From the May 2013 issue of Investment Advisor • Subscribe!

Publish and Perish?

The pros and cons of the CFP Board’s new Competency Handbook

Do we really need another book about financial planning? According to the CFP Board, we do—at least one by the Board.

Here’s how CEO Kevin Keller described the Board’s first foray into book publishing in a press briefing last March 28: “As part of the Board’s mission, we need to be the authority on financial planning, and building an academic foundation is central to the creation of financial planning as a profession.” To fill this void, Dr. Charles Chaffin, director of the Board’s Academic Programs and Initiatives, spent the past couple of years working with a team of 21 other contributors to create “The CFP Board Financial Planning Competency Handbook.”

The goal of this massive tome—which includes 85 chapters and 735 pages—is, according to Keller, to “serve as the comprehensive handbook for financial planners, those who are candidates for CFP certification, those involved in the industry, academics and, of course, journalists.” (I’m not sure, but I think that last bit was a joke.) It’s a worthy—if ambitious—goal, and its list of contributors includes leading luminaries among financial planning practitioners and academia. What’s more, the handbook is uniquely structured to combine the theoretical side of financial planning with how those theories are applied and practiced in the real world. Still, older planners (and observers) will remember that the Board attempted a similar project back in the 1990s—practice standards for financial planners—that was abandoned after a backlash from CFPs who were fearful of the potential liability such standards might create and wonder now whether the Board might be repeating its history.

As I mentioned, the list of 22 contributors is impressive. The academics include: Dr. Thomas Warschauer, who is professor of finance emeritus atSan DiegoStateUniversity, a former member of the CFP Board of Examiners, and was the first president of theAcademyofFinancial Services. John Grable, Ph.D. is a former practicing financial planner, the founder and first program director of personal financial planning atKansasStateUniversity. He currently holds an endowed professorship at theUniversityofGeorgia, where he conducts research and teaches financial planning. Dr. Vickie Hampton is department chair and professor of personal financial planning atTexasTechUniversity.

Well-known advisor Deena Katz, Ph.D., is both an associate professor of financial planning atTexasTechUniversityand a founding partner at Evensky & Katz inCoral Gables,Fla.Also a leader in the financial planning profession, Elissa Buie, MBA, CFP, is both a practicing planner and a professor of financial planning atGolden GateUniversity. As the last chair of the ICFP, she was instrumental in the creation of—and the first chair of—the FPA, and is the current chair of the Foundation for Financial Planning. Her husband and partner, Dave Yeske,CFP,MA, DBA, is also a past president of the FPA, and is an associate professor atGolden GateUniversity. The CFP Board’s Charles Chaffin, Ed.D., has overseen 340 Board-approved CFP education programs since 2010, and served as both editor of the handbook and a contributor.

One of the first things that strikes a reader of the handbook is its sheer heft. The second is its unusual structure. The first 77 of its 85 chapters focus on the financial planning topics that are required to meet the CFP education requirement (think retirement needs analysis, gifting strategies or standards of professional conduct), with each written by one or more of the contributors. According to Chaffin, “the book was designed to treat theory and practice […] as one entity, where content is defined but also applied, but within the learning environment and in practice.”

To do that, each chapter outlines what practitioners should be able to do, relative to that topic, in each of three financial planning career stages. There are also vignettes in each chapter to “illustrate how each particular concept is applied or exists in practice.”

For example, in chapter four, “Cash Flow Management,” there are learning objectives for students such as “calculate cash savings required to meet financial goals.” Then, there’s a rather lengthy chart about what’s supposed to go on in class relative to cash flow, followed by the professional practice capabilities for each of the three levels: entry-level, competent and expert. An “entry-level” planner can “explain the cash flow management process [and] identify opportunities and challenges related to a client’s cash inflows and outflows,” while an “expert personal financial planner can creatively and strategically identify financial and nonfinancial resources to use by clients in reaching financial goals.”

Finally, there are two vignettes that illustrate cash flow issues. The publisher, Wiley & Sons, has practice questions for each chapter online, and planners can earn up to 28 CE credits for answering. A survey of the other chapters suggests more of the same and leaves one with the impression that, overall, the Board has indeed “moved the profession of financial planning forward by creating a universal body of knowledge for the disciple as a whole.”

The last eight chapters are devoted to the “domains” that are part of the CFP requirement. They include things like “Establishing and Defining the Client-Planner Relationship,” “Analyzing and Evaluating the Client’s Current Financial Status” and “Communicating Financial Planning Recommendations.” This is the part of the handbook that achieves Dr. Chaffin’s goal of illustrating how financial planning theory exists within practice.

Chapter 83, “Implementing the Financial Planning Recommendations,” provides some insight into how this works. This is a real “how to” manual, with a detailed real-world outline that includes identifying activities necessary for implementation; determining division of activities between the practitioner and the client; referring to other professionals; coordinating with other professionals; sharing information as authorized; selecting and securing products or services.

Next comes a case study about a married couple in need of financial planning and other services their planner doesn’t provide. The authors neatly set out their purpose this way: “If a financial planner works with clients to produce financial recommendations aimed at meeting financial goals and the recommendations are never implemented, has anything really been accomplished?”

They then lay out the techniques for implementing the financial plan including the dependence on a planner’s business model, the scope of the engagement and the possible limitations of a brokerage account. The chapter includes a 25-step sample action plan for implementing the couple’s financial plan followed by an 11-step process for use in executing the action plan. It is indeed a real-world example of how planners should turn their recommendations into reality.

The other chapters in Part Two appear, at least to my non-financial planner eye, to offer equally helpful guidelines and solutions to most of the issues that many practitioners face. Yet, I can’t help but wonder how many of the 67,000 or so CFPs use similar solutions to these common topics. When asked, Keller stated that the Board had not put the contents of the handbook out for comment by anyone other than the contributors, but he liked the idea, saying that the Board would create a place on their website for CFPs to post comments about the book.

The question of consistency between planning practices is more than academic. While Keller was adamant that the handbook was not intended to create practice standards, that doesn’t mean it couldn’t be construed that way. To get a more learned view about the implications for a competency handbook, I talked to Dan Berstein, who is a compliance attorney at MarketCounsel, a compliance consulting firm for independent advisors, inEnglewood,N.J.

Although he hadn’t yet seen the book, Berstein voiced both support for it, as well as some concerns for the idea of a handbook and its publication by the CFP Board of Standards: “A profession needs someone to put a flag down with some standards, but by doing so, you have to understand you are taking a risk. If a court or regulator rules that a CFP is holding his or herself out to adhere to the Board’s standards, those could include the principles and practices spelled out in the Board’s new book, which might become a de facto reasonableness test.”

Bernstein voiced some concern for the title: “I also don’t like the name ‘Competency,’” he said. “It implies this is the only way to be competent. If I were advising a client, I’d tell them they were taking a risk to deviate substantially from the practices set out in such a handbook. If they were going to do things differently, they’d need to show their way is reasonable and in the client’s interest. It would also help if other advisors were giving similar advice.”

The “CFP Board Financial Planning Competency Handbook” is an impressive work, compiled by leading academics and practitioners in the profession. It undoubtedly will achieve its goal of advancing the knowledge base of the planning profession. Part of that process will be CFPs comparing the contents to how they practice financial planning.

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