CFA vs. CFP: Really?

Back in the early 1980s, when I started covering financial planners, they didn’t get much respect on Wall Street. In fact, brokers often referred to the old International Association of Financial Planners (the forerunner of the FPA) as “the International Association of Failed Producers.” This week I had a deja vu moment back to that time as I was reading Joan Lappin’s Feb. 28 blog on Forbes.com: “A Stockbroker Should Not Be Able to Call Himself a Portfolio Manager or Investment Advisor.” A worthwhile sentiment to be sure, and had Ms. Lappin—a CFA and former portfolio manager herself—stuck to that topic I would be singing her praises.

Instead, she took SEC Chairwoman Mary Jo White’s comment last month—“We also will intensify our consideration of the question of the role and duties of investment advisors and broker-dealers, with the goal of enhancing investor protection,” as an opportunity to launch into an advertisement for CFAs and RIAs—which she is now—and a diatribe against those nasty certified financial planners. 

Here’s the passage I found most troubling, for what I hope are obvious reasons: “If you see someone is a CFA, it means they are a chartered financial analyst. The vetting process to become a CFA is three years’ worth of all-day exams, much like your CPA endures to gain the certification.  You may see ads on TV for CFPs.  Those folks can be certified in as few as six months with no prior investment experience. They are better than somebody with no initials after their name but rest assured their training does not include financial statement analysis, extensive training in the ethics of proper behavior and always putting your clients’ interest first or the range of material a CFA is forced to master…” 

I know. Six months? Really? Her description actually makes “failed producers” sound pretty good, doesn’t it?

The last time I checked, which was about an hour ago on the CFP Board’s website (I wanted to make sure I wasn’t having a senior moment), to become a CFP one must, among other things, complete: “a college-level program of study in personal financial planning, or an accepted equivalent” and “have three years of professional experience in the financial planning process, or two years of apprenticeship experience that meets additional requirements.”

Since these two requirements can overlap (taking courses while one is working), we’re still talking about three years, not “six months.”

Now I’m not saying that the CFA course work isn’t rigorous. Or that many CFAs aren’t probably better stock pickers, I mean financial analysts, than many CFPs (there are always exceptions). But Ms. Lappin seems to have overlooked the fact that CFPs have to know more about personal finance than just portfolio management. They have to show proficiency (and get continuing education) in insurance, taxes, retirement planning, estate planning, college planning and budgeting, to name a few disciplines.

Do financial planners know more about all of these subjects that folks who specialize in each? Probably not, but they know enough to take most peoples’ financial lives where they want to go—and to bring in “experts” when they need to.

Now, what about that “training in the ethics of proper behavior” thing? I took this opportunity to refresh my memory on the CFA Code of Ethics and Standards of Professional Conduct. I found that, among other things, Chartered Financial Analysts are required to:

  • Place the integrity of the investment profession and the interests of clients above their own personal interests.
  • Must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests. 
  • Must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.
  • Determine that an investment is suitable to the client’s financial situation… 
  • Must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity…

You got that, right? Fair dealing, suitability, and disclosing conflicts rather than mitigating or avoiding them. I don’t know about you, but to me this sounds a lot like FINRA’s regulations for stockbrokers.

What’s more, while CFAs are required to put their “clients’ interests ahead of their own,” that’s a long way from the fiduciary standard required of CFPs—even though the CFP Board looks the other way when CFP brokers put on their broker hat. The fact that many CFPs are also RIAs—with a full-time fiduciary duty—seems to have escaped Ms. Lappin, who with her Wall Street background probably thinks all CFPs are stockbrokers. 

That’s really the problem here, isn’t it? Back in the Dark Ages when I started, the vast majority of financial planners were former stockbrokers or former insurance agents who went independent to better serve their clients—and who made less money doing it, hence the “failed producer” slam.

But their “anti-Wall Street, with all its conflicts” mentality is what attracted clients. So many clients that, 30 years later, brokers are leaving Wall Street in droves to get in on the action. So what’s the CFP Board do? Launch a massive ad campaign (with CFPs’ money) to certify more brokers.

If Joan Lappin is confused about who CFPs are, do you think the public isn’t? Maybe the Board should change its designation to Certified Financial Producer…

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