Let Me Clarify

By now, I hope you understand the benefits of financial planning compared to other advisory services. I certainly understand how confusing it can be to take the next step of weeding out salespeople with conflicting interests and distinguishing who is the best fit for providing the necessary services among the hundreds of designations/certifications that advisors have. My suggestion is to start by identifying somebody who is a CFP®; even if those letters are part of an alphabet soup that may follow his or her name on their website or business card.

Let me clarify.

As a reminder, the basis of financial planning is built on understanding cash flow, investments, retirement planning, insurance, income taxes, and estate planning. Again, education funding and other areas should be included, but depend on the situation. All these areas actually make up the learning objectives behind the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation.

Did you know that in addition to completing the board-approved coursework on the topics above, CFP® candidates must also hold at least a bachelor’s degree from an accredited college or university?

In fact, the certification process includes the education requirements above, passing an exam on the CFP Board-approved coursework, meeting experience requirements (6,000 hours of professional experience or 4,000 hours within an approved apprenticeship), and adhering to strict ethical requirements. When all is said and done, all CFP® practitioners must abide by a formal Code of Ethics and Standards of Conduct.

Code of Ethics

All designated professionals must:

1. Act with honesty, integrity, competence, and diligence.
2. Act in the client’s best interests.
3. Exercise due care.
4. Avoid or disclose and manage conflicts of interest.
5. Maintain the confidentiality and protect the privacy of client information.
6. Act in a manner that reflects positively on the financial planning profession and CFP® certification.

Standards of Conduct

The complete Standards of Conduct expands on the items above. To be honest, it can be quite exhaustive, so I’ll highlight a few of the items that you should definitely be aware of.

Fiduciary duty: This means that in all cases, the CFP® must act in the client’s best interest. While I believe this should always be the case, not all financial advisors have to act in this capacity. In reality, there are plenty of advisors out there that simply have to provide “suitable” recommendations, as opposed to gathering all information and outlining what he or she feels is the best decision for the client.

Competence: Regardless of continuing education requirements of those who are licensed in insurance, investments, etc., CFP® professionals must remain current with their knowledge and skills to apply it. As a result, every 2 years, he or she must complete 30 hours of approved continuing education (2 hours specifically on ethics).

Duties to Represent Compensation: Something that I always found surprising is that not all advisors are required to disclose how they are paid. To be honest, its surprising how many investors I’ve met that have no clue how their advisor is compensated (in some cases even having worked with them for 20+ years). Making clients aware of compensation structure before any financial planning relationship begins is actually a requirement for all CFP®s.

One final thing I’d like to leave with you is what you should expect throughout the financial planning process. While I’ve previously touched on some of the things your advisor should be doing and some of the responsibilities that clients have, below are the required steps outlined by the CFP Board, for those that hold the designation.

1. Understanding the Client’s Personal and Financial Circumstances
2. Identifying and Selecting Goals
3. Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action
4. Developing the Financial Planning Recommendation(s)
5. Presenting the Financial Planning Recommendation(s)
6. Implementing the Financial Planning Recommendation(s)
7. Monitoring Progress and Updating

At the end of the day, this all means that you are in good hands when choosing to work with a CERTIFIED FINANCIAL PLANNER™. I may be biased, but I’ll bet you’re likely missing out on a few things if you aren’t working with a CFP® already.

[If you’d like to learn more, I encourage you to visit www.cfp.net and to begin the search for someone to work with.]

As we embark on this clarifying journey together, I encourage you to submit any ideas, topics, or questions to info@clarifywealth.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. “Let Me Clarify” is a weekly blog containing Chad Baxter’s insights and thoughts about a variety of topics. To learn more about Chad, click here

											
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