In my May column in Investment Advisor, “A Category Is Born: CFP Professional Practices,” I wrote about a study by the Aite Group, sponsored by the CFP Board. In that study, the authors explore whether CFPs and teams that include CFPs make more money than non-CFP advisors or teams without CFPs advisors. For those who’d rather skip dissecting the study (or reading my column), the short answer is they do: about 40% more annual revenue.
Yet the most interesting part of that study (at least to me) wasn’t about CFP revenue or income; it was about the CFP Board’s standards for CFP conduct, particularly the requirement to act in the best interests of clients. Here’s what it said: “CFP professionals are held to a fiduciary standard of care when providing financial planning. […] Clients may believe they are receiving a financial planning service that meets CFP Board’s definition when they are instead receiving a service that is narrow in scope and incidental to the transaction. [Emphasis added.]”
To my mind, this analysis of when CFPs are and are not fiduciaries (for the same client), combined with the conclusion that CFPs “manage 40% more of their clients’ investment assets on a fee basis compared to other practices,” strongly suggested that the Aite study was essentially a sales pitch for brokerage firms to hire — or train — more CFPs.
In response to that column, I received an insightful email from a CFP (who wished to remain anonymous, so I’ll call him/her “Mike”) who put a much finer point on my conclusion. “For me, and the many respected CFPs I know, the intensive training and education [to become a financial planner] was a period of enlightenment,” he wrote. “I knew I had to become independent and do it the right way every day. So, my conclusion is that CFPs who are walking the talk go independent and earn more because they are knowledgeable. What one does with this knowledge is another matter though.”
Mike is talking about the problem that essentially all professions were created to address: Just because one has greater knowledge about a subject than their clients or patients or students, it doesn’t necessarily follow that one is using that knowledge for their benefit. That’s why we have professional standards — such as the fiduciary standard for advisors — requiring professionals to act in the best interests of their clients, etc.
Mike addressed the CFP Board’s role in setting standards for the planning profession. “You asked in your article why the Board needs to sell ‘CFP’ so hard? It’s because they/we have an identity crisis,” he wrote. “The Board is trying to get the word out on what the marks mean. If you ask a person what a CFP is, they are likely not to know. Worse yet, if you ask for the difference between a broker and a CFP, they’ll have no idea. This is where your article stopped short.”