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Financial Planning > Charitable Giving

CFPs Cry Foul Over Proposed 7-Step Planning Process

By Melanie Waddell

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The Certified Financial Planner Board of Standards’ plan to turn the six-step financial planning process into seven steps is unnecessary, CFPs are complaining to the Board.

The change is part of the Board’s proposed update to its Standards of Professional Conduct.

Financial planning has “since time immemorial been a six-step process,” said David Yeske, managing director of the wealth management firm Yeske Buie and a past president of the Financial Planning Association, in a comment letter to the CFP Board.

The Board “previously recognized the six-step process as iconic when it mushed the original steps one and two together to make room for ‘establish the scope of the relationship,’” Yeske said. “There is no reason to separate ‘develop and present planning recommendations’ into ‘develop’ and then ‘present.’”

The CFP Board’s request for comments on its second draft of proposed revisions to its Standards of Professional Conduct ends Friday.

Yeske’s colleague, Elisse Buie, expressed in a separate comment letter her “extreme displeasure” in the CFP Board’s planned conversion of the six-step process to seven. “Change for purpose is fine. But this feels like change for the sake of change,” Buie said.

CFP Board explained in a comment to ThinkAdvisor the proposed conversion of the six steps to seven reflects “the modern delivery of financial planning.”

The Board said three main “structural changes” would change the process from six to seven steps:

1. The first step in the process under the existing Practice Standards – “Defining the Scope of the Engagement” – is not included in the proposed Practice Standards. Instead, the terms of the Engagement are addressed elsewhere in the Standards.   

2. The second step  – Gathering Client Data – is divided into two steps and reordered. The second step of the existing Practice Standards has two components: (1) Determining a Client’s Personal and Financial Goals, Needs and Priorities, and (2) Obtaining Quantitative Information and Documents. Under the proposed Practice Standards, Understanding the Client’s Personal and Financial Circumstances is the first step in the process, and Identifying and Selecting Goals is the second step.

3. The third step under the existing Practice Standards is titled Developing and Presenting the Financial Planning Recommendation(s), and contains standards for Identifying and Analyzing Financial Planning Alternative(s), Developing the Financial Planning Recommendation(s), and Presenting the Financial Planning Recommendation(s). The proposal addresses these standards in three separate steps – Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action, Developing the Financial Planning Recommendations and Presenting the Financial Planning Recommendations.

The Board of Directors plans to consider the feedback and expects to approve and release a final version of the Code and Standards by the end of the second quarter. Pending the outcome of the second comment period, CFP Board said that it intends for the final Code and Standards to have an effective date of Jan. 1, 2019.

While CFPs like Michael Kitces of Pinnacle Advisory Group applauded the Board’s revised standards for their “efforts to advance a fiduciary standard for all CFP certificants,” Kitces sees trouble spots.

One of the “greatest,” he told the Board in his comment letter, “is the fact that the revised proposal effectively creates two forms of advice from CFP professionals – financial planning advice, and non-financial-planning financial advice.”

Both are subject to a fiduciary standard, “but have different disclosure requirements, and will be evaluated by different Practice Standards,” Kitces said.

The end result: “CFP professionals will be able to routinely avoid being held accountable to following the CFP Practice Standards by not giving financial planning advice, even as the CFP Board’s own Public Awareness campaign continues to advocate ‘for financial planning, work with a Certified Financial Planner professional,’” Kitces argued.

Another issue that still “hasn’t been resolved” is that the term “reasonableness” is used “a whopping 28 times” to determine whether a CFP professional “is guilty of wrongdoing.”

Rick Kahler of Kahler Financial Group in Rapid City, South Dakota, told the Board that its revisions “sadly miss the mark of delivering the most emphasized feature of the CFP mark[:] the expectation of receiving a fiduciary financial planning experience from someone holding the mark.”

The revised standards, Kahler argued, “are effectively telling the public ‘it’s not even safe to assume that engaging a CFP professional for financial advice will result in any actual financial planning.’”  The result, he maintained, will be “weakened consumer protection, and the fact that it’s not even clear how to apply a fiduciary duty to non-financial-planning financial advice, or what standards such a CFP would be held to.”

Every CFP professional, he continued, “must do financial planning for every client, but when a CFP professional holds out to the public as a CFP, … the consumer should be able to safely assume they will be getting financial planning subject to the full standards that apply to financial planning, unless a clear advisory agreement and scope of engagement stipulates otherwise and the CFP professional clearly discloses this is not financial planning advice.”

Kahler said that he “would strongly favor going back to the pre-2008 definition of the [CFP] mark, which was simply evidence of financial planning education, not of a faux promise of receiving a fiduciary financial planning experience.”

— Check out Record Number of Women Became CFPs in 2017 on ThinkAdvisor.

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