CFP®: What’s the Big Deal?

The financial services industry has nearly always existed in some form in the history of man and has undergone great changes throughout. It’s a mile wide and a mile deep in the breadth of what’s out there- payment processing, banking, lending, currency exchange, insurance, the bond and equity markets just to name a few. Especially in the last century, the industry has undergone much more legal scrutiny and regulation, which is good. Following the stock market crash of 1929, Congress passed the Securities Act of 1933 which required better disclosure and transparency in financial statements and requiring investment companies to register with the Securities and Exchange Commission (SEC). Then the Investment Advisors Act of 1940 brought legal clarity to what qualifies as investment advice, and that advisors must pass a qualifying exam and register with a regulatory body. The act requires “affirmative duty of ‘utmost good faith’ and full and fair disclosure of material facts” to clients to uphold the duty of care and loyalty.

In recent years, the field of personal financial planning has begun to pick up steam in academia. For many years, the closest thing you could go to school for if you wanted to be a financial planner was finance, or perhaps consumer economics. Some universities offer certificates for those who want education pertaining to personal finance to pursue being a financial advisor. Now though, universities such as the University of Georgia and Texas Tech offer baccalaureate, masters, and PhD programs specifically in financial planning. The focus of these programs is to prepare the student for passing the Certified Financial Planner (CFP®) exam. The content of the classes directly related to what is found on the exam and what we will see in real life, helping real families. The writer personally graduated from the University of Georgia’s Financial Planning program in 2020 and will attempt the exam in November.

The CFP® encompasses a range of areas concerning personal financial planning. These include personal finance, risk management and insurance planning, investment planning, tax planning, retirement and employee benefits, estate planning, and the psychology of financial planning. While an advisor doesn’t have to go to school for personal financial planning, he must know and be able to give advice on the very same topics. Every person who has a CFP® designation has passed the exam, satisfied the educational requirements, and 2-3 years of experience. The CFP® is a designation that demonstrates serious dedication to the practice of financial planning. Notice that I called financial planning a practice. In time of old, which was not very long ago and persists now in the industry, personal financial planning has operated around a more transactional method of business with people, and if there were comprehensive planning and advice, it would accompany the transaction. The investments being the main thrust of the engagement and not the planning. There is nothing morally wrong with that, however could that be a case of ‘the tail wagging the dog’?

At Sugarloaf Wealth Management, we practice financial planning, and thus esteem the CFP® certification for all it represents. What does this look like in reality? Planning comes first. What are the client’s goals, what is their current situation? How can we steer the ship in the right direction to meet those goals? What is their risk tolerance and risk capacity? These are just some of the considerations made when creating a financial plan. The implementation, which investments are just part of, may accompany the inclusion of the help of CPAs, and attorneys to put into reality the financial plan. The writer is fascinated by stocks and bonds and the like and is what whet his interest in pursuing his current career path, however it is a means to an end- that being how can goals and needs be met?

Why is the CFP® designation a big deal? It means a commitment to the practice of financial planning and putting people first.

– Emory Linder