What is a Financial Planner?
Key Points – What is a Financial Planner?:
- Financial Planners or Financial Salespeople?
- How Do You Know Who To Trust?
- The Fiduciary Standard
- What is a CERTIFIED FINANCIAL PLANNER™?
- 17 minute read | 37 minutes to listen
Did you know there are 212 different financial designations for advisors? What exactly is a financial planner? How do you know who to trust? Join Dean Barber and Bud Kasper as they discuss the 212 different designations. What’s good and what’s bad?
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What is a Financial Planner?
Dean Barber: Thanks so much for joining us here on America’s Wealth Management show. I’m your host Dean Barber, along with Bud Kasper.
Financial Planners or Financial Salespeople?
I kind of laugh at this, Bud, but at the same time, it makes me sick and even angry. And those of you that have listened to us here on America’s Wealth Management Show for any period know that I don’t have very high regard for what I call financial salespeople, Bud, and I think you’re in the same boat.
Bud Kasper: Totally.
Dean Barber: Right? Yet, if we look out in the industry, something is happening that the consumer truly needs to be aware of. Our industry is confusing enough in the first place. But there are now 212 different designations where someone can call themselves a financial planner or a wealth advisor or something like that, 212 different designations out there. That’s up 184 designations from only three years ago, Bud. That’s mind-boggling.
Bud Kasper: Yeah, it is. And this strikes a really serious note from my perspective because having been the past chairman of the Financial Planning Association of Greater Kansas City, we were working so seriously to get the designation out that way people understood the worth they have. The reality is that many others saw it as a sales gimmick, not what it truly was. And that was an education that needed to be vetted carefully so that you had to take board exams to become a CFP®.
Not All Designations Are Equal
Dean Barber: Well, here’s an interesting one, Bud. So 212, you’ve got all kinds of different designations out there. You need to be aware that most designations out there are coming from a cottage industry of for-profit institutes and obscure companies. They are capitalizing on the perceived power of an acronym to signal credibility.
So there this one here, the RFPP, the Registered Financial Planning Professional. Get this; these four letters can be yours by paying $21 a month for a two-year license and self-attesting that you’re licensed, registered, credentialed, or currently employed and providing financial services to the general public. Oh, guess who offers this credential in less than five minutes? Designation Depot, whose website touts no testing, no coursework, and no continued education. That’s the same effort as feeling around for a prize in a box of cracker jacks.
Seriously. So the consumer today has to do research and understand who they are working with.
The CFP® – CERTIFIED FINANCIAL PLANNER™
We know Bud that the gold standard is the CFP®. It is the CERTIFIED FINANCIAL PLANNER™. And let’s not only talk about why the CFP® is the gold standard; we’re going to talk about these other designations and what people need to be aware of.
But the CFP® is the gold standard because you have to go through a very rigorous college course at of which the pass rate on the first time taking the CFP® exam is just above 60%. So it’s a pretty tough exam, but it covers investing. It covers taxes, it covers estate planning, and it covers risk management.
Bud Kasper: Right?
Dean Barber: We refer to those as the four pillars of wealth management. Now, while we think it’s critical that the financial advisor and, in our case, the CERTIFIED FINANCIAL PLANNER™, has a broad base of knowledge in all four of those arenas.
We’re also keenly aware that just because they have the CFP® designation doesn’t mean that they can truly do a tax return, a forward-looking tax planning, an estate plan, will, or a trust. Or that they could understand, like a ChFC, which is a Charter Financial Consultant, the insurance side of things.
It’s a Team Approach
So what we’ve done as an organization: we have a team of professionals, CFP® Professionals, CPAs, estate planning attorneys, and risk management specialists, all in-house, all working side-by-side on behalf of our client. That, Bud, brings a lot of power, especially when you know that there are no commissions, right? Our clients pay us a fee for what we do, and it’s transparent.
Bud Kasper: Absolutely. Right. And it should be, and it should be. Cause that means that you’re serving the client’s best interest, which is what the CFP® is required to do.
The CFP® Requires Training & Continued Education
To give you this more specifics, you have to have had at least three years of experience, a college degree, go through the program, and sit for the board exams. If you don’t pass the exams, you don’t get the designation. After that, you have to do a continuing education every year to make sure that you’re living up to the standards created by the CFP® designation.
Anybody can call themselves a financial planner. Anyone can call themselves a financial advisor, but to be certified, they have to go through rigorous exams to have that designation.
Advisor Alphabet Soup
Dean Barber: Remember, it’s getting more complicated than that, Bud, because there are now 212 different reasons for the consumer to be confused.
Bud Kasper: Right? And all that it is alphabet soup. That’s being sold for profit by companies that see an opening.
Dean Barber: Alphabet soup of the financial industry.
Another that we haven’t discussed is the PFS, which is something that a CPA can attain.
Bud Kasper: You have to be a CPA to do so.
Dean Barber: But there are only a fraction of the CPAs that have obtained it. I think 4,800 at this point that have obtained that PFS designation.
Bud Kasper: Fortunately, ours has gained it.
What’s the Next New Designation Going to Be?
Dean Barber: Next on the list, maybe 213, will be the CGDFS, which stands for the Certified Good Dude for Seniors.
Bud Kasper: There you go. Who doesn’t want that? “Hey man, I’m a good dude. I can take care of you, and I am designated.”
Dean Barber: “I’m a certified good dude.”
Bud Kasper: That’s right.
How Do You Know Who To Trust?
Dean Barber: The problem we have here is that the general public doesn’t understand how some of these designations are obtained. We spoke earlier about how most of these are designations a financial advisor or someone that calls themselves a financial planner can purchase.
So this one from a place called Designation Depot offers to give you the RFPP, the Registered Financial Planning Professional. You can get it for $21 a month for a two-year license and self-attesting that you are licensed, registered, credentialed, or currently employed, providing financial services to the general public. Their website also touts there’s no testing, no coursework, and no continuing education.
If somebody has RFPP behind their name, it’s on their business card, and the consumer looks at that and says, “Well, what does that stand for?”
“It stands for Registered Financial Planning Professional,” That sounds pretty good.
Bud Kasper: Yeah, right. It sounds legal.
Dean Barber: It sounds official.
Bud Kasper: Yeah.
Dean Barber: It sounds important. But as you dig deeper, you realize that there was no testing. There was no coursework. There’s no continuing education for this. This person got this for about the same effort as trying to find a prize in the bottom of a crackerjack box.
You Have to Do the Research
Bud Kasper: Right. Now, these companies probably went out and what they did is they bought the right to use those initials and the so-called definition that they use along with that. But it has no teeth, folks. There’s no real work associated with that. You have to be careful because there are too many people taking advantage of it.
That’s the point of the program today. With the proliferation of all these designations, it is confusing the public, who needs a professional who is looking after their interest ahead of themselves. If you don’t have that, then why are you there?
What Exactly is a Financial Planner?
Dean Barber: Well, let’s get to why this is so confusing. So whether you’re a financial planner, a wealth advisor, or whatever you want to call it, those are all generic terms. The truth is that nobody knows how many there are.
The Bureau of Labor statistics counts 218,000 people working as financial advisors. That’s up from 162,000 a decade ago. Cerulean Associates, an analyst company that pays close attention to the financial services industry, says that there are 311,000 financial advisors, only half of them providing actual financial planning or actual planning. All right?
Suppose we say that the gold standard is the CFP®, and some people are dually registered. In that case, they are registered with a broker-dealer, like a Merrill Lynch, Edward Jones, Raymond James, Ameriprise, Schwab, Fidelity, et cetera, or an independent firm like LPL, a lot of these advisors that are with those firms are what we call dually registered advisors. And so those dually registered advisors are not held to the fiduciary standard to put their client’s interest above their own. Instead, they have the best interest.
Bud Kasper: Right.
Dean Barber: The best interest contract that they would sign basically says, “Hey, I’ve disclosed what we’re talking about here, and you fully understand it. And you agree with me that this is in your best interest.”
Watch Out for Shady Actors
Bud Kasper: Right, and I remember when the brokerages had employees wanting to get a CFP® designation but stopping them from getting it. The reason is that they didn’t want the liability associated with having misinformation that would be provided.
Dean Barber: Right. So look at that 300,000 plus FINRA counts and ask yourself the question, “How many are dually registered versus an IAR, working for an RIA?”
Again, this is confusing. An RIA is a registered investment advisor that only earns fees. They never earn commissions, but there are only 65,000. Right? So what is that? But about less than 20% of those who call themselves advisors are bound to the fiduciary duty of the RIA, which says that you must by law put your client’s best interest ahead of yours 100% of the time.
Bud Kasper: Legally, right.
The Fiduciary Standard
Dean Barber: Legally. All right? So what does that mean? Bud, we are an RIA. Every person that works for us is an IAR, an investment advisor representative, and our CFP® Professionals are also bound by the fiduciary standard by the CFP® board.
Bud Kasper: Right.
Dean Barber: Okay. So now it gets even more confusing because someone that’s dually registered, the CFP® board began requiring last year that anybody using the CFP® label had to follow the higher fiduciary standard. However, the hybrid ones that worked for the broker-dealer, the broker-dealers don’t enforce that transparency.
Bud Kasper: That’s right.
Dean Barber: Okay? So it’s basically like anybody that’s a CFP®, that’s a dually registered individual, is given a pinky swear saying, “Hey, I’m abiding by the fiduciary standard.” It’s not something that’s required to enforce. So this is why it gets confusing for people.
Bud Kasper: Sure. I think they’re trying to make it confusing because, as we said earlier, the proliferation of companies who can make money by selling these designations.
That’s why I meant that they probably went out and bought the right to be able to use these, even though it has nothing. It could be I’m the ice cream planner of the world, and then they’ll get the designation. It’s just not right. And people can’t be confused, or they will be confused if they don’t understand what the designations mean and what the standard was to get those.
“Does My Advisor Do That?”
Dean Barber: Right. And according to the total numbers, roughly 30% of all advisors out there hold the CFP® title. It’s a little bit under 30%, but let’s call it approximately 30% have that CFP® title.
So here’s the question you should be asking yourself right now. First of all, get out your advisor’s business card and take a look. What are they?
Ask yourself, “Did my advisor take the time to listen to me, to understand what was truly important to me? Did they review every aspect of my situation, from my estate plan to my tax returns to my forward-looking tax reduction strategies through tax planning? And did they review all investments, including those within my 401(k), 403(b), TSP, or any other company-sponsored retirement plan? What about reviewing all of my risk management programs, such as my property-casualty insurance, long-term care, life insurance, and health insurance, to ensure that I was adequately insured across the board? Did they do all of that?”
What about putting together a comprehensive strategy designed to help you make sure that you’re making the most of every dollar you have and securing yourself a promising financial future?”
Chances are, you’re going to sit back, and you’re going to say, “No, no, no, and, no.”
That’s what our Guided Retirement System™ does. That’s what we do for all of our clients because we have not only the CERTIFIED FINANCIAL PLANNER™ Professionals, the CPAs, the estate planning attorneys, and the insurance and risk management professionals in-house, all working side by side on your behalf.
Bud Kasper: Yeah. The opportunity is there for you to learn and to work with somebody trustworthy.
Today’s Show is Different Because It’s an Important Topic
Dean Barber: All right, so I’m going to reset the stage here just for a minute because usually, we’re here on America’s Wealth Management Show talking about financial planning techniques. Things you need to be looking for and things you need to do to help ensure you have a secure retirement.
Of course, our primary focus is getting people to and through retirement in a comprehensive manner. However, there are now 212 different designations in our industry, many of which are absolute jokes.
You have to be careful. You have to understand who you’re talking to, and it’s not always as easy as just looking at the alphabet soup behind the individual’s name.
Put Your Advisor to the Test
There is an easy way to find out if the financial advisor you’re working with today is doing comprehensive financial planning encompassing all four pillars of wealth management. Like most, I’m going to say most because not all, but most CFP® Professionals do.
Take our Retirement Plan Checklist to your advisor, go through it item by item. You’re going to know in a short period of time whether you have somebody who gets the broad aspects of everything required to do comprehensive financial planning. Do they have a team of CPAs, estate planning attorneys, risk management professionals, and investment management professionals? Or are they trying to wear all the hats? Are they trying to be an MD, JD, MBA, whatever?
Think about it. It’s very difficult for that individual to be adept and competent in all areas. The CFP® is going to have a base of knowledge, but they’re not going to prepare your taxes, your estate plan, or your risk management. They’re there to be your coach and your guide. That’s what our CFP® Professionals do here. They act as the guide using our Guided Retirement System™, a proprietary system that we have developed to get people not just to retirement but also through retirement.
We Know It’s Confusing
Bud Kasper: Right. Many people in our business don’t necessarily have a designation and do have some qualifications that are worth listening to. However, in this big world that we live in and with all this alphabet soup out there, people are becoming more and more confused about the legitimacy of some of these designations.
What Dean and I are trying to do today is to make it clearer that there is a CFP® Board of Standards, which upholds the designation of CERTIFIED FINANCIAL PLANNER™. They have minimum requirements of a college degree, passing the very rigorous board exams, and adhering to a fiduciary standard. The fiduciary standard means that legally your interest must always be ahead of the advisor, in this case, a CFP®.
Dean Barber: I feel sorry for the general public trying to make sense of all this because it is confusing. When anybody, regardless of their designation, can call themselves a financial advisor or financial planner, how can the public delineate the difference between one advisor and another? And I think that’s where this whole concept that when somebody says the term financial advisor, they think of that term as every financial advisor is the same.
Looking at the CPA Designation
Bud Kasper: Right. I think the CPA is an excellent way to examine that as well. You know, with that CPA designation that somebody worked hard to get that and sit through the board exams and pass it in and all the other regulations associated with that. That gives you confidence that you’re working with a person who knows what they’re doing. That’s what the CFP® provides as well from a planning perspective.
Dean Barber: Right. So that would be like Bud saying, “Oh, I’ve got a CPA, or I’ve got a tax preparer.”
Bud Kasper: Yes.
Dean Barber: Okay, which do you have?
Bud Kasper: And what’s the difference?
Dean Barber: Yes.
Bud Kasper: Exactly.
Dean Barber: I mean, they can both do my taxes, right?
Comprehensive Planning Isn’t Only for the Ultra-Wealthy
Bud Kasper: Yes. So I’m glad you brought that up because, for the last 15 years, we’ve been working with Ed Slott. Ed Slott is known throughout the nation as the IRA expert. Ed offers continued education for advisors because we’re not all CPAs.
Dean Barber: Ed helped us understand that we needed to hire CPAs to sit side by side with our CFP® Professionals so that we could truly deliver what an individual needs.
What we’re talking about here isn’t just for the ultra-wealthy. It’s for the millionaire next door, the person that’s worked hard their entire life, saved well, lived below their means, and they’re getting to a point where it’s time for their money to start taking care of them. It doesn’t matter what financial decision you make. All financial decisions will lead to a tax return at some point in your life.
Proper Forward-Looking Tax Planning
So if you’re not paying attention to that and you’re only looking at the investment piece of your plan, then you’re going to miss a lot. Ed, he puts it a good way. He says, “Look.” He says, “It doesn’t matter if you make 15% if you lose 50% of that to Uncle Sam.” Right?
Bud Kasper: Yes.
Dean Barber: Proper forward-looking tax planning can reduce somebody’s lifetime tax bill. We see it every week as we go through and do this planning through our guided retirement system.
Bud Kasper: Right. And the coordination of that is what many times will make or break a financial plan.
Dean Barber: Yeah. Well, there’s so much that goes into it. There are hours behind the scenes that our CFP® Professionals put in side-by-side with our CPAs to craft your plan to know that you can have confidence in your overall financial situation, which makes you feel like you’ve got control and clarity once and for all.
It Isn’t All About the Investments
Bud Kasper: You know it wouldn’t hurt people to ask their investment advisor, if they’re not a CFP®, “Why don’t you have the CFP®?”
If they say, “Well, it’s not necessary. This isn’t part of what we need to have. I have everything you need, and that is for you to have successful investments.” I’m sorry, that’s not what it’s about because there are so many things that need to be taken into accounting in a comprehensive plan.
Dean Barber: But here’s what you and I would say to that, that the only way that you and I and our advisors will give investment advice is after we’ve done the comprehensive financial plan so that we can answer the most critical question, which is, “What does your money need to do for you to accomplish things that you want to do? And is it realistic, or are you living in a fairy tale world?”
Bud Kasper: Right.
Dean Barber: So that’s why just being an investment advisor isn’t enough.
What About Compensation?
Dean Barber: We believe that it’s critical that whatever fee you’re going to pay for whatever advice or work an advisor is going to do for you is transparent. I believe if I can’t add value, we shouldn’t do business together. If I can add value and you believe that the proposed fees are reasonable for the value, then we can have a relationship.
But if my fees aren’t transparent, if people don’t understand how I’m paid and what the value received for that fee is, that’s where the conflict comes in. In the broker-dealer world, which is the vast majority, over two-thirds of everybody calling themselves a financial planner is held to the best-interest standard. As opposed to the CFP® standard, where you have to put your client’s interests ahead of yours 100% of the time.
It’s Important to Know Where Best Interest Lies
Bud Kasper: Exactly right. Brokers aren’t held to a fiduciary standard to put their client’s interests above their own. They do have to exercise what is called, and you said it, Dean, best interest. But a difference between fiduciary and best interests is a giant chasm in interpreting what that means.
Why Talk About Designations?
Dean Barber: It certainly is. And so you might ask yourself, why are you guys talking about this? Because there’s a big difference between an individual “advisor” and a firm with CERTIFIED FINANCIAL PLANNER™ Professionals, CPAs, estate planning attorneys, risk management specialists, all working as a collective team for you.
It doesn’t matter if you’ve got $500,000, $5 million, $25 million, whatever it is.
Bud Kasper: You’re right.
Dean Barber: The problem is most of you listening don’t even know that that’s available to you.
Bud Kasper: We call it this alphabet soup, and the sad part of this, and one of the reasons we decided to talk about this today, is that it’s easy to become confused. It’s easy to be fooled by people who want to purport themselves to be something they’re not.
That’s why we think it’s vital that we occasionally discuss this to add some clarity to the process.
Soft Dollar Interests
Dean Barber: The other thing you need to know is, are there soft dollar interests here? You and I have seen this a lot. People that read the financial news, they’ll catch it too. Salespeople are getting soft dollars behind the scenes. You need to know that.
Ask yourself: Are they compensated for pushing a specific group of mutual funds, ETFs, annuities, or life insurance? Is there a conflict of interest where that person is disproportionately rewarded for offering one service or one company’s product over another? That’s something that I’m proud to say. We have zero because we only get paid by our clients. We don’t get paid by any company.
Bud Kasper: Right.
Dean Barber: Ever, I don’t want it.
Bud Kasper: Right. It keeps it nice and clean, and people know which side of the table we’re on and that we have a legal responsibility to have their interest ahead of ours.
Look Out for Product Salesmen
Dean Barber: Well, and, Bud, there’s not a day that goes by where the industry doesn’t bombard you and me with products. I’ll call them the product manufacturers, calling us saying, “Hey, we’d love to get five minutes in front of you so we can tell you about our product.” Do you know what we say? “No, thanks.”
Bud Kasper: Yes.
Dean Barber: You know why? Because we’ve got our research team. We look at everything and decide, based on rigorous research, what goes into our portfolios. Not based on what some wholesaler tells us.
Bud Kasper: Right, and we have professionals even in that area of expertise that we can count on to get the correct information.
Dean Barber: Make sure that you’re working with the right person. If you’re confused, get our Retirement Plan Checklist, take it to your advisor. You’ll know soon enough. We hope we’ve enlightened you a little bit today, giving you a little bit broader base of knowledge. We’ll be back with you next week. Same time, same place.
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