More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Scope of the Fiduciary Duty Owed by Investment Advisors A fiduciary obligation goes beyond the suitability standard typically owed by registered representatives of broker-dealer firms to clients. The relationship is built on the premise that the advisor will always do the right thing for the person or entity receiving advice.
With the first major changes to the continuing education requirements for CFP professionals in nearly two decades, the Certified Financial Planner Board of Standards has proposed that in the future up to 10% of the continuing education requirement be satisfied with content on practice management. Distinct from education on trust and communication, the proposal would allow for CFP CE for practice management topics tied to the business of operating a financial planning practice.
While many have long requested CE credit for practice management content, though, it seems that allowing practice management CE strays away from the fundamental purpose of continuing education, and risks creating a double standard for technical competence between financial planners that work in a practice, and financial planners who own a practice. Perhaps that means the better solution is to improve the practice management tools, resources and content that are available in the first place, so that practice management can simply be its own reward, and justify its own ROI, for those who choose to own and operate a financial planning business?
The inspiration for today's blog post is the recent announcement by the CFP Board on potential changes to the continuing education requirements: specifically, allowing up to 4 hours of CE credit for practice management content (combined with credits for pro bono activities). Under the CFP Board's proposal, practice management content would be defined as "focused on the planning, development and management of a CFP professional’s business operations, office management, business model design, budgeting processes and leadership."
The proposal appears to acquiesce to a longstanding request from many experienced CFP practitioners, who have asked that at least some practice management content be eligible for CE. For instance, earlier this year, industry consultant Tim Welsh noted that in today's difficult environment, planners are spending more time than ever just trying to build and maintain their practices, raising the question "what good is having an advanced certification that allows a practitioner to deliver financial planning advice if the vehicle in which it is delivered is inefficient on a good day and not sustainable on a bad one?"
Purpose of continuing education
The concept of continuing education exists in most professions. Broadly speaking, it is intended to ensure that the practitioner remains up to date on job skills—including and perhaps especially those not necessarily used very often—and up to date on the latest developments in the professional body of knowledge. Thus, for instance, CPAs have substantial continuing professional education (CPE) requirements that help to ensure they stay up to date on the latest tax law changes, and doctors have ongoing continuing medical education (CME) obligations to ensure they're current on the latest medical procedures, treatment options, and available prescription drug solutions in their specialty.
The underlying principle is that it's in the interests of both the public and the profession itself to have some minimum requirements in place to ensure the practitioner remains up to date. Not only is an undereducated, outdated practitioner at risk to, perhaps unwittingly, inflict harm on the public, but such professional negligence errors can also reflect badly on the profession at large.
In essence, it's not enough to simply let competitive pressures play out—after all, "bad" practitioners who don't stay up to date ostensibly will eventually lose clients to "good" practitioners who do—because the public ramifications of professional malpractice impact all members of the profession. Thus, continuing education requirements were established to ensure a minimum level of competence is maintained for all practicing professionals.
No practice management as continuing education
Because the fundamental focus of continuing education is a minimum of technical competence, to protect the public and the reputation of the profession itself, many professions do not recognize practice management content for continuing education. Thus, for example, while there are many providers of practice management advice for doctors, it is generally not eligible for continuing medical education. After all, who wants to go to the doctor who skipped the classes on the latest medical treatment for your problem, to instead learn how to do better marketing or implement new billing software?
In a similar vein, I struggle to see why financial planners should be allowed to qualify practice management content as continuing education—are we really helping the public recognize a professional by encouraging planners to skip some classes on the latest tax laws they need to know to help their clients, allowing them instead to go to classes on marketing, sales, or billing software? Do we help to protect the public from harm and professional incompetence by letting practitioners off the hook for keeping their technical skills up to date?
Practice management CE is less necessary than ever
The most commonly stated reason for advocating practice management to be allowed for continuing education is, as articulated by Welsh's quote earlier, the idea that planners who have knowledge but don't know how to deliver financial planning won't be able to serve clients anyway—especially in this difficult economic environment.
However, it's important to note that several years ago the CFP Board added a category for "Trust and Communication" to the Principal Topics list, which covers content on communication, counseling, and working with clients through their values, biases and behavioral characteristics. In the past, many grouped such sessions under the broad umbrella of "practice management," but such content is now eligible for CE entirely on its own.
Consequently, for better or for worse, the expansion of CE to include "practice management" content is really about the business of financial planning, not the interpersonal delivery of it. Which means a "need" for practice management courses implies a need for financial planners to learn more about the business of financial planning.
Yet embedded in this statement is a fundamental—and I believe, incorrect—assumption: that the only way to serve clients is to run and operate a financial planning business. Certainly, at some point in the past, the concept of being a financial planner and a business owner who managed his/her own practice were essentially synonymous terms—every financial planner ran his/her own practice, almost by definition.
In the 1980s and 1990s, there were no practices hiring financial planning analysts and associates; there were no jobs for people who simply wanted the responsibility of taking care of an existing base of clients but not the weight of building a practice and going out to get new clients. You built your business from scratch, or you didn't survive. Period.
Over the past decade, though, there have been an increasing number of staff positions available for financial planners, in a variety of businesses types and roles that allowed competent practitioners the opportunity to serve clients without the responsibilities of practice management and business ownership. And that trend appears to be continuing even further in the coming decade, as more and more financial planning firms gain in size and scale, and more financial planners enter the profession into those larger firms that not only don't require them to build their own practice from scratch, but provide a career track that means the person may never be required to build and cultivate their own practice.
Simply put, there is actually a growing base of practitioners who work in financial planning practices, for whom practice management content is not relevant, even while there is perhaps an increasing struggle and need for practice management content for those who are business owners.
The second part of the post, discusses how practice management CE creates a double standard, and why practice management is its own reward.