The Benefits of Becoming a Certified Financial Planner
“People don’t buy stock; it gets sold to them. Don’t ever forget that,” proclaimed Jordan Belfort in “The Wolf of Wall Street”. It takes a Certified Financial Planner (CFP) to deliver your dreams. Most finance majors graduate college and get a job with a big brokerage firm, but to truly be successful, one must achieve the CFP designation and become a Registered Investment Advisor (RIA). This powerhouse combination marries the professional prestige of the CFP marks with the independence of the RIA. “The CFP is a professional credential set that is enforced by the CFP Board. It offers financial professionals the opportunity to develop their skills, specialize, and continue their education to earn and maintain a prestigious designation.”(CFP) The RIA designation allows the financial advisor to become independent from a broker-dealer so he or she can control their own destiny. Before your dreams of becoming an independent CFP can be realized though, you will need to chart your course. There are four essential steps to becoming a CFP: education, experience, exam, and ethics. Once you have ticked all of those boxes, you should become an RIA and say farewell to the broker-dealer barriers.
The first step in the certification process is education. You will need to complete your undergraduate degree from a college or university. While attending college, you should focus your studies on classes in finance, business law, and accounting. It would also be beneficial to take classes in sociology and psychology. These classes would allow you to hone your interpersonal skills, which are especially important in the business world. Another fantastic idea would be to study abroad. Studying abroad would help you cultivate cultural awareness, language skills, and personal development.
The demographics of the United States is changing quickly, and financial planners need to be able to appreciate the many cultural differences outside of the Western world. According to James Grubman and Dennis Jaffee in “Becoming a Culturally Intelligent Financial Planner”, there are three global cultures that will affect the future of financial planning. The first is Individualist culture. This subset focuses on putting the individual above everything else, including family and community. This group appreciates communication that is direct, assertive, and engaging. For the Individualist culture, trust is something that is earned and not freely given. Next, in strong contrast, is the Collective Harmony culture. They put loyalty, obligation, and family above one’s individual needs. This culture prefers to save face by avoiding embarrassment. Finally, there is the Honor culture. Here, family relationships are very important and powerful. They are typically slow to trust others and prefer to work with friends or referrals from friends. Studying outside of the United States will allow you to experience other cultures and appreciate their way of life.
In addition to learning about other cultures, a study abroad experience would look great on your job application, which stands out to big brokerage firms. Your bachelor’s degree will be enough for you to graduate college and get a job in the industry, but that alone will not be enough for you to meet the education requirement for the CFP exam. The CFP Board, which is the governing body of all Certified Financial Planners nationwide, requires you to complete additional coursework in the following areas: Professional Conduct and Regulation, General Principles of Financial Planning, Education Planning, Risk Management, and Insurance Planning, Investment Planning, Tax Planning, Retirement Savings, and Income Planning, and Estate Planning. That coursework typically takes 12–18 months to complete. Once that is finished, you must use all of that knowledge you gained and complete a Capstone Course where you will be tasked with developing and presenting a comprehensive financial plan. When that is complete, you will officially have met the education requirement for the CFP exam.
The next step is experience. After college, you will want to focus on applying what you learned and growing your network. By working for a large broker-dealer, like JP Morgan, you will gain the experience you need to become a CFP. You will become familiar with the vernacular of the industry as well as some of the nuances that come with it. You will gain experience with industry-wide software and you will become comfortable researching stocks, bonds, mutual funds, and ETFs for clients based on their levels of risk tolerance. Most importantly though, you will learn how to read people. You will be able to recognize their priorities, even if they cannot put them into words, and you will gain confidence in developing their financial plans for them. This is the best way to cultivate your base. It will give clients plenty of time to trust you and once they trust you, you will start to gain referrals from them. Another benefit to working at a large brokerage firm is that it will give you the opportunity to build up hours for when you are ready to take the CFP exam. To meet the CFP experience requirement, you will need to acquire 6,000 hours of professional experience related to the financial planning process Alternatively, you can fulfill this requirement with 4,000 hours of apprenticeship experience, but you will need to meet additional requirements if you choose this route.
While at a large broker-dealer, you will also want to work on expanding your circle of influence. Get to know your peers and your higher-ups, attend team-building events, and engage with your co-workers after hours for cocktails or dinner. If available, attend large, national financial planning conferences. There, you will be able to network with individuals from all over the country. These individuals will be more willing to open up and talk to you since they will not view you as a local threat. The older, more experienced attendees will be able to offer the best advice since they have already walked in your shoes. Learn from their mistakes and have faith in what they said worked for them. These are the professionals that will be able to share their stories about how they transitioned from big brokerage houses to having their own, independent financial planning practices.
The third step is the exam. The CFP exam is extremely difficult and is often compared to accountants taking the CPA exam to lawyers taking the BAR exam. The exam consists of 170 multiple choice questions, including case studies. It consists of two 3-hour long test sessions in one day at a designated test center, such as ProMetric. The exam is not graded but is marked as either a pass or a fail. You find out your results as soon as you submit answers at the test site. Passing the exam demonstrates that you have attained the competency needed to deliver comprehensive personal financial planning advice.
The final step in becoming a CFP is to affirm your commitment to the ethical standards set by the CFP board. By signing the Ethics Declaration, you are granting permission for the CFP Board to conduct a background check on you. Simultaneously, you are agreeing to adhere to high ethical and professional standards for the practice of financial planning. According to the CFP Board, these are “Act with honesty, integrity, competence, and diligence. Act in the client’s best interests. Exercise due care. Avoid or disclose and manage conflicts of interest. Maintain confidentiality and protect the privacy of the client’s information. Act in the manner that reflects positively on the financial planning profession and CFP certification.” This is very similar to the golden rule which states that you should treat others the way you would want to be treated. It means doing the right thing, even when no one is watching. If any of these ethical codes are broken, there can be serious consequences from the CFP board. You are agreeing to act as a fiduciary when providing financial advice to your clients. This means that you must always put your client’s best interests first. This is quite the opposite approach from Jordan Belfort.
Now that you completed all of your education requirements, gotten in the years of necessary experience, passed a daunting exam, and signed your Ethics Declaration, you can finally put the CFP credentials behind your name. The CFP designation is considered the gold standard in the industry! This is also the perfect point in your career to transition from being a representative at a broker-dealer to an independent registered investment advisor. “Earning a Registered Investment Advisor (RIA) license is fast becoming the main component to the foundation of which financial planners build their careers.”(Newstex). You must pass the Series 65 and Series 63 exam in most states, but do not worry, these are nothing compared to the CFP exam. Unlike registered representatives for broker-dealers who get paid commissions for your trades, RIAs either charge an hourly fee or a percentage of assets under management (AUM). Most collect a fee of 1–2% of AUM, annually. It is easy to see where a representative at a broker-dealer would be inclined to churn investments for a client to generate greater sales commissions for themselves. The RIA fee structure removes this incentive and allows the RIA to invest in the client’s best interest. “People with a financial advisor say they aren’t just better with money — they’re happier with life overall.”(CFP) This process can take several months, but in the end, you will be so happy you did it.
There are several tasks you will need to complete before you can officially hang your sign open for business though. First, you will need to set up a business. You will have to choose the right legal structure for your entity, such as an S-Corporation or LLC. It would be wise to consult the advice of an attorney or tax professional before you make this decision. Second, you will need to make sure that you are meeting all of the compliance requirements of your state. Third, you will need to make logistical and operational decisions about where your office will be located and whether or not you will need to hire staff. Fourth, you will want to buy errors and omissions insurance, although it is not required in every state. Fifth, you will need to establish written supervisory procedures regarding compliance policies and a code of ethics. Your next step will be to choose a custodian as the institution that maintains the firm’s client assets and securities. Finally, you will notify your current employer and resign in writing. The transition from broker-dealer to Registered Investment Advisor is a huge leap of faith, but it is absolutely worth it. “In fact, 76% of financial professionals who follow these steps to become RIAs report and improved lifestyle and 64% report increased net income.”(The truth about transition).
In conclusion, anyone can graduate with a finance degree and get a job after college as a personal financial advisor, but getting the CFP designation sets you apart from everyone else in the field. Becoming a CFP is by no means easy nor fast. It will take a ton of education, practice, and growth, but ultimately you will find it was all well worth it. You will finally get to be your own boss and you will no longer have to meet a quota or answer to your sales team. Instead, you will eat that you kill. The harder you work, the better your clients’ portfolios perform. The better they perform, the more you get paid. At the end of the day, hopefully, everyone is fat and happy.
Sources
CFP Board. (n.d.). Retrieved November 25, 2020, from https://www.cfp.net/
Journal of Financial Planning. (n.d.). Retrieved November 25, 2020, from https://www.financialplanningassociation.org/learn/journal
Personal Financial Advisors : Occupational Outlook Handbook. (2020, September 01). Retrieved November 25, 2020, from https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm
Kavanagh, R. (2020, November 02). A CFP is an advisor armed with extensive education and ethical standards to help you manage your money. A CFP Is an Advisor Armed with Extensive Education and Ethical Standards to Help You Manage Your Money.
Distributors. (2018, August 23). Retrieved November 25, 2020, from https://aci.info/distributors/
“The truth about transition: The grass is often greener.” Investment News. October 14, 2016.
