What Does the Designation Say About Your Financial Planner?
Your financial advisors designation has the ability to tell you a lot about his educational background. The designation can denote backgrounds in various areas of finance, business, insurance, accounting, and law. Common designations in the financial planning field are ChFC (Chartered Financial Consultant), CFP (Certified Financial Planner), CLU (Chartered Life Underwriter), JD (attorney), or CPA (Certified Public Accountant).
Remember, background is only one of the necessary criteria for selecting a financial planner.
Many very naturally assume that CPAs have a much stronger background in tax law and tax planning than other similar professionals. Their proficiency most often is related to their experience, not their CPA designation. You probably didn't know that the CLU exam has more questions regarding income taxation than does the CPA exam.
The CFP designation is a more widely recognizable designation than is the ChFC. This is in part due to better marketing for the CFP. The ChFC designation requires more courses and has more rigorous exams than does the CFP.
Even areas of specialty don't mean everything. CPAs, for example, major in accounting. College accounting courses take a historical perspective. They look at recorded historical data -- which the CPA then records, puts on a form, and prepares as a financial statement or a tax return. Every business owner should have a good CPA who can assist with financial statements and money management.
The problem is that they are seldom able to take a future driven approach. That is the difference between a CPA and a financial planner. Even colleges recognize that the accounting program is different than the finance program. The financial planner takes a proactive, analytical, and long-term strategic approach. They are not reactive to the data, but influence the direction the data will take.
The worst financial advice comes from journalists. They are notorious for describing an extreme market position, emphasizing the sensational in order to sell magazines. In my view, journalists are more concerned with making a story than reporting one. Seldom do I read the complete facts as given to the reporter, but rather a hazy half-truth intended to make a warped yet sensational point. Seldom do I find good judgment.
A designation may help in determining the financial planners areas of expertise, but don't get pigeonholed into common assumptions of such designations.
Remember, background is only one of the necessary criteria for selecting a financial planner.
Many very naturally assume that CPAs have a much stronger background in tax law and tax planning than other similar professionals. Their proficiency most often is related to their experience, not their CPA designation. You probably didn't know that the CLU exam has more questions regarding income taxation than does the CPA exam.
The CFP designation is a more widely recognizable designation than is the ChFC. This is in part due to better marketing for the CFP. The ChFC designation requires more courses and has more rigorous exams than does the CFP.
Even areas of specialty don't mean everything. CPAs, for example, major in accounting. College accounting courses take a historical perspective. They look at recorded historical data -- which the CPA then records, puts on a form, and prepares as a financial statement or a tax return. Every business owner should have a good CPA who can assist with financial statements and money management.
The problem is that they are seldom able to take a future driven approach. That is the difference between a CPA and a financial planner. Even colleges recognize that the accounting program is different than the finance program. The financial planner takes a proactive, analytical, and long-term strategic approach. They are not reactive to the data, but influence the direction the data will take.
The worst financial advice comes from journalists. They are notorious for describing an extreme market position, emphasizing the sensational in order to sell magazines. In my view, journalists are more concerned with making a story than reporting one. Seldom do I read the complete facts as given to the reporter, but rather a hazy half-truth intended to make a warped yet sensational point. Seldom do I find good judgment.
A designation may help in determining the financial planners areas of expertise, but don't get pigeonholed into common assumptions of such designations.
About the Author:
Hank Brock is president of Brock and Associates, LLC, a firm specializing in retirement, estate, tax, and business planning. For more detailed information on selecting a financial planner, visit us online.
posted by Debt Consolidation Loan at
2:58 PM
1 Comments:
Credentials are an important criterion for consumers who are seeking a financial planner, as Mr. Brock notes. More important, however, are the underpinnings that create the foundation of a credential. In order for a credential to be meaningful, it must be credible. There are few, if any, that are as credible in the financial services industry as the CERTIFIED FINANCIAL PLANNER™ certification (CFP® certification), which is awarded by Certified Financial Planner Board of Standards, Inc. to financial professionals who complete a lengthy and demanding certification process that includes not only education, examination and experience requirements but also actively-enforced ethics requirements that hold CFP® certificants to a fiduciary duty of care; namely putting their clients’ best interests first.
Those seeking to attain CFP® certification must first complete a course of study covering nearly 100 financial planning topics. The topic list is updated every five years based on a survey of the knowledge and skills practicing financial planners actually use with their clients. The curriculum for CFP® certification is widely accepted as covering all the topics that allow a financial planner to practice financial planning in a competent and comprehensive manner. More than 200 accredited institutions of higher learning offer the CFP® certification curriculum.
After completing the educational component, the applicant must pass the rigorous CFP® Certification Examination. This 10-hour, two-day comprehensive examination assesses the applicant’s ability to integrate their knowledge of CFP Board's specified topic areas and apply it to "real-life" financial planning situations. This exam is no walk in the park: The pass rate for first-time test-takers is typically between 55 percent and 60 percent.
Unlike many credentials in the financial services industry that represent educational achievements, the CFP® certification is not an entry-level designation for financial planners just out of school, but one awarded only to financial planners with verifiable experience. Applicants must hold a qualified bachelor’s degree and have spent at least three years delivering all or part of the personal financial planning process to clients. Just as the CFP® exam requires practical application of financial planning knowledge, the CFP Board’s experience requirement ensures that those authorized to display the CFP® marks have demonstrated experience working with clients.
The certification process doesn’t end there. Applicants for CFP® certification must pass CFP Board’s Candidate Fitness Standards, which describe conduct that will or may bar an individual from being certified. They also agree to abide by CFP Board's ethical standards – a Code of Ethics and Professional Responsibility, Rules of Conduct and Financial Planning Practice Standards – which require them to place the interests of their clients ahead of their own. And unlike most credentialing organizations, CFP Board enforces its standards. Applicants must disclose past or pending litigation or agency proceedings, pass a thorough background check, and undergo review of any items disclosed or discovered through that process. CFP Board’s established disciplinary procedures provide a rigorous and fair process for investigating questionable conduct and impose discipline where appropriate, up to the permanent denial or revocation of the CFP® certification. Serious disciplinary actions are made public. In short, CFP Board’s ethical standards have teeth.
Those financial planners who make it through the demanding certification process and attain CFP® certification must also complete periodic requirements designed to verify their ongoing competency and commitment to providing ethical services. CFP® certificants must be re-certified every two years through a process that involves completing at least 30 hours of continuing education coursework, re-affirming commitment to CFP Board’s ethical standards, and disclosing any legal proceedings or disciplinary matters that may have occurred within that two-year period.
While the ChFC designation may require additional coursework, it does not employ a comprehensive examination at the end of the full program of study, does not have the same experience requirements, and does not hold its designees to a fiduciary duty of care. The American College, which grants the ChFC designation does not have a rigorous process in place to enforce a code of ethics.
CFP Board’s mission is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning. For nearly twenty-five years, the core CFP® certification requirements have been the “4 E’s” – education, examination, experience and ethics. But the specific details of each of those requirements have been strengthened over the years, with each requirement scrutinized in light of the best practices of other professions and industries. These criteria distinguish in a meaningful way the more than 58,000 professionals around the country who have attained the CFP® certification by demonstrating a commitment to providing competent and ethical financial planning services.
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