Certified Financial Planner-A False Sense of Security?

Posted by Badger Coach on December 9th, 2014

In an October 2013 Financial Planning article, the question is asked if the Certified Financial Planner (CFP) fiduciary promise is for real ? However, a number of red flags have led many industry insiders to think that the CFP Board has mislead consumers into thinking that CFP members provide conflict-free advice and operate under the fiduciary standard of care, at all times, when providing financial or investment advice.


The CFP Board was founded in 1985 as a 501(c)(3) non-profit organization. They are fierce defenders of the stock market and the rewards it has created for them. It is for this reason, some have argued, that CFPs have adopted the asset allocation 60/40 (stocks to bonds) theory, because it always keeps their clients money in the market, allowing them to bill their clients for annual fees.


Whether you are receiving conflict-free financial advice, depends on if your financial advisor, including  a CFP, is affiliated with a broker/dealer or wirehouse or Registered Investment Advisor (RIA) firm. These organizations  are nothing more than financial sales and marketing organizations. They all have one goal, and that is to sell as much as they can in order to make as much money as they can in the form of fees and commissions. The top three revenue generators for these organizations are asset management fees, variable annuities and then mutual funds, all of which charge annual fees and provide no investor capital protection guarantees. In short, up to 90 percent of their revenue is based on these three at-risk investment products. So, in order to continue to receive a steady flow of revenue, these organizations motivate their salesforce through bonuses and trips, which is supported via an investors investment portfolio. Meanwhile, the broker/dealer, wirehouse or RIA makes money even when their client is losing money.


To make matters more confusing for investors is that the National Association of Personal Financial Advisors (NAPFA) and the CFP Board (a non-profit organization) have allowed many CFPs to state on their respective websites that they are fee-only service providers, when in fact they were not. This led investors to invest money with a financial salesperson posing a clear and present conflict of interest to their wealth. Ron Rhoades, a former NAPFA board member agrees, when he said “many consumers may be under the impression, as a result of the CFP Board’s advertisements, that [its] certificants are trusted advisors when, in fact, many do not always practice in such fashion.”


This may come as a surprise to you, but the financial services industry has not been able to collectively agree as to what the definition what a fee is. They argue a fee could be income, commission or a money management fee or a flat fee that an advisor receives for consulting services rendered.  It reminds me of when a certain president asked what the definition of “is” is. This debate over what a fee is, is highlighted in an InvestmentNews article: Debate still rages over fee-only issue – NAPFA ruling fuels war of words among RIAs. What this debate means to investors is that CFPs or other financial salespeople who have been using the fee-only label as a marketing tool, are doing it in a very manipulative and deceptive manner. To be clear, an investor is going pay for the advice he or she receives. This may be in the form of an hourly fee, annual fee or an upfront commission. The key is for the investor to know what the all-in anticipated expense will be and any advisor conflicts of interest, before their capital is deployed.


There are over 90 different financial designations that a financial salesperson can use. If you are vetting a financial professional based solely on his or her financial designation, I have some bad news for you—designations do not come with a Good Housekeeping seal of approval from its regulators. In fact, the industry’s self-policing organization known as the Financial Industry Regulatory Authority (FINRA) says the following on their website under—Understanding Professional Designations; “Disclaimer: FINRA does not approve or endorse any professional credential or designation.”  Sorry CFP certificant’s, but this applies to you as well.

It gets worse. According to an article listed on FINRA’s website entitled; Selecting Investment Professionals , the term “financial planner”, although associated with a CFP, does not have its own regulator and can be used by a lawyer, accountant, investment adviser, insurance agent, brokers, a real estate agent—or by an individual without any financial certification at all. Even the CFP Board says, Anyone can use the title “financial planner.”

FINRA also states the following: “Financial planners who hold the Certified Financial Planning (CFP) designation are subject to the oversight of the Certified Financial Planner Board of Standards which, among other things, conducts background checks on applicants and maintains a public database of disciplinary actions.”  What this means to investors is that a CFP’s financial plan is not subject to review by any regulator or employer for conflicts-of-interest, may be biased towards higher fee or commissionable products, and is entirely subjective to interpretation. This makes one wonder if the “C” in CFP really stands for—Conflicted.

One way for an investor to determine if their financial salesperson’s business model is built on providing conflicted financial advice, is to take a look at the business card or their website footer and look for the words “Securities offered through… a registered broker-dealer.”  If these words are present, this is an indication that a financial salesperson may be providing conflicted financial advice.


And then there are the independent RIA firms, many of which are operated by a CFP. Even though they are classified as investment fiduciary’s under the SEC Act of 1940, they cannot hold their noses too high either, as they have their own inherent conflict-of-interest due to the fact that they make their money from charging annual money management fees. This compensation conflict may cause an advisor to recommend that their client remain invested in the stock market when it may be better sit on the sidelines. Perhaps this is why so many investors lost money during the 2008 financial crisis.


Adding to the confusion over which financial professional to use, is the media. Let them tell it, consumers should only deal with a CFP. However, the media has its own conflicts of interest in their promotion of the CFP as a portion of their advertising revenue comes from the CFP Board, who recently spent $36 million on their latest—Lets Make a Plan campaign. Even many of the so-called financial guru’s who write columns in newspapers or author books on finances, have consumed the CFP cool-aid.


In light of the recent resignations of the CFP Board chair and two members of its disciplinary and ethics commission for ethics violations, and their inability to protect clients from the 2008 financial crisis, many financial planners themselves are also questioning the value of their CFP designation. According to a recent WealthManagement.com survey—Is the CFP Board Losing Credibility in the Eyes of Advisors?, one CFP certificant is quoted as saying:

“One question that I can’t answer—and I’ve told lots of people I can’t answer—is why I still have the CFP designation,” said Allan Roth, founder of financial planning firm Wealth Logic in Colorado Springs, Colo. “Why do I keep paying for it if I don’t believe in it?”

If industry insiders do not value the CFP designation, why should you?


There are a number of highly skilled financial professionals with and without industry designations. However, the best way for financial professionals to deliver conflict-free advice, may be for them to act as consultants who charge a retainer fee, flat fee and/or an hourly fee to evaluate and make recommendations. This means that they cannot receive compensation from ongoing annual money management fees or receive commissions from annuity and insurance products without their client’s written approval of the conflict. Incorporating this type of business model will provide peace-of-mind to the investor, and protect an investors wealth from one of mankind’s seven deadly sins—greed.


As I just mentioned, there is only one business model for investors to receive conflict-free financial advice. And even though CFP’s love to say that they are required to act in your best interest, act as fiduciary’s at all times, and are therefore the “Gold Standard in financial planning, Kevin Keller, the CFP board’s chief executive says, “a CFP professional is not subject to a fiduciary standard at all times for all purposes.”  Perhaps the CFP tagline of – Work With The Highest Standard, should be changed to – Work With The Highest Standard of Bovine Fertilizer.



The opinions expressed are those of the author and is for educational purposes only, and not an offer to buy or sell securities.  Use this information at your own risk. Investing involves significant risk, even the loss of capital. Invest only what you can afford to lose. Past performance is not indicative of future results. Guarantees provided by an insurance company are based on its claims paying ability. Policy loans will reduce the death benefit, until repaid in full.  Upon termination (not death of policy holder) of a policy, unpaid loans and the accrued/capitalized interest will be taxed as ordinary income.   Unpaid policy loans may be  taxed at ordinary income tax rates in the year of the  lapsed, surrendered, or terminated policy. As always, please consult with a qualified legal, tax, insurance or investment professional before making any investment or insurance decision.

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