How to Choose a Financial Planner – Day 1 – Certified Financial Planner

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 – at least that was my experience when I became a CFP 15 years ago. I had to study pretty hard for two years to pass exams in six subjects (I believe it has been reduced to five exams now). After I passed the six exams, I had to sit for a two-day comprehensive exam.

The comprehensive was the most difficult test I’ve ever taken all my life. I studied hard for six months and fortunately I passed on the first try. At the time I took it, only 62% of us passed. I believe the passing rate is about the same now.

At the time, I didn’t think I was going to pass the comprehensive exam. It was ridiculously vague and I was actually a bit angry. I really did study very hard for that exam, but it didn’t test my understanding of the material. It felt more like a roadblock the pros use to keep people out of the “club.”

I remember one question in particular (which is pretty astounding since I took the test 15 years ago). My experience with this one question sums up my feelings about the entire process.

It was the second half of the second day of the test. I was on the last leg of the exam and I was happy. Even though I was far from sure of a positive outcome, at least I knew the torture was just about over.

I was rounding third and I could see home plate. I hit the math section and started feeling more confident. Since that part of the test was multiple-choice, I felt like I had a good shot at picking up some points.

I worked on that first question for about 30 minutes and when I finally had my answer, I saw that there wasn’t any answer among the available choices that was even close to what I had spent all that valuable time to work out. Oh, the humanity!

At this point, I felt a cold trickle of sweat drip off my face and fall on to the exam page. (Yes, in those days we used paper.)

I felt like I was entering a malaria-induced stupor or something. I started to laugh (silently at first) and couldn’t stop. The more I tried to stop laughing, the harder it became to stop. The only thing that helped me stop was to close my eyes. Whenever I opened them and realized that the answer I worked out still wasn’t anywhere near the choices provided, I started laughing all over again. I eventually selected my answer by using an old scientific approach I learned in elementary school – eeny meeny miney moe!

Fortunately, not all the questions triggered this nutty response, and like I said, I passed.

Why am I sharing this rare Wealth Pilgrim meltdown moment with you?

Because it illustrates what I think about the comprehensive examination – and the entire process of becoming a CFP (R).

I had to invest a great deal of time to get that designation. I didn’t understand the process sometimes. It was tough but it was worth it. I didn’t really learn much as a result of studying for these tests – by the time I took the exam, I had already been a professional advisor for more than 10 years. I did learn about estate planning, a few financial tax planning ideas and the value of comprehensive financial planning – but I could have learned that quicker and cheaper other ways.

But what I did get out of the designation process was the value of commitment. Lots of folks start this process and quit. There are many designations that an advisor can get by simply sending in two box tops from Cap’n Crunch cereal and $5 – but this ain’t one of them.

The designation tells my clients that I’m committed to being the best advisor I can be because I think they are worth it. It’s the most comprehensive designation out there that I am aware of. I knew what I knew before I became a CFP. But having the designation tells the clients that I know what I say I know.

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 we 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 client …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.