Considering who to work with as a financial advisor is an incredibly important decision. According to Northwestern Mutual's Planning & Progress Study 2018, money was the leading cause of stress for 44% of those surveyed, with relationships and work far behind at 25% and 18% respectively. 1 While a financial advisor may be able to help alleviate some of this anxiety, figuring out who is qualified and appropriate for your situation provides its own unique hurdle. Where do you begin? A good place to start is to look for an individual who is a Certified Financial Planner™ practitioner. While this doesn't guarantee they are competent, there are advantages in working with a CFP® practitioner that we will explore further below.
1: Fiduciary Standard
Perhaps the most compelling reason to work with a Certified Financial Planner™ practitioner is the fact that they are held to a fiduciary standard. Straight from the CFP® Board's website "The Standards require that all CFP® professionals who provide financial planning services will be held to the duty of care of a fiduciary." 2 What this means is that when an advisor is providing financial planning services they are required to give advice that is in your, the consumer's, best interest and not their own. The significance of unbiased advice cannot be overstated. it is important to note, however, that this fiduciary standard only applies to "financial planning services." It is still possible to work with a Certified Financial Planner practitioner who is solely engaged in selling you a product, and no financial planning, where this fiduciary standard does not apply. Although, even if financial planning services are not involved, a Certified Financial Planner practitioner is still held to a (lower) standard of putting the interest of the client above their own. 2
2: Competence
Not just anyone can become a Certified Financial Planner™ practitioner. For someone to officially be able to use the marks they must complete a rigorous education program and pass a standardized test by the CFP® Board. Before being allowed to sit for the exam the financial advisor must have completed and passed a college-level program in personal financial planning. 3 These areas of study include insurance, investments, tax planning, retirement planning, estate planning, and more! This gives a Certified Financial Planner practitioner a comprehensive understanding of financial planning, not a specialization on just one topic. If that wasn't enough, for a financial advisor to officially use the marks, they must also hold at least a bachelor's degree, and have passed a rigorous 170 question 7-hour exam! 4
3: Experience
While book smarts are nice, often experience is what puts everything together. You could read every book in the world on how to drive a car. But until you get behind the wheel and experience it first hand, you're probably not going to be a great driver. That's why the CFP® Board also includes an experience requirement for any financial advisor. An advisor is required to have at least 6,000 hours (3 years) of experience on their own performing financial planning or 4,000 hours (2 years) of experience through an apprenticeship program directly supervised by another Certified Financial Planner professional. 5 The background knowledge and experience go hand in hand. Both must be met before someone can call themselves a Certified Financial Planner practitioner.
4: Accountability
Everyone who calls themselves a CFP® practitioner are governed by a code of ethics and practice standard. More details about these standards can be found on the CFP® Board's website here. Failure to abide by these standards can require an individual to relinquish the use of the marks. The board takes complaints directly and, if warranted, investigates them to determine if action is necessary. In addition to that, individuals are also required to disclose any bankruptcies or felonies. This level of transparency and enforcement helps maintain the credibility of those who are allowed to use the CFP® mark.
5: Continual Improvement
Even with all the work that someone puts in to finally call themselves a Certified Financial Planner™ practitioner, it's still not enough. Laws change, new products are introduced, strategies evolve, and people expect their financial advisor to know these things, as they should. This requires continual education for those advisors who hold these marks. At a bare minimum, a Certified Financial Planner practitioner must complete 30 hours of continuing education (including at least 2 hours of ethics) every 2 years. 6 This, to some degree, ensures that financial advisors are up to date on the changing times and strategies involved with comprehensive financial planning.
Closing Thoughts:
Choosing a financial advisor could be one of the most important decisions of your life. You want to ensure you're picking someone who is competent, and who you can trust. While not everyone who is a Certified Financial Planner practitioner is a good advisor, filtering your options by those who hold the marks will likely weed out many of those who are not qualified. It is always important to do your research and search for the individual you're considering to find if there are any red flags about them online. Lastly, if you want even more bang for your buck, look for a Certified Financial Planner™ practitioner who is also fee-only. For more information on what fee-only is, check out our previous blog here.
1 https://news.northwesternmutual.com/planning-and-progress-2018
3 https://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements
6 https://www.cfp.net/for-cfp-professionals/continuing-education/continuing-education-requirements
Disclaimer:
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
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Milestone Financial Planning, LLC (“Milestone”) is a fee-only financial planning firm and registered investment advisor headquartered in Bedford, NH. Registration does not imply a certain level of skill or training. Milestone works with clients on an ongoing, long-term basis, providing financial planning, tax planning, retirement planning, and investment management services. Fees are based on assets under management and may include a financial planning fee. Milestone receives no commissions or referral fees and, as a fiduciary, is required to act in clients’ best interests. Advisory services are offered only where Milestone and its representatives are properly licensed or exempt from licensure. More information, including fees and principal risks, is available in Milestone’s Form ADV Part 2A. For help with your investments or financial planning, contact one of our fee-only advisors.
