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Planning for gold

Julie Lord, managing director of Cavendish Financial Management, says both the certified and chartered financial planner qualifications are valuable and hopes to see an end to bickering over which is best so the profession can develop and move ahead

During a time when we are trying to establish financial planning as a profession, it is unfortunate that there seems to be some misunderstanding and, in some cases, what amounts to petty squabbling as to which of the two top qualifications is “the best”.

As one of the few people in the UK qualified as both as a certified financial planner and a chartered financial planner, I think it is about time to set the record straight about the differences between the two qualifications.

The two qualifications should never be pitched against each other as competing because they do not test the same things. Similarly, neither one should be held up as being better than the other simply because it scores more points on a scale arbitrarily set by its own awarding body.

So, taking each qualification in turn, what is it, and what benefit does it provide to the financial planner?

In the case of the chartered financial planner, this is awarded after an individual has sat and successfully passed a series of different examinations.

These examinations are set to test particular technical subjects, for example taxation, trusts, pensions, investment and this gives the consumer and employers alike, confidence in knowing that an individual is competent in these areas. It is therefore a badge of technical excellence and is awarded by the Chartered Insurance Institute to individuals who have gained 290 points under the new CII rules or who gained 10 of the old AFPC papers.

I am however concerned about this points’ system operated by the CII because it has been confirmed (by the CII) that an individual who previously gained the G10 qualification in taxation and trusts, and thereby gained points, can then go on and sit the J10 and J20 papers (also on taxation and trusts) and gain further points.

This clearly demonstrates the ability of an individual to collect points towards a qualification, without collecting any more knowledge.

However, it should be noted that most of the current chartered financial planners gained their qualification through the old AFPC route rather than the CII’s new 290 points’ route. As a result of this, many chartered planners may not, in fact, have any true financial planning skills, although I am delighted to note that there is now a compulsory paper called AF5 which is entitled The Financial Planning Process.

At the time of writing, I am not sure to what extent this tests an individual’s ability to compile a financial plan for a real client, nor indeed how it incorporates financial planning as a proper client service proposition into a financial planner’s business.

But discounting these concerns, it is right and proper that the top technical people in the UK should be awarded a good qualification that recognises their technical excellence, and ability.

It should be noted, however, that many chartered financial planners are not practising, client-facing, financial planners and do not know how to compile a comprehensive financial plan for a client.

This is one of the significant differences between chartered and certified. The certified financial planner accreditation is a qualification that demonstrates an individual’s competence not only to deliver the technical knowledge to their clients but also to help them achieve their life goals and ambitions by incorporating lifetime cashflows, disaster scenarios, varying degrees of risk and inflation, tax planning and the provision of a comprehensive financial plan.

This is not to say that some chartered advisers do not perform these functions but many have never had their ability tested and many have never had the slightest intention of performing a financial planning function in this way – it is not within their job remit.

The certified financial planner route also offers a client service proposition to businesses wanting to make the transition from a traditional transactionbased business to one where client service is paramount and recurring income from long-term clients is the key to success. It is true that to become a certified financial planner, an individual needs less technical knowledge than to be a chartered financial planner.

The Institute of Financial Planning, which awards the CFP licence, has long recognised that because an individual practising proper financial planning will be likely to outsource much of the work relating to tax, trusts, pensions, etc to specialists (perhaps chartered financial planners), there is no requirement for that CFP to be so heavily technically knowledgeable in some specific areas. However, it is imperative that a certified financial planner knows how to plan.

By necessity, this has to be tested under case study conditions and CFP candidates will know that if they are not practising comprehensive financial planning on a day-to-day basis, this requires a significant mind-shift and a great deal of additional study.

It has been said that because the CFP qualification scores fewer points on the CII scale, that it must be an easier qualification to gain. I doubt if the chartered financial planners who failed this qualification at the first attempt would agree with this statement.

There have been some chartered financial planners who have described their new acquaintance with real financial planning (as defined by the Institute of Financial Planning) as “a eureka moment” and it cannot be any surprise to learn that bigger organisations wanting to move to a more professional business offering, are signing up for CFP courses in large numbers.

To become a certified financial planner, an individual must demonstrate his or her ability to compile a comprehensive financial plan for a specimen client which includes producing a networth statement, a tax calculation, a lifetime cash flow forecast, consideration of legal issues, and then applying their technical knowledge to make recommendations about how the client should proceed in order to achieve his or her goals.

As you might expect, a great deal of this work has to be charged on a fee basis, as no remuneration from other sources is available. Consequently, most proper financial planning practices do work on a customer-agreed remuneration basis and have done for many years.

True financial planning practices therefore are already using many of the proposed working practices described in the retail distribution review.

Because of the way that certified financial planners have to operate (under a strict code of ethics which has been in place in the UK for 12 years), this qualification sits much closer to the FSA’s requirement under the RDR for higher professional standards rather than just higher level or, indeed, more qualifications.

But what about this other qualification that is now being mooted – ISO 22222?

It should be remembered that it was the International Certified Financial Planner Board of Standards and the Institute of Financial Planning in the UK that originally raised the idea of an international standard in financial planning with the British Standards Institute. At the same time, other organisations affiliated to the Inter-national CFP Board did the same thing in their own countries.

I attended the first ISO meeting and clearly stated that the standards for ISO should be the same as those for certified financial planner. This initial meeting took place in 1999 and my suggestion was not taken up at that time due, I suspect, to the vested interests of the many different parties around the table.

However, now that the ISO 22222 has been published, (seven years and lots of meetings later,) it so closely resembles the CFP standard as to be almost indistinguishable. Interesting.

It should be noted that the CII is a commercial organisation and professional standards enable it to sell its exams and courses.

In the past, the IFP has awarded CFP status on the basis that the technical parts of the CFP standard have been adequately tested by the CII examinations.

However, now that the IFP has teamed up with the Manchester Metropolitan University to provide another route to certified financial planner which is more comprehensive and follows a degree course in practical financial planning, it is clear that the CII feels that its market is being threatened.

Perhaps this is why we have read articles in recent weeks attacking the CFP licence and also why the CII awards it only 30 points on its own scale.

Interestingly, the Financial Services Skills Council has placed the chartered financial planner and certified financial planner at the same level on its qualifications’ matrix.

For me, irrespective of the politics involved, both qualifications are extremely valuable to me as a financial planning practitioner.

First, I can demonstrate my technical knowledge to my clients to give them confidence and second, I can demonstrate my practical ability to apply that knowledge to compile comprehensive financial plans which ultimately will help them to achieve their goals. Is this not what it is all about?

I suggest that forthwith, any sniping about these qualifications should cease and that all parties should recognise the differences and move forward to develop this extremely exciting new profession of financial planning.

We need to do it properly and with great care so that our financial planners of the future have both the technical knowledge and the financial planning experience to better serve their clients and the profession at large.

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