budgeting)
- Insurance planning and risk management
- Employee benefits planning
- Investment planning
- Income tax planning
- Retirement planning
- Estate planning
It’s important to understand how detailed a CFP® will be. Not all CFP® professionals give you this level of planning, so make sure you ask and verify, and get everything in writing.
Many people want to hire a CFP® to act as a fiduciary, which means the CFP® should put their clients’ best interests first. The word fiduciary gets tossed around a lot, and it can be hard for people to know if their financial planner’s recommendations really are in their best interest. This is why it’s important to educate yourself about the nuances involved in financial planning and investment options. Many assume a CFP® professional automatically looks out for their clients’ best interests, but the CFP Board has limited means to enforce their standards of conduct. They’re not a government-sanctioned regulator. They can’t fine practitioners or limit their ability to practice.
We believe most financial professionals are doing the best they can for their clients, but it doesn’t mean they always put their clients’ needs first. Doing your research and asking the right questions will be worth it in the end as it likely means the person you hire will be one you and your family can grow with for many years to come.