A Category Is Born: CFP Professional Practices

In this case, for instance, the application of brokerage terms to independent advisors ignores two significant investor benefits that are provided by independent advisors: economic independence (which eliminates many financial conflicts of interest); and a full-time fiduciary duty (which requires the elimination of most other conflicts). Despite what the CFP Board or the Aite Group might suggest, a CFP is not a CFP is not a CFP.

This fact becomes abundantly clear in the report's section titled "Financial Planning Characteristics," which examined a practice's ability to "deliver financial planning under a fiduciary standard of care," the authors wrote. "CFP professional practices are more likely to deliver financial planning services under a fiduciary agreement specifying that advisors are preparing a financial plan that aligns with their clients' best interests. This analysis focused only on advisors at brokerage firms and did not include advisors with RIAs, who are legally required to follow a fiduciary standard of care at all times. [Emphasis added.]"

Then, in a following section titled "The Legal Impact of CFP Certification," Pirker and Schmitt talk about how brokers and their firms can manage the CFP Board's fiduciary standard: "CFP professionals are held to a fiduciary standard of care when providing financial planning. […] Clients may believe they are receiving a financial planning service that meets CFP Board's definition when they are instead receiving a service that is narrow in scope and incidental to the transaction. For this reason, some brokerage firms believe CFP professionals present more legal risk to a firm compared to other registered representatives at their firm. [Emphasis added.]"

Notice what the report's authors (and through them the CFP Board) are saying in the three emphasized sentences. Brokerage executives might be concerned that a CFP's fiduciary client duty would require brokers to act in the best interest of their clients at all times, but:

1. Unlike RIAs, CFPs are not held by the CFP Board (or anyone else) to be client fiduciaries at all times.

2. The only time that CFPs are held to the Board's fiduciary standard is when they are doing "financial planning."

3. CFP brokers are certainly not held to the Board's fiduciary standard when they are acting in the "narrow and incidental" capacity of "selling" investments that might be suggested by a financial plan.

Once the authors put BD execs at ease about that sticky "fiduciary duty" thing, they pointed out other advantages to brokers of CFP certification, which mostly targeted the old bottom line:

• "Both solo and team CFP professional practices generate at least 40% more in revenue compared to other solo and team practices."

• "The share of HNW and UHNW clients at CFP professional practices is 53% higher than at other practices."

• "CFP professional practices manage 40% more of their clients' investment assets on a fee basis compared to other practices (45% of investment assets versus 32%)."

• "This orientation toward financial planning translates into […] a stronger adoption of fee-based financial planning; 80% of CFP professionals charge for financial planning."

• "CFP professionals continue to grow their compensation throughout their careers. On average, CFP professionals earn 26% more in compensation than non-CFP professionals, adjusted for advisors' years of experience. Late-career CFP professionals earn 33% more compared to other late-career advisors."

Altogether, this is one heck of a selling job for CFPs in brokerage firms. Yet it does seem to raise one financial question: If financial planning is so great for business, why does the CFP Board feel the need to sell it so hard?

Perhaps surprisingly, Pirker and Schmitt provide the best answer in their whole report: "Wealth management firms have been undergoing tremendous change since the financial crisis of 2008. In the U.S., these changes have been largely driven by profitability pressures and changing investor preferences. Given this profitability squeeze, firms may see a need to cut back on advisor training and CFP certification initiatives. Aite Group believes that firms should avoid cutting back on these budgets and should even consider expanding these initiatives to maintain their competitiveness."

And there you have it, BD execs: New DOL fiduciary rules got you down? Not to worry. With its tight and tidy fiduciary standard, the CFP Board's got your back.

— Read "CFP Board's Mandatory Arb Plan: Significantly Better Than FINRA's" on ThinkAdvisor.