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Financial Planning > Behavioral Finance

Universal Standards

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In my last article, I relayed the startling statistic that by the end of this year, the number of non-U.S. CFP certificants will almost surely surpass the number of U.S. certificants. I think this answers the question about when demand for financial advisors will become global: It’s already happened.

Now the question is, what are we going to do about it?

Leaders in financial planning say that globalization is an opportunity for us to mature into a true profession, and that U.S. standards should be the model for planners worldwide. Creating and upholding high standards will increase consumers’ recognition that financial advisors hold special expertise on par with other professions. If the standards game is played right, we could be looking at a golden era for financial advisors.

Universal Human NeedLaura Brook, director of international relations for the Financial Planning Association, says that globalization of financial planning is tapping into very powerful forces. “I have traveled very extensively in the last 10 years for FPA, and I see a universal human need for peace of mind, planning for the future and ensuring the security of their families,” she says. “These are the needs that financial advisors can speak to.”

Advisors who have strong credentials and uphold tough ethical codes give people confidence that their financial future is in good hands. That’s why the CFP mark is flourishing, with both commission-based and fee-based advisors pursuing the credential.

“We see more and more consumers expecting the type of service that is delivered in the U.S.,” observes Noel Maye, CEO of the Financial Planning Standards Board (FPSB). The FPSB coordinates CFP licensing programs everywhere in the world, except the U.S.

Under the FPSB’s guidance, 23 countries today have or will soon have CFP certifications, and the number is growing. “Financial planning is global, but the application is local,” says Maye. “That’s the strength of our program. We aren’t delivering the CFP program on our own; we find a non-profit group in a host country, and we bring them the global framework and allow them to localize it.”

The ISO StepThe CFP is the most prominent standard in the U.S., and so it’s no surprise that it has become the de facto standard for financial planners around the world. It’s also playing an important role by feeding into a broader international entity known as the International Organization for Standardization (ISO).

ISO was created to bring standards to the manufacturing industry. It first covered things like the grade of metal for a steel girder or the size and shape of a bolt. The idea was to get everyone to agree on what a No. 2 bolt would be.

Over the years, ISO has increasingly been applied to industrial and commercial processes, and now it’s starting to be used in service industries. Financial planning was one of the first services that ISO tackled.

“We have an expectation — and a need — that all the pilots and air traffic controllers who are in charge of international flights understand the same technical material and act in a consistent way,” notes Peter Lefferts, who was chair of the U.S. Technical Advisory Group for Financial Planning Standards for ISO. “It would be a disaster if a pilot from France did not understand U.S. runway signals when landing in Los Angeles.”

In a service profession, ISO is basically a “best practices” manual. For financial planning, those best practices are set out in ISO 22222:2005, global standards for financial planners. These voluntary standards are the “aspirational” model for how financial advice will someday be delivered to consumers across the world.

ISO 22222:2005 standards are very similar to the CFP requirements and Code of Ethics. And the reputation of ISO with governments and consumers around the world give them the potential to be especially significant. “ISO is a very strong brand name outside the U.S., for everything from commercial aviation to clean water. In industrial applications, ISO is well-known in the U.S., but it’s not very familiar to consumers,” says Lefferts.

Because ISO is so highly respected, Lefferts suggested that ISO 22222:2005 would likely be the model for international lawmakers who are regulating financial planners. The need to license and somehow oversee financial planners is rising because countries are expecting citizens to be more responsible for their financial futures than in the past.

“Populations are aging around the world, and governments can’t live up to their guarantees of retirement income,” says Lefferts. If you think the U.S. Social Security system is in trouble, you should see some of the other ones that are actuarially bankrupt.”

The result is that governments are doing things like shrinking pensions and introducing means-testing for benefits. People are beginning to realize that they will have greater personal responsibility for their financial security. This has led to the introduction of financial products and a delivery system, but with some negative consequences notes Lefferts.

“At the beginning, the products are easily manipulated by people who are dealing with inexperienced customers,” he says. “Then what follows is the recognition that we need technical standards and ethical standards for the experts — the advisors.”

In the U.S., this evolution is basically complete. The rest of the world is catching up quickly. “The CFP is furthest along in English-speaking countries, which isn’t surprising because that is the language the standards were written in,” said Maye. “But in the last few years we’ve brought in more countries; we now have 12 in Asia-Pacific and seven in Europe.”

A story from FPA’s Laura Brook shows how the forces work. “I remember being in Kuala Lumpur in 2002 at a conference,” she recalls. “There was great enthusiasm for the idea of fee-based and fee-only planning. But every product in that country was commissioned. That will change, and a need for financial planners will rise.”

As the need arises, regulators are finding the client-centric approach of the CFP model (on which ISO is built) to be attractive. “Over time, I expect to see conformity to the ISO standard for financial practitioners, through both voluntary and regulatory means,” says Lefferts.

Ireland is a great example. Regulators are discussing with the FPSB whether a CFP certificant would automatically be considered to have achieved the country’s licensing requirements for financial planners.

Just as importantly, consumers are demanding a global standard for advisors. “I was in Zurich last month, and I was talking to an advisor who works for a large institution,” says Maye. “He had just added two clients who asked him if he was a CFP. They had been working with U.S.-based advisors who had the certification, and to them that was the seal of approval.”

What Does It Mean?Finally, it’s fair to ask what all of this means to an advisor who has an established U.S.-based business today? Is globalization of the industry an opportunity, a threat or merely irrelevant?

The first lesson is that advisors who have CFP certification have a leg up on the competition. For the highly skilled and trained advisor, international opportunities are on the rise. However, competition is on the rise, too, as advisors around the world are earning the same credentials and seeking an increasingly mobile and globalized group of clients.

I surveyed individual advisors about how they are affected by globalization. We’ll find out what they said in my next installment.

Marie Swift is the president of Impact Communications, a marketing and communications firm for independent advisors; see


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