Journal of Financial Planning: June 2024
Michael Kothakota, Ph.D., co-owns WolfBridge Wealth and has 18 years of experience in financial planning. His research interests include behavior and artificial intelligence. He teaches financial planning at Columbia University. He earned his M.S. in predictive analytics from Northwestern University and his Ph.D. in financial planning from Kansas State University.
“Are you a CFP®?” asks the woman. “Yes, I am a CFP® professional.”
This is the ending dialogue to CFP Board’s latest “It’s Gotta Be A CFP®” public awareness campaign. The ad is catchy, humorous, and pointed. And it is designed to bring awareness to the public of CFP® professionals as the experts in financial planning.
In effect, it is designed to enhance the brand of the CFP® marks and in turn provide value to those who hold the CFP® designation. In this sense, all financial services designations have some brand value that signals to potential clients that a financial planner has made some effort to obtain it. That brand can be of great value to early career financial planners, but as a financial planner gains experience and practical knowledge, they will need to take an honest assessment of the value actually being provided.
For most of the 249 (as of this writing) FINRA-recognized designations, there is an “education” requirement associated with obtaining it. The value of this component can be seen as the knowledge you receive from the materials or curricula you consume as part of obtaining the designation.
Some designations such as the CFP®, CFA, and CPA credentials test this knowledge with an exam or series of exams. This process is ostensibly so that when potential clients are searching for someone knowledgeable, they can be assured that there has been an assessment of that knowledge at some point if they have one of these designations.
Mature certifications with governing bodies such as CFP Board, CFA Institute, and the AICPA go to great efforts to make sure the knowledge they test you on is valid and reliable. They further spend a great deal of time making sure the exams themselves are well written, relevant, and psychometrically valid.
But once you have obtained the knowledge and been tested on it, where is the value in maintaining the designation? Financial planning, as an ever-evolving field, requires up-to-date knowledge.
Certifying bodies generally solve the ongoing knowledge problem by requiring you to complete CE, or continuing education. For example, CFP Board requires CFP® professionals to have 30 hours of CE every two years.
The more popular designations also have ethics requirements. CFP Board’s Code and Standards lay out the professional and ethical responsibilities of those who wish to obtain and maintain the CFP® credential. This ethics requirement is seen as a signal to potential clients that a holder of the designation is honest in their dealings with clients.
Designations sometimes also have an experience requirement, which can provide a signal to potential clients that the holder is not going to be “new.” In addition to being knowledgeable and ethical, a holder of a designation is seen to have “been around the block.”
These requirements are a part of the value of the designation and are communicated to the public as a brand. The brand signals to clients that this is a person they should work with, absent anything else they may know about them. This combination can be very valuable, particularly to new financial planners.
No Free Lunch
For financial planners, the CFP® credential is one of the more popular designations available to illustrate that planner’s commitment to certain competency and ethical standards. However, there are always tradeoffs, and as people like to say in our industry, there is no free lunch.
When you start on the path to become a CFP® professional, you must agree to certain terms and conditions (or T&C). You know the ones you click through anytime you purchase a license for something, or something you already use updates their T&C.
This can be a mistake when you seek a designation, however, as the T&C outlines your responsibilities and obligations to your governing body—in this case CFP Board—in order for the right to use the CFP marks.
Any time you agree to terms and conditions, you are giving up rights. It is important for you to know what those rights are.
Bad Actors and Guilt by Association
Like any profession, the financial services industry has a small minority of individuals who engage in some form of misconduct. Governing bodies with ethical standards protect the brand by enforcing them. If you are a CFP® professional, there is an enforcement and adjudication process for violations of the Code and Standards. Given the public nature of sanctions issued, having a CFP® designation brings with it risks. For example, given that nearly every time a CFP® is sanctioned, CFP Board issues a press release, this can negatively affect even CFP® professionals who do not engage in misconduct. The brand can become one that is associated with bad actors.
Calculating the Value from a Designation
From an expected value perspective, an individual would need to examine whether the potential risks outweigh the potential gains from having the designation. CFP Board recently completed a study where they examine the differences in compensation of CFP® professionals and non-CFP® professionals across many dimensions (www.cfp.net/why-cfp-certification/financial-planner-salary-and-stats/salary-calculator). Financial planners can use this tool as a proxy for value. However, note that the intervals overlap and that many successful financial planners may self-select to become CFP® professionals. It is impossible to tell how much of the additional salary comes from the CFP® marks without randomly assigning people to get their CFP® designation and randomly assigning people to not get their CFP® designation.
Decreasing Value over Time
Perhaps the most important point I can make is that our field is a personal one. Very few professions have the types and closeness of relationships that we have with our clients. Over time, we build a personal brand. Our clients value us and our work—not our designations. We receive referrals based on who we are and not what tests we have passed.
As it relates to signaling and the components of a designation’s brand, over time we become more experienced, so the minimum experience requirement is no longer relevant. We passed the exam and acquired the knowledge of the profession, so that is no longer helpful—our clients know we are knowledgeable. Our clients have grown to trust us, and when they entrust their referrals to us, this is reinforced—so we need the ethical bulwark of the designation less and less as time goes on.
The one piece that might continue to add value might be continuing education (CE). Professionals should seek more knowledge. But often CE is a “check the box” task, and the knowledge ends up being little to no value. Further, you don’t need to have CE to acquire more knowledge.
This means that the value of the designation, after obtaining it, is almost entirely in the brand.
What to Do?
First off, it is important to know what you are getting into. If you are considering getting a designation, carefully read the terms and conditions issued by the governing body. In the case of the CFP® designation, it is important to understand the terms and conditions, the Code of Ethics and Standards of Conduct, the Sanctions Guidelines, Fitness Standards, and the Procedural Rules.
Ideally, you would hire an attorney to look at the terms and conditions associated with a designation you are considering. Absent that, however, read them carefully and ask the following questions with each of the clauses: How does this affect my ability to support myself in this profession long-term? How does this affect my ability to deliver high-quality financial planning to my clients? What are the potential downsides associated with these terms and conditions? Finally, ask yourself what freedoms you might be giving up when you agree with the terms and conditions.
Second, you should periodically evaluate where you are in your career as a financial planner and whether the value you are receiving from the designation exceeds the real and potential costs. Collecting data on how clients find you and subsequently decide to hire you will help you evaluate this decision.
Doing this both before and after you obtain a designation will be incredibly helpful. It will allow you to make some loose inferences about how and why people are hiring you.
Remember that your personal brand has value and, potentially for you as an individual, might exceed the value of the designation to you. Ask yourself, are clients working with me because I have these letters after my name, or is it because of the work I’ve done? Do new clients hire me because of my CFP® designation or because of my personal reputation? Am I known as a financial problem-solver or as a CFP® professional? Do the CFP® marks enhance my brand, or is my work enhancing it?
Third, take a hard look at what your designation’s governing body is doing to help or hurt the brand. CFP Board’s Public Awareness campaign was developed and executed with rigorous research and thoughtful debate. The campaign very succinctly messages consumers that they should hire a CFP® professional. This can be a helpful boost, especially for younger planners.
However, there are things that can hurt the brand, such as negative news involving CFP® professionals. Focusing less on the good things that 99.5 percent of CFP® professionals are doing and instead spending resources on the 0.5 percent who are not can tarnish and even weaken the brand.
Finally, as matter of course, it is important for you to continuously evaluate what are good practices in financial planning. This is what a true fiduciary does. If you engage a client in a way or provide advice that you know to be sound and CFP Board disagrees, you may increase your risk if you are maintaining your designation.
Really, What Should I Do?
A good financial planner is always on the lookout for potential icebergs that may hurt a client’s financial plan. This is one of the key pieces of value a financial planner can provide. Having a good understanding of your value and how it changes in relation to the credentials you obtain is good career planning. Ultimately, the decision is personal, just like financial planning.