A Certified Financial Planner . . . The Good, the Bad, & the Ugly

I have always been a reader. I like it. One of the benefits of being stuck in the house for what seems to be eternity with three teenagers is that I find myself spending more quality time reading.

So, after supper the other night I found myself in the den reading industry articles on financial systems, market research reports, the effect on the markets, and articles about the financial services industry in general. By coincidence, two of the articles that caught my attention were about the recent troubling developments with the CFP® (Certified Financial Planner) designation, and in particular the type of oversight that is being exercised by the CFP® board. One of the challenges I find in my industry is the lack of transparency and misinformation. So, this week let’s dive down a bit and see what is going on within the world of the Certified Financial Planner and maybe teach you some questions to better help you make sound financial decisions.

The Certified Financial Planner (CFP®) designation or label is a widely-used set of credentials within the financial and retirement planning industry. The designation is bestowed and controlled by The Certified Financial Planner Board of Standards, Inc. For some folks, this is the starting and ending point in their search for financial and retirement planning help. The CFP® board, which boasts membership of more than 70,000 advisors, states on their website, “With a CFP® professional you get a financial planner partner committed to working in your best interest and the confidence that comes with building a comprehensive plan.” The website goes on to claim that CFP®’s “…are held to strict ethical standards”.

Hmmm . . . not so fast.

You see, the challenges that the CFP® has in making these claims is that they are falling short . . . really short. In fact, a recent front-page article in the Wall Street Journal, “Looking for a Financial Planner? The Go-To Website Often Omits Red Flags,” tells a story that is long overdue.

Get this, over 6,000 of the individual entries for advisors have had some sort of adverse action or activity or something negative pending. Among the CFP® designees that the CFP® website holds out as having strict ethical standards, 5,000 CFP®’s have customer complaints, more than 600 have some sort of negative financial history (including liens and bankruptcies), nearly 500 have past or current criminal charges, over 300 have left a previous firm after allegations of misconduct, and another 300 plus have faced regulatory action or investigation. Folks, I find it hard to believe that the only negative comments about any advisor listed by the CFP® website are bankruptcies and whether any discipline was imposed by the CFP®’s own board. In the last ten years through June of 2019, there have been only 573 mentions of adverse activity.

For example, the CFP® listings do not include any information about negative actions or complaints by the SEC (Security and Exchange Commission) or FINRA (Financial Industry Regulatory Authority) for CFP®s who hold investment advisory or securities’ registrations. Nor do they disclose actions by the Justice Department or any State authorities. While I fully support any education that an advisor pursues to better serve his or her clients, the CFP® board’s lack of regulatory authority and their marketing of their designees’ trustworthiness appear to be at odds with each other. It is this lack of oversight, which waters down its credibility and makes it very difficult for consumers to know who or what to believe.

The biggest issue I have with the CFP® designation and its related board is its approach to ongoing discussions of what the fiduciary-role of a financial advisor should be. For about 10 years now, the CFP® board has tried it’s hardest to set out to be the arbiter of what a financial professional acting as a “fiduciary” should look like. But let’s look at the actual definition of a fiduciary is, “… a person acting as a fiduciary for you has a legal or moral obligation to put your needs and interests before any needs or interests of themselves.”

However, the CFP® board simply has been promoting a dummied-down definition of what a financial fiduciary should be. According to Don Throne, an industry leader in behavioral governance, the CFP® board’s support of their version of what fiduciary should look like is very misleading, “To say that CFP® certificants have been held to a standard similar to the rules recently released by the DOL (Department of Labor) is like saying a little league team is similar to a professional baseball team. The CFP® Board has defined its fiduciary standard in terms of a de minimis common law standard with as many loopholes and exceptions as possible, which allows CFP® certificants to avoid accountability.”

I have been saying it for years that the major problem here, folks, is that many financial professionals who have the CFP® designation use it as a marketing tool. They use it as a crutch. There’s even been a huge marketing push to hire those with a CFP® by the CFP® Board, and consequently many retail financial firms are encouraging more of their advisors to obtain the CFP®. While there’s an educational benefit to any-one with the CFP®, it doesn’t always carry over into the work they do for their clients.

So, what do you do?

The first question must be, “What licenses do you hold?” A CFP® who holds and maintains a Series 7 license is drastically different than someone who doesn’t. One obtains the Series 7 by passing an exam which allows the individual to sell general investment products and securities on behalf of the financial firm they are employed by. To take this exam, the person must be sponsored by a broker-dealer, and continue working for a broker-dealer to maintain the license. In my opinion and others within our industry is that there’s a significant conflict of interest for a CFP® who holds an active Series 7 because they’re sales representatives of the brokerage firms they work for. Those firms very often push their advisors to sell certain products and find ways to generate revenue because that’s how the company and individual are compensated. You may want to seek out those professionals who only hold a Series 65. A Series 65 professional must put their client’s interests first, no matter what.

What if the advisor holds both a Series 7 and 65? The question asked must be, “Since the Series 7 and the 65 are at odds with each other, how do I know when you are working in my best interest?”

Other questions such as, “What is your work history? Have you ever been fired? If so, was it for cause? How are you paid? Are there any fees and expenses charged to the client, received by the advisory firm, that are not readily disclosed, such as 12b-1 fees?

I really do believe that most financial advisors are trying to do the right thing for their clients. However, with something as important as your financial and retirement future, you now know the questions to ask to help put you in the highest probability of financial success.

So as always – be vigilant and stay alert, because you deserve more!
Have a great week. Please be safe out there. We will.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at jeff@cutterfinancialgroup.com.

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