Do you know how to choose a financial planner?
I recently received an e-mail from a inquiring Wealth Pilgrim asking me how to become a financial advisor. Along that line of questioning, he asked if I thought he should become a CFP (R), or a Certified Financial Planner.
I thought I’d turn the question into a series that explains each of the different types of financial advisors and some of the main designations we pursue. Even if you aren’t considering becoming an advisor, this information is useful to you. Why is this important to you – even if you don’t plan on entering this profession?
Because the type of license an advisor has determines what kind of financial advice he/she can give you. Let me repeat.
The type of license an advisor has determines what kind of financial advice he/she can give you. That means when your advisor gives you a solution, it could simply be the only product that particular advisor is able to sell. So the “best investments” will often differ based on what’s in the advisor’s interests. That should never be. OK. Let’s get going.
As requested, let’s start out by discussing the CFP (R) designation. This is not a license. It has no impact whatsoever on which investment products the CFP can or cannot suggest to you the client. The CFP (R) designation is regarded highly within the professional community. In order to qualify for the designation there are education, experience, ethics and examination requirements.
I’m not going to go through all of the requirements, but they are relatively vigorous. To be frank, advisors don’t learn how to be good advisors by studying for this exam. They learn that by doing the work for years and years. But I do feel that having a CFP (R) is a differentiator. It demonstrates a ton of commitment.
If you are committed to becoming a successful financial advisor, the CFP (R) is a good designation to pursue. It reinforces the need to work with clients’ entire financial situation rather than just the money management side of things.
In all fairness, there is another huge benefit to becoming a CFP that far eclipses the training itself. The designation creates fiduciary responsibility.
This means CFPs have to put clients’ interests first. If a CFP knowingly acts in any other way, he/she breaks that fiduciary responsibility and can lose the designation. This doesn’t guarantee that every CFP you meet is going to be Sister Teresa with an adding machine, but it does set a higher standard.
Bottom line – the CFP is a great designation to have. It demonstrates commitment, the need for comprehensive planning and the supreme importance of putting clients’ needs first. Will it teach you how to manage money? No. Will it teach you how to help clients put a financial plan together? Not really. Will it help someone starting in this profession build their business? Nope.
If I was just now looking for financial planner jobs, I wouldn’t pursue the CFP designation immediately. I would have pursued it earlier than I did, but I wouldn’t have pursued it straight out of the gate.
To become a successful financial advisor, you need to learn how to help clients …oh, and by the way….you need clients. The CFP designation in and of itself doesn’t do this.
Tomorrow I’ll discuss how insurance agents and stockbrokers work. On Wednesday, I’ll talk about Registered Investment Advisors. Then, I’ll close the series by bringing it all together to tell you how to choose a financial planner. Again, even if you aren’t ever going to become a professional advisor, I encourage you to tune in. I will give you the inside scoop on how different advisors operate, and that will help you avoid working with the wrong advisors.
OK. I’ve spent a lot of time putting this post together. Now it’s your turn. If you have a financial advisor, call her up. Ask her if she is a CFP. If so, great. Ask why. If not, ask why not. Let me know what you find out.