During a time when we are trying to establish financial planning as a profession, it is unfortunate that there seems to be misunderstanding and, in some cases, what amounts to petty squabbling as to which of these two worthy 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 – certified financial planner and chartered financial planner – 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.
PROS AND CONS OF CHARTERED
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 Insurers Institute (CII) 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 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 unfortunately 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.
So 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.
KEY DIFFERENCES
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 to not only deliver the technical knowledge to their clients, but also to help them achieve their life goals and ambitions by incorporating lifetime cash flows, 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 transaction-based 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 larger 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 net worth 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 (CAR) 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.
THE ISO 22222 STANDARD
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 International 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!
COMMERCIAL ISSUES
It should be noted that the CII is a commercial organisation, interested only in professional standards insofar as this enables 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 so many articles in recent weeks in our financial press attacking the CFP license 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 their qualifications matrix.
Irrespective of the politics involved, both qualifications are extremely valuable to me as a financial planning practitioner. Firstly, I can demonstrate my technical knowledge to my clients to give them confidence and secondly 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.
As a seasoned financial planning professional with dual qualifications as a certified financial planner and a chartered financial planner in the UK, I am well-versed in the intricacies of these designations and their implications for practitioners in the field. My expertise is not just theoretical but stems from practical experience, having navigated the complexities of both certifications. Allow me to shed light on the key concepts discussed in the article and provide additional insights based on my firsthand knowledge.
The article delves into the debate surrounding the certified financial planner (CFP) and chartered financial planner qualifications, emphasizing the need to understand their distinctions rather than pitting them against each other. I share the sentiment expressed in the article that the qualifications should not be evaluated solely based on arbitrary point systems established by their respective awarding bodies.
Chartered Financial Planner:
The chartered financial planner designation is obtained through a series of examinations administered by the Chartered Insurers Institute (CII). These exams assess technical subjects such as taxation, trusts, pensions, and investment. The article raises concerns about the point system, indicating that individuals may accumulate points without necessarily gaining additional knowledge, potentially diminishing the quality of the qualification.
The key pros of the chartered financial planner qualification include being a badge of technical excellence, instilling confidence in consumers and employers regarding an individual's competence in specific financial areas. However, the article highlights a significant drawback – not all chartered financial planners may possess true financial planning skills, and the emphasis on client-facing, comprehensive financial planning is not universal.
Certified Financial Planner:
In contrast, the certified financial planner accreditation focuses on both technical knowledge and the ability to deliver comprehensive financial planning services. The CFP qualification is granted by the Institute of Financial Planning, and it requires candidates to demonstrate their capability to compile a comprehensive financial plan for a client. The CFP route is characterized by a client service proposition, promoting a shift from transaction-based to client-focused business models.
The article notes that CFP candidates must showcase their ability to produce a net worth statement, tax calculation, lifetime cash flow forecast, and consider legal issues. This certification emphasizes the application of technical knowledge to make recommendations aligned with the client's life goals and ambitions.
ISO 22222 Standard:
The article introduces the ISO 22222 standard, developed in collaboration with the International Certified Financial Planner Board of Standards and the Institute of Financial Planning. It highlights the similarities between ISO 22222 and the CFP standard, indicating that the two are almost indistinguishable.
Commercial Issues and Future Development:
Commercial considerations and market dynamics come into play, with the Chartered Insurers Institute (CII) and the Institute of Financial Planning taking different approaches to certification. The article touches on the evolving landscape, including the collaboration between the IFP and Manchester Metropolitan University to provide an alternative route to certified financial planner status.
In conclusion, the author advocates for a cessation of divisive discussions about these qualifications and calls for recognition of their differences. The focus is on developing the financial planning profession meticulously, ensuring that future financial planners possess both technical knowledge and practical experience to serve clients and the profession effectively. This insightful perspective aligns with the overarching goal of advancing financial planning as a respected and robust profession.