The making of a profession

By Cary List
Illustration: Susanna Denti

With its first set of generally accepted financial planning principles, CFPs are taking their place among other respected professionals

What makes a profession? According to Webster's, a profession is "a calling requiring specialized knowledge… including instruction in skills and methods [and the] scholarly principles underlying such skills and methods, maintaining by force of organization or concerted opinion high standards of achievement and conduct, and committing its members to continued study and to a kind of work which has for its prime purpose the rendering of public service." This is the basis upon which Financial Planners Standards Council's new financial planning practice standards, proficiency standards and academic standards are being built — to ensure that the "calling" of financial planning, through CFP-designated professionals, finds its place amongst other professions.

With the introduction of its practice standards for CFP professionals in October 2003, FPSC has taken a giant step by releasing the first set of generally accepted financial planning principles in Canada and in providing a clear definition on which to build the profession. Its definition distinguishes financial planning from other forms of financial advice for both the public and industry.

The FPSC practice standards represent the first of several new initiatives FPSC is working on as it continues to enhance standards for CFP-designated professionals.

The standards, built on the definition "financial planning is the process of creating strategies, considering all relevant aspects of a client's situation, to manage financial affairs to meet life goals," are also designed around a fundamental premise — that financial planning must be recognized as a profession, by the industry and by the public, in order to serve the growing public need for professional, unbiased financial planning services. Such recognition cannot come without high standards of practice.

Formed in 1995, FPSC brought together a number of disparate industry groups for the purpose of coalescing around a single financial planning designation — the CFP. No one expected the road to 2004 to be as challenging, interesting or successful as it has been.

While the path has not always been straight, it has always been clear. FPSC has never wavered from its mandate of public protection and the advancement of the profession through the establishment and enforcement of high standards of competency and ethical behaviour for financial planners who hold the CFP designation.

To date, FPSC's standards for CFP licensees consist of a minimum two-year work experience requirement; successful completion of an accredited educational program; successful completion of the six-hour CFP examination, offered nationally in both official languages on a semi-annual basis and a requirement to adhere to the CFP code of ethics. The new standards represent the next logical step for FPSC and for the profession.

Having dealt with GAAP and GAAS, CAs will be familiar with the idea of practice standards. While accounting standards deal with every aspect of accounting and audit in great detail, the financial planning practice standards deal much more with process. The standards are built on the widely accepted financial planning process and tie into FPSC code of ethics. They serve to clarify, for professionals and the public, their respective roles and responsibilities in a financial planning engagement. As the public and the industry begin to work with these standards, FPSC anticipates a greater consistency of service and reduced confusion and misunderstanding between client and planner. In the end, FPSC expects these standards will ultimately lead to increased confidence in and recognition of financial planning as a profession.

The 10 new standards, numbered 100 through 600, are set out in the order of the financial planning process. They address the establishment of the engagement; gathering of financial and other information; clarifying the information and objectives; developing and presenting a financial plan, implementing the plan and ongoing review.

Each standard includes interpretation and explanation that further clarifies it. For example, Standard 100 deals with establishing a financial planning engagement and states "the client and the CFP professional will define and agree on the scope of the Financial Planning Engagement." The interpretation section refers specifically to a written letter of engagement and sets out as a minimum items that should be included in the letter.

Standard 100 also provides a broader interpretation of the definition of financial planning by defining modular or segmented financial planning (as opposed to comprehensive financial planning). It also allows for engagements that do not include implementation or review services.

Significant, and perhaps controversial, is the requirement that states a CFP professional, when not undertaking financial planning services for the client, must disclose this fact if there is a reasonable probability that the client may misconstrue the service to be financial planning. This requirement was the source of much discussion throughout the development of the standards, and the clause underwent significant amendments before the latest wording was established.

Ironically, the clause has been subject to criticism from both sides of the argument — those who argued it exerts too much control over CFP licensees and those who said it gives too much room for CFPs to avoid their professional responsibility. Perhaps this is a sign that FPSC found the right balance. In fact, both arguments are somewhat flawed. As expressed, the clause ensures that CAs or other professionals are not required to adhere to the financial planning practice standards in situations that have nothing to do with financial planning — corporate tax or accounting engagements, for example. At the same time, the clause serves to ensure that those who are claiming to offer financial planning services either adhere to the practice standards (when they are offering financial planning services) or inform their clients that they are not providing financial planning services (when they are not in fact providing financial planning services but may be seen as doing so — if selling mutual funds over the counter, for example).

A recent poll suggests that almost half of CFP-designated professionals provide comprehensive financial planning to less than 25% of their clients. The requirement to disclose any nonfinancial-planning engagements prevents CFP licensees, when not engaged in financial planning, from using the guise of financial planning as a marketing tool to sell mutual fund or other products. FPSC does not, and cannot, prevent CFP professionals from selling securities outside of the scope of financial planning services, but it can ensure that through the activities of the CFP the difference between financial planning and other forms of financial advice or product sales is made clear to the public.

A recent consumer survey commissioned by FPSC suggests that less than 25% of Canadians using the services of a financial planner actually paid for those services directly. This is consistent with another survey of CFP licensees that indicated only 20% charge a fee for financial planning services.

Between the industry and the public, there is still a lack of acceptance of financial planning as a service worthy of out-of-pocket expenditure by the client. One can only speculate as to why — perhaps the integrative nature of financial planning is still not well understood or the public believes financial planning is a service they should not have to pay for. In fact, according to the same consumer survey, while more than 70% of Canadians feel having a financial plan is somewhat important to them, only 37% have a written plan, and less than 60% of those used a financial planner to design it.

Clearly, the value proposition of professional financial planning services is still not widely accepted. As the standards are finalized next year, FPSC plans to release consumer-friendly materials to explain the standards and help the public better understand not only its role in the financial planning process, but the benefits and value of financial planning. Public awareness of the value and complexity of financial planning will benefit the Canadian public and the profession alike.

Standards of performance are only as useful as the knowledge, skills and abilities of the individuals being held to them. With this in mind, FPSC's next challenge is to re-assess, based in part on the standards of performance set out in the Practice Standards, the knowledge skills and abilities required of individuals who will be allowed to refer to themselves as CFP professionals. New proficiency standards will lead to a new CFP examination blueprint in 2006 and corresponding educational requirements, beginning next year.

Already well underway, the new proficiency standards will be competency-based rather than purely knowledge-based. Similar to the recently developed CA profile, and what is becoming the norm in professional credentialing, FPSC has moved away from a syllabus or topical knowledge curriculum basis for its certification exam to specific statements of performance ability and the corresponding knowledge required to competently perform those stated skills.

Statements of competency clearly define the profession in question — they are statements of performance that are critical to that profession, reflect observable behaviours and represent actions that when completed successfully would result in the delivery of a product, service decision or other observable result. This is a significant departure from the current, more traditional syllabus-based approach, which states only what one must know, but does not necessarily identify how that knowledge would be applied in practice or what the outcome would be of having that knowledge.

As this project has advanced, a number of key concepts have already emerged. The first is that integration — the ability to integrate information across a variety of underlying knowledge domains — is a fundamental competency of a CFP professional. While CFPs require knowledge that may be similar to that of other professionals — tax laws, investment principles, government benefits and insurance products for example — they must apply that knowledge across six distinct yet highly related activities: personal finance management, investment planning, tax planning, risk management, retirement planning and estate planning. Even when not performing comprehensive planning — that is, when not undertaking all six activities in a single engagement — CFPs must still consider all relevant aspects of a client's financial situation and integrate information across multiple domains in order to produce a plan for their client.

The academic community already is   moving to keep up with the emerging profile. Baccalaureate-level programs at Wilfrid Laurier University, George Brown College, Lakehead University and University of Manitoba, to name a few, are moving financial planning education to another level. Other financial planning education providers have begun enhancing their programs accordingly.

By press time, FPSC will have established an independent financial planning foundation that will have as its mandate the enhancement and further development of academic research and education in the field of financial planning in universities and colleges across Canada.

What does this all mean for the future of financial planning and the future of the CFP? A change in format for the CFP examination in 2006 is certainly possible. Will the CFP designation become more difficult to obtain? This too is possible. One thing is certain: through the development of these new, relevant standards of competency and proficiency financial planning will take its place alongside other respected professions and the CFP will continue to thrive and grow as the mark of the financial planning professional in Canada.

The Canadian Financial Planning Practice Standards Financial Planners Standards Council Draft - September 2003 100 Establish the Engagement: Define the Terms of the Engagement The client and the CFP professional will define and agree on the scope of the Financial Planning Engagement. Details about each party's responsibilities, the time frames of the engagement, compensation, and Conflicts of Interest will be set out in writing in an engagement letter signed by both parties.   200-A Gather Client Data: Identify the Client's Goals, Needs and Priorities The CFP professional will discuss the clients' financial goals, needs and priorities with them before making and/or implementing any advice or recommendations.   200-B Gather Client Data: Obtain the Client's Quantitative Data and Documents The CFP professional will gather all data relevant to the client's current financial situation. Sufficient, relevant information and documentation will be obtained from the client before any advice or recommendations are made and/or implemented.   300 Clarify the Client's Current Financial Position and Identify any Problems and/or Opportunities: Analyze and Evaluate the Information with Respect to the Client's Goals, Needs and Priorities The CFP professional will analyze all data to determine the client's current financial situation, and evaluate to what extent the client's goals, needs and priorities can be met under the current circumstances.   400-A Develop and Present the Financial Plan: Identify and Evaluate the Financial Planning Strategies The CFP professional will identify and evaluate Financial Planning strategies to achieve the client's stated goals, needs and priorities.   400-B Develop and Present the Financial Plan: Develop and Present the Financial Planning Recommendations The CFP professional will develop recommendations to achieve the client's stated goals, needs and priorities and will communicate these recommendations so that the client understands the recommendations.   500-A Implementation of the Financial Plan: Agree on Implementation Action, Responsibilities and Time Frames The client and the CFP professional will agree on implementation action, responsibilities, and time frames.   500-B Implementation of the Financial Plan: Implement the Financial Plan The client and the CFP professional will take action to implement the approved recommendations.   600-A Review the Financial Plan: Agree on Responsibilities and Time Frame for Review and Re-Evaluation of the Financial Plan The client and the CFP professional will agree on a time frame for monitoring and evaluating the financial plan.   600-B Review the Financial Plan: Monitor and Evaluate the Financial Plan The client and the CFP professional will review the financial plan to assess its progress, to determine if it is still appropriate and to confirm any revisions mutually considered necessary.

Cary List, CA, CFP, is executive vice-president and COO for Financial Planners Standards Council.

Technical editor: Ian Davidson, MBA, CFP, CA, RFP, senior financial adviser, VP, Assante Capital Management Ltd.