Do certified financial planners make more money than other financial advisors? It’s an interesting question, isn’t it? Perhaps not as interesting as whether the clients of CFPs attain more of their financial goals than those of non-CFPs. Clients don’t seem to be top of mind at the CFP Board these days, though, so those good folks commissioned Boston-based Aite Group to look into the matter of CFPs’ relative success. (See “Are CFPs More Successful Than Non-CFPs?” ThinkAdvisor.com, Feb. 16.)
The results of Aite’s research were published in February in a report titled “Building a Wealth Management Practice: Measuring CFP Professionals’ Contribution” by Alois Pirker and Sophie Louvel Schmitt. Now, if you or I were trying to find out how much CFPs take in compared to other advisors, we’d probably ask a statistically significant number of CFP and non-CFP advisors how much they took home in the last few years and compare the results. But, as you may have inferred from the title of the study, that’s not what Pirker and Schmitt did.
Instead, the study “identifies and quantifies differences between registered representatives and investment advisor representatives […] who hold a CFP certification, and financial advisors who are not CFP professionals. Furthermore, the study compares practices with CFP professionals (CFP professional practices) to those without CFP professionals.” That’s rather a different set of questions, isn’t it? Collectively they raise the question of whom the CFP Board thinks might be interested in the answers.
To find out, let’s look at the study itself. Last October, Aite conducted an “online survey of 403 U.S. financial advisors that includes 146 CFP professionals, [and] 306 advisors representing practices that have at least one CFP professional (called CFP professional practices). Almost all CFP professional practices are led by at least one CFP professional.”
I know — where to start, right? Perhaps those 146 CFPs would be a good place. A click to the CFP Board’s website reveals that there are currently about 74,000 CFPs. So, 146 CFPs would represent 0.2% of them. I think we can safely conclude that this study isn’t going to tell us much about CFPs and their world.
Now, I’ve been covering the CFP world for more than 30 years, but if you were to tell me that I’m out of touch, I probably wouldn’t argue. Still, I do read the industry pubs, visit the sites and talk to a lot of people in the industry, and I don’t recall ever coming across the term “CFP professional practice.” CFPs own practices. CFPs work in practices; usually owned by other CFPs, but sometimes by accountants or even law firms. But what could a “CFP professional practice” possibly be?
To answer that question, we have to look at what kind of advisors Pirker and Schmitt surveyed. “The [survey] includes advisors from six types of firms,” they wrote. Advisors from wirehouses and other self-clearing firms represent 40% of the sample; midsize and small traditional BDs represent 29%; independent RIAs represent 15%; and advisors with online brokerage firms like Schwab, Fidelity, etc., represent 14%.
Now, considering that 44% of the CFPs surveyed were in either independent RIA firms or independent BDs — the traditional homes of CFPs — it’s a bit surprising that the authors adopted the language of the 40% of Wall Street CFPs when explaining these firms: “A CFP professional practice could be solo advisor practices or team practices […]. In this report, we discuss two types of practices: team-based practices, with more than one client-facing advisor; and solo practices, with one lead client-facing advisor (and may also have junior advisors).”
Perhaps I’m just old-school, but to my mind, advisors who are employed by brokerage firms don’t have “practices,” they have jobs, regardless of their designations. CFPs who do have “practices” don’t work in “teams,” they work in independent firms. This may sound like semantic nitpicking, but, as with much in the financial advisory world these days, the blurring of concepts and definitions is often part of a strategy to erode investor protections.