The recent announcement by the National Association of Personal Finance Advisors that it will admit only certified financial planners as members is a slap in the face to planners who hold certified public accountant/personal financial specialist and chartered financial consultant designations. It also denigrates thousands of financial professionals who have had five, 10 and 20 years’ experience providing high-quality planning services to American families. Even if they are fee-only, these professionals are no longer welcome at NAPFA. See: The once underrespected CFP gets a lift after Merrill Lynch and now NAPFA make it central for newbies.

There is no question, the CFP program delivers the specialized knowledge professionals need to develop sophisticated, holistic plans for their clients. However, if I were an investor, I would not select a professional whose primary credential was the CFP designation. I would select a CFP who had years of experience developing the type of plan I need. Consequently, experience
is just as important as the designation, and professionals with the PFS and ChFC designations may have more experience than the advisor with the CFP designation. It is hard for me to believe a CPA/PFS with 10 years’ planning experience is any less qualified than a CFP with the same amount of experience. At some point, experience is more important than the designation.

My perception of NAPFA’s stated purpose is to help investors who are confused by the bewildering number of designations that advisors use to prove they are knowledgeable planning experts. In fact, the media frequently refers to designation letters as alphabet soup — a lot of letters that don’t mean much to most investors. This is a legitimate concern. Paladin Registry researchers recently identified more than 200 designations that are used by planners, advisors, money managers and registered representatives. See: Lockshin: All advisors must deal with the threat of low industry standards — before investors do it for them.

Gimmicks galore

Promoting the CFP designation is a worthwhile cause for NAPFA, but it does not address a much bigger problem. All of the confusion over credentials opens the door to the use of fake credentials by unscrupulous advisors who market themselves as financial planning experts. And, this is the tip of the proverbial iceberg. The real problem is that anyone can claim to be a financial planner, whether it is true or not. This sales gimmick has been around since the 1980s, when insurance agents implemented two deceptive sales tactics. They called themselves planners to reduce sales resistance, and they used cheap planning software to help them sell large amounts of insurance and investment products.

The Certified Financial Planner Board of Standards Inc. supports the best credential in the financial planning industry. More than 70,000 individuals hold its CFP® designation. NAPFA’s membership is 2,400 fee-only planners who may also provide investment advice. The Financial Planning Association is clearly conflicted because its wide-open membership comprises CFPs® and non-CFPs® who are compensated with fees and commissions. In fact, its website home page uses generic terms such as “planners” and “financial planners,” but makes no mention of certified financial planners. See: Advisor vs. Advisor: Two RIAs and two brokers advocate [a total of] four different ways of earning fees and caring for clients.

NAPFA, the CFP Board and the FPA may be adding to the confusion. Put yourself in the shoes of a naïve investor who has heard about financial planners and needs professional help. The CFP Board website says its 70,000 CFPs are investors’ best choice for a financial plan they can trust. The NAPFA name refers to 2,400 financial advisors, but not to financial planners. And on its website, the FPA says it supports “members with diverse backgrounds and business models.”

Tweaking commissions

Add in thousands of additional professionals who do not belong to the FPA or NAPFA and are not certified by the CFP Board, and you begin to see the scope of the problem. These professionals, who may or may not be legitimate planners, add to the confusion. And, if they really are unscrupulous, they use “tweaked planning software” that recommends investment and insurance products that pay big commissions to them and their firms.

The whole industry is tainted by a lack of regulation for planners. So the question is, how does the industry clear up the confusion and do it in a way that helps investors select real financial planners?

Reps, advisors and agents have to pass tests that permit them to sell investment and insurance products for commissions. The Financial Industry Regulatory Authority Inc. should develop a similar licensing and examination process for professionals who want to market planning advice and services. Professionals who hold CFP, ChFC, and PFS designations should not be required to take the examination. In the future, there could be a Series 3 license for planners.

Cleaning up the industry

Unfortunately, there are a large number of broker-dealers and insurance companies that benefit from the confusion, so they will fight any form of licensing that limits who can provide planning advice and services. But, they should be up against some powerful interests (the FPA, CFP Board, NAPFA, 70,000 CFPs®), and thousands of ChFCs® and CPA/PFSs® who would benefit from a regulation that cleans up their industry.

Realistically, any change that affects the revenue and profit of companies will take years to implement. What can professionals do in the interim that will help investors to select legitimate financial planners? The three-part answer is education, transparency, and documentation. Educate investors about their choices when they select planners. Practice transparency for your designations, experience, degrees, compensation, compliance records, ethical standards, potential conflicts of interest, and association memberships. Document the information so investors have a written record. This strategy protects investors from charlatans who use sales skills to sell low-quality planning services. And, they resist transparency and documentation because it forces them to disclose factual information that may affect their sales success. See: 6 reasons why RIAS can’t — or don’t want to — have track records.

Jack Waymire spent 28 years in the financial services industry. For 21 years he was president of an RIA that provided wealth management services to more than 50,000 individual and institutional investors. He is the author of “Who’s Watching Your Money?” and the founder of www.PaladinRegistry.com, a website that provides free advisor research, ratings and reports to investors. He is a columnist for Worth magazine and a contributor to major financial websites, and is frequently quoted by the media.