I wanted to articulate in broad terms what some of the designations that I carry at TAMMA mean and how those may impact those who choose to work with TAMMA. Not every wealth or financial advisor is a CFP®. And believe it or not, not all people in the financial industry are required to be a Fiduciary.
What it means to be a Certified Financial Planner CFP®
A certified financial planner refers to the certification owned and awarded by the Certified Financial Planner Board of Standards, Inc. The CFP® designation is awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements. Individuals desiring to become a CFP® professional must take extensive exams in the areas of financial planning, taxes, insurance, estate planning, and retirement.
The CFP® certification is a voluntary certification; no federal or state law or regulation requires financial planners to hold CFP® certification. It is recognized in the United States and a number of other countries for its (1) high standard of professional education; (2) stringent code of conduct and standards of practice; and (3) ethical requirements that govern professional engagements with clients.
Attaining the CFP® designation takes experience and a substantial amount of work. To attain the right to use the CFP® marks, an individual must satisfactorily fulfill the following requirements:
- Education – Complete an advanced college-level course of study addressing the financial planning subject areas that CFP Board’s studies have determined as necessary for the competent and professional delivery of financial planning services, and attain a Bachelor’s Degree from a regionally accredited United States college or university (or its equivalent from a foreign university). CFP Board’s financial planning subject areas include insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning, and estate planning;
- Examination – Pass the comprehensive CFP® Certification Examination. The examination includes case studies and client scenarios designed to test one’s ability to correctly diagnose financial planning issues and apply one’s knowledge of financial planning which includes establishing client-planner relationships, gathering information, analysis, and developing, communicating, implementing, and monitoring recommendations.;
- Experience – Complete at least three years of full-time financial planning-related experience (or the equivalent, measured as 2,000 hours per year); and
- Ethics – Agree to be bound by the CFP Board’s Standards of Professional Conduct, a set of documents outlining the ethical and practice standards for CFP® professionals.
Individuals who become certified must complete the following ongoing education and ethics requirements in order to maintain the right to continue to use the CFP® marks:
- Continuing Education – Complete 30 hours of continuing education hours every two years, including two hours on the Code of Ethics and other parts of the Standards of Professional Conduct, to maintain competence and keep up with developments in the financial planning field; and
- Ethics – Renew an agreement to be bound by the Standards of Professional Conduct. The Standards prominently require that CFP® professionals provide financial planning services at a fiduciary standard of care. This means CFP® professionals must provide financial planning services in the best interests of their clients.
What it means to be a Registered Investment Advisor (RIA)
A Registered Investment Advisor (RIA) is defined by The Investment Advisers Act of 1940 as a “person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications.”
In general, investment advisors that have at least $25 million in assets under management or that provide advice to investment company clients are required to register with the SEC, while smaller advisors are required to register with state securities authorities. Registration of an investment advisor is not meant to denote any form of recommendation or endorsement by the SEC or state securities regulators. It simply means that the investment advisor has fulfilled all the requirements for registration as an investment advisor. In order to register with the SEC as an investment advisor, registrants must file Form ADV and keep it current by filing periodic amendments.
In translating fiduciary principles into application, an RIA is required to implement certain practices and procedures to ensure conformance to the law. At the heart of conformance is the registration form (ADV Parts I and II) that financial advisors must file with the SEC. It is ADV Part II; in which the advisor must disclose all material information a client needs in order to make an informed decision about the advisory relationship or a specific transaction. The information and disclosures required include:
- All material facts of any instance in which a conflict of interest may exist; past, present, or future
- Any type of arrangement or relationship the advisor has that could present a conflict of interest, including participation or interest in any client transaction
- All material risks involved with methods of analysis used in determining the suitability
- Any unusual risk involved in a specific investment strategy or security
This detailed information must then be compiled into a client brochure and written in clear language in a specified format, so investors may compare one firm to another as apples-to-apples.
Role as a Fiduciary
Putting clients’ best interests first is something that I have and will always do regardless of proposed government regulations. Being a CFP® requires me to be a fiduciary when it comes to my interactions with clients. Components of being a Fiduciary include;
- We will always put out clients’ best interests first
- We will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional
- We will not mislead clients and will provide full and fair disclosure of all important facts.
- We will avoid conflicts of interest
- We will fully disclose and manage in our clients’ favor, any unavoidable conflicts.
Financial institutions who may currently be holding or managing your assets, may not be fiduciaries because they were never required to be. This also means that they were never required to put your best interest first ahead of their own commissions, fees, or proprietary products that they may have sold to you.
To illustrate the difference between a fiduciary and a non-fiduciary consider the following; A non-fiduciary will sell you a dress or suit that fits you. A fiduciary such as TAMMA will find the dress or suit that not only fits you but looks good on you a swell. This example demonstrates suitability vs. fiduciary.