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

by Neal Frankle, CFP ®

how to choose a financial planner

The world of financial advice sales is confusing.  Or at least it can be.  How do you know how is qualified?  How do you know who is impartial?  How do you know who to trust?

Here are a series of posts that explains each of the different types of financial advisors and some of the main designations we pursue. But let me give you one key secret that sort of explains the whole ball of wax;  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 when they tell you they are offering the best investment for you, understand that this could differ based on what’s in the advisor’s interests. That should never be, but it happens.  Also, even if you find an advisor who is honest, trustworthy and impartial, it doesn’t mean that he or she is smart.   OK…..there is a lot of material to dive through. Let’s get started by discussing the CFP (R) designation.

What Is A CFP (R) ?

A CFP(R) is not a license. It is a designation.  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 because it takes a lot of work to get. But it’s no guarantee of anything.  No license or designation is.

Oh and keep in mind that I am a Certified Financial Planner.  That means I’m biased.  I will try my best to keep this post objective but I want you to understand that I do think the CFP(R) is the cat’s pajamas and that sentiment may creep through in this post.

I said earlier that it’s work to become a CFP (R).  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 the designation.  They learn that by working with clients for years and years.  But I do feel that having a CFP (R) is a differentiator.  It demonstrates a ton of commitment.  It also reinforces the need to work with clients’ entire financial situation rather than just the money management side of things.

The Main Benefit Of Working With A CFP (R)

There is another huge benefit to becoming or working with a CFP that far eclipses the training itself. The designation creates fiduciary responsibility to the client.

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 act also exposes the CFP to liability.  A broker or insurance agent doesn’t have that same standard or liability.   Of  course, 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

Working with a CFP designee can be a smart move.  It demonstrates commitment, the need for comprehensive planning and the supreme importance of putting clients’ needs first. Will it teach someone how to manage money? No. Will it teach them how to help clients put a financial plan together? Not really. Will it help someone starting in this profession build their business? Nope.

I’ll discuss how insurance agents and stockbrokers work soon.  Afterwards, 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.  I encourage you to tune in for entire series. I will give you the inside scoop on how different advisors operate, and that will help you avoid working with the wrong people.

OK. I’ve spent a lot of time putting this post together. Now it’s your turn. If you have a financial advisor, please 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.

 

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{ 9 comments… read them below or add one }

Neal August 21, 2009 at 7:31 AM

No worries. No offense whatsoever. You made a good point and you helped clarify and you did it very nicely. I appreciate it.

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Dylan August 21, 2009 at 7:23 AM

I think you did a fine on making the pointing out that certification will not get an adviser clients or be ticket to an automatic successful business.

I have a (bad) habit of blog commenting disproportionally in disagreement that agreement.

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Neal August 21, 2009 at 7:17 AM

I don’t disagree. I was trying to make the point that the CFP certification will not, in and of itself, get an adviser clients. I simply wanted to point out to the person who asked the question that the certification is not a ticket to an automatic successful business.

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Neal August 21, 2009 at 7:14 AM

Fantastic clarification. Helpful. Thanks.

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Dylan August 21, 2009 at 6:30 AM

You point out that “CFP®” is not a license, but it’s not really a designation either. This is one of the points that sets the CFP® certification apart. From the CFP Board’s publication on marks use:

The CFP® marks are not the equivalent of an educational degree, a professional designation, or a title.

And

“Designation” refers to a degree or title awarded to individuals who pass certain education and examination requirements of entities such as universities and associations, thereby attaining a degree. “Certification” refers to the approval by a certifying entity of certain qualities for specified goods or services offered by individuals or organizations. The requirements for a certification of services, such as financial planning, typically include rigorous education and examination programs.

This is important because, unlike the vast majority of professional designation granting organizations, the CFP Board is not a membership organization or school. The CFP Board’s stakeholders are the public consumers of financial planning as much as it is the CFP® certificants. Professional membership organizations and educational institutions generally have a primary obligation to their members, students, and alumni. This interferes with objectivity when it comes to standard setting, regulation, and enforcement. The CFP Board exists for the actual purpose of standard setting, regulation, and enforcement; their primary obligation is to preserve the credibility CFP® marks.

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Kirk Kinder August 20, 2009 at 1:34 PM

Actually, I sort of disagree with you. I think everyone should at least be pursuing the CFP when they enter the field. I often tell people that the CFP should be the de minimus requirement to hiring them.

The CFP does not mean the planner is competent or acting in your best interest (yes, they require a fiduciary responsibility now, but they didn’t a year ago. And, they don’t have enforcement powers so many brokers with the CFP are not acting as fiduciaries). However, it shows that the planner is serious about learning and can take a holistic view of your finances and actually understand the various issues.

Those without the CFP (or Chfc, CPA/PFS) are showing me that they don’t take the profession seriously.

The key question is still finding an advisor who has a fiduciary obligation to their client in all that they do. Some planners have the fiduciary requirement for the plan, but switch hats and take the suitability when they sell the product. So ask them if they are a fiduciary in ALL interaction with you.

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Neal August 18, 2009 at 8:23 AM

Yes. Absolutely. Great great question.

People should not discount an adviser based on his/her credentials. That is actually the point of my series (as you’ll see more of tomorrow).

The credential basically offers some proof to the public that the person does indeed have some expertise in some areas.

I learned much more by doing than by studying for these tests. I was no better/worse the day after I took the exam than the day before…but clients probably felt a bit more at ease knowing an independent body had validated their trust.

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My Journey August 18, 2009 at 8:03 AM

Neal,

Because it doesn’t teach those particular skills, and in fact you were a (hopefully) successful advisor prior to gaining the CFP – as are almost EVERY candidate for the CFP, isn’t it fair to say that people shouldn’t automatically disregard a great planner just because he or she doesn’t have the CFP?

I go back and forth on this question, I even got into a “discussion/fight” with a guest poster on another blog and then apologized on my blog:

http://www.myjourneytomillions.com/articles/random-letters-after-an-advisors-name-isnt-the-end-all-but-it-may-help/

Just some random thoughts from a guy who can’t make up his mind!

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Brana west August 17, 2009 at 7:52 PM

Very interesting material. As an experienced teacher I know that the education courses don’t prepare teachers for the realities involved in classroom management and individual students’ needs. As with any profession personal dedication to the job is what makes one successful. You already know that and it shows. Thanks for the wonderful blog.

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