CFP Board Redefines The Optimal Financial Planning Career Track

Posted by Michael Kitces on Wednesday, April 11th, 1:28 pm, 2012 in Practice Management

In order to obtain the CFP certification, prospective financial planners must complete financial planning Education, take the CFP Exam, agree to follow the CFP Code of Ethics, and obtain 3 years of financial planning Experience. These four "E's" form the basis of the path that potential planners must follow in order to become CFP certificants. However, the methods to achieve these requirements - especially for education and experience - have been very flexible, allowing candidates to complete them in a variety of CFP Board-Registered Programs and in a wide range of financial-planning-related jobs. In a new change, though, the CFP Board has declared that one job path will receive preferential treatment: candidates who obtain a position focused exclusively on the delivery of financial planning, working under an experienced CFP professional, can satisfy the experience requirement in only 2 years, instead of 3. As a result of this change, the CFP Board has forever changed the career track that financial planners will now follow as an entry to the financial planning profession, and firms that fail to adapt may lose access to the best job candidates.

The inspiration for today's blog post was last week's announcements by the CFP Board of several changes to their rules and procedures. While the industry media focused on the CFP Board's changes regarding bankruptcy disclosures, the real news was the announcement by the CFP Board to finalize proposed changes to the experience requirement for CFP certificants, creating a new exception to the standard 3-years-of-experience requirement: candidates who have 2 years of experience "focused exclusively on personal delivery of all or part of the personal financial planning process to a client, with direct supervision by a CFP professional, and documented qualifying experience in all six steps of the personal financial planning process." This new experience requirement for CFP certification - a significant departure from the originally proposed experience requirement changes last fall - will be effective September 1st, 2012.

Qualifying Under the New Rules

The CFP Board has indicated that the new 2-year experience path is not meant to be a wide open exception to the 3-year experience requirement; to qualify, the candidate must provide documentation describing the nature of job duties and responsibilities in providing personal financial planning to clients, including details of how each of the 6 individual steps are performed, to affirm that personal financial planning has been done full time for the 2-year period and that the candidate has been involved in all steps of the financial planning process.

A CFP professional who has supervised the 2-year work experience must attest that the candidate fully meets the requirements, and the CFP Board reserves the right to audit for further details to substantiate the experience. Ostensibly, CFP certificants who provide an inaccurate attestation or misrepresent/overrepresent the experience of a candidate could themselves face sanctions from the CFP Board.

A New Career Track for Financial Planners

What this means, in essence, is that the CFP Board has established an apprenticeship model to learning the financial planning craft - working under the close supervision of an experienced CFP practitioner and in direct contact with clients to personally deliver all aspects of the financial planning process, not unlike the residency process for doctors who learn to practice medicine in a highly supervised environment working with real patients, or the apprentice model of tradesman for centuries.

Notably, the CFP Board has not made the apprenticeship model a requirement - you can still earn the CFP marks with 3 years of experience "in the supervision, direct support, teaching, and/or personal delivery of all or part of the financial planning process to a client." But to the extent that most candidates are eager to earn their marks quickly, the path is clear - the apprenticeship route is the fastest path to financial planner certification, and the CFP Board has blessed it accordingly.

The Apprenticeship Job Opportunity

So what would an apprenticeship job that meets the 2-year experience requirement look like? It might be clearer to describe what it would not look like:

- It would not mean hanging a shingle and starting your own financial planning practice, as the candidate would not be under the direct supervision of an experienced CFP professional.

- It would not mean sales, marketing, and building your new practice from scratch under a CFP professional, as the candidate would not be doing the 6 steps of the financial planning process on a full time basis with clients (as there wouldn't be enough clients to occupy the candidate on a full time basis!).

- It would not mean being a financial analyst who solely does plan analysis and writing (or some other select step(s) of the financial planning process), as that fails to regularly involve all 6 steps of the financial planning process as required for the 2-year experience exception.

- It would not mean a financial planning internship; although internships are currently eligible for one month of experience for each college semester credit, they will not count towards the 2-year experience exception (although they continue to count towards the 3-year experience requirement).

New entrants to the financial planning industry generally want to earn their certification marks as quickly as possible, to ramp up their career and earning potential. Accordingly, the fast track to the CFP marks will create significant demand for jobs that meet the requirement. As a result, expect to see firms begin to adjust their job descriptions and positions to provide the experience necessary to qualify - otherwise, the firm risks being passed over by the most qualified candidates. In fact, it is likely that by the end of the year, "meets the 2-year CFP experience requirement" will be a description that firms attach to their job ads to attract the best candidates.

What Is "Personal Delivery" of Financial Planning?

Notably, some clarifying details have yet to be provided by the CFP Board about what exactly constitutes "personal delivery" of financial planning. The stated purpose of the experience requirement is to "assure the public the individual has demonstrated the ability to practice personal financial planning independently" (emphasis mine), yet in practice firms rarely let new planners exercise independence from day 1, and certainly are not consistent in allowing them to get experience immediately in all steps of the financial planning process.

For instance, while there is some consistency in the roles typically performed by financial planning associates regarding analysis of the client data, the development of recommendations, and the construction of the financial plan itself - steps #3 and #4 of the financial planning process - there is less consistency in the typical associate planner's role regarding data gathering, delivery of the plan recommendations, and implementing those recommendations. In particular, because many firms express concern about a newer planner's ability to effectively communicate, they consequently require associate planners to play a present-but-silent role in the data gathering and plan presentation meetings. If a planner 'participates' in data gathering and plan presentation, but isn't the lead person in the meeting - or at the extreme, doesn't actually say anything at all - is it still experience in "personal delivery" of financial planning?

Or alternatively, if a firm slowly trains and develops a planning associate, such that it's "listen only" for the first year, and then an increasing communication and lead role in the second year, does that mean the candidate's 2 years of experience won't fully count because the planner wasn't personally delivering all 6 steps of the planning process from day one for that first year?

Perhaps even more challenging is that the first step of the financial planning process is establishing and defining the client-planner relationship - where the client agrees to engage the planner under an agreed-upon scope of work. To the extent that many planning associates don't necessarily have any sales or marketing experience, most firms expect their senior staff to be the driver of such meetings, in getting the client to commit to becoming a client in the first place. Whether that in turn may undermine the associate planner's 'experience' as personal delivery of financial planning remains to be seen; again, the issue appears to be whether or to what extent the candidate must be a driver of the conversation, versus riding in the passenger seat.

Fortunately, the CFP Board has indicated that it does intend to provide further guidance about such issues, which will help to ensure that candidates fully meet the intent of the requirements, that jobs are crafted to effectively meet the requirements, and that the CFP professionals who attest to a candidate meeting the experience requirement are not unintentionally misrepresenting the candidate's qualifications.

The Pressure Is On For Firms To Adapt

Although the new rules do not take effect until later this year, the pressure is on now for firms to adapt. However, as Caleb Brown, my business partner in New Planner Recruiting notes, "many of the best firms have already created job positions that would be eligible for the new experience requirement, as they had already acknowledged an apprentice-style role was the best way to train new planners."

Nonetheless, these types of apprentice-style positions are still not common for the majority of financial planning firms. Because the new apprenticeship model requires the planning associate to be involved in all six steps of the financial planning process, most firms will need to adapt some parts of their job roles and descriptions to ensure that candidates are involved in everything from the approach and data gathering meetings to the plan presentation and subsequent review/monitoring meetings - otherwise, the firm risks being passed over by the best and the brightest of new planners entering the profession.

The impact may be especially significant at larger broker-dealers and wirehouse firms, that have traditionally thrust planners more quickly in front of clients, but with such a marketing and sales focus that the position would not likely qualify for the new experience requirement. In addition, new candidates are often not overseen by a branch or other manager that has the CFP certification. Will large firms take a more proactive effort to pair new planners with experienced CFP practitioners in an apprentice-style role to work with the senior planner's new and existing clients to complete the 2-year experience requirement?

Notably, the new requirements also create a hiring disadvantage for firms that do not already employ CFP certificants as senior planners or managers; if there is no CFP professional to supervise the new planner and attest to his/her experience, then the candidate's experience cannot qualify. This creates a clear incentive for prospective CFP certificants to go to firms that are driven by existing CFP practitioners, if they wish to complete the 'fast track' to CFP certification.

The Bottom Line

In the long run, it seems likely that the CFP Board has forced the profession's hand to build the apprenticeship experience into financial planning career tracks; 5-10 years from now, it is likely that such entry-level positions will be the standard for most firms. The best firms will begin to adapt now - if they haven't already - to attract the best candidates with the career track of the future.

In the meantime, candidates can continue to complete their experience requirement with 3 years of experience in any parts of the financial planning process, under the existing rules, and some firms may wish to continue that route. Planners who are already working on their experience requirement in a position that was not comprehensive in allowing experience in all six parts of the financial planning process will likely complete their path in their current roles (although a few who can meet the rigorous experience and documentation requirements may suddenly find themselves eligible for the marks this fall with more-than-2-but-less-than-3 years of qualifying experience). Nonetheless, the path for the future is clear.

So what do you think? Will the CFP Board's new changes mark the start of a new career track in financial planning?


  • Eric Bruskin

    It does for me! I'm making the transition from science and finance (with a significant sideswipe at mathematics and science education), and I knew from the beginning that the apprenticeship model was for me. I specifically sought out a smart and experienced CFP who could use my existing skills while providing me with educational opportunities first and foremost, with salary a secondary consideration. I regarded it more like grad school than primarily a paycheck. As a result, the past 18 months have been more rewarding than any work I've done in a very long time.

    I'm delighted with the CFP Board's new guidelines because they describe exactly what we've been doing, and now I have a chance to become certified a year sooner.

    When I told people how I wanted to "ramp up" my new career, I received alot of puzzled reactions. I don't understand at all why apprenticeship has been eclipsed as a career path in the US over the past century, but I'm very happy to see it explicitly acknowledged for financial planners.

  • Matt Bader

    As a recent graduate and someone who may stand to benefit from the 2 year requirement, I'm thrilled to hear about the change. Shaving a year off is nice, but I'm more excited to see the Board encouraging the industry to adopt an agreed upon career track.

    After I graduated, I was frustrated to find that my master's degree in financial planning made me overqualified for admin/paraplanner positions, but my lack of experience left me under-qualified for planner positions. Pushing practices to adopt an apprentice type career track will hopefully bridge this gap.

    *Shameless plug: My wife (also a CFP candidate) wrote an article last year for Investment Advisor expressing some of these same frustrations.
    http://www.advisorone.com/2011/01/01/the-new-school

  • Robert Vogel

    Bravo CFP Board! It's a start in the right direction at least. Now if they only had the moral courage to make this track required for ALL certificants, the marks would actually be something consumers could use to screen advisors. Hopefully this is just step 1 in the process. I won't be so salty about the steep increase in fees if the value of the marks increases along with it.

  • http://www.kellygrouponline.com Bryan Kelly

    Standing ovation to the Board for putting the emphasis on financial planning NOT sales related activity. We started this process almost five years ago where we would hire a graduate from a FP program to be involved in the FP process from start to finish with a senior CFP. They write and develop the plan with input and continual feedback from the lead CFP/advisor. The new hire has time to focus intensely on the plan and the drafting while senior advisors are focused on client reviews and new client development/meetings. Seems to be a natural progression if we wish to be a profession versus a sales based industry. We see a need for a 5+ year development path and our firm needs nextgen advisors/cfps...win win.

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