Back to school for financial planners

In 2007, the Financial Planning Association of Australia (FPA) will set a global precedent by requiring all advisers wishing to gain its senior qualification, Certified Financial Planner (CFP), to hold at least a bachelor’s degree or have six years experience, plus an Advanced Diploma in financial planning.

The FPA is a member of the Financial Planning Standards Board (FPSB), an international association set up in October last year to promote greater recognition of CFP certification and its related marks as the international hallmark of financial planning professionals.

Seventeen non-profit associations, that together certify more than 45,000 individuals to use the CFP qualification in countries outside of the US, established the FPSB.

International standards

Global growth of the CFP qualification outside the US has been significant, swelling from 49 CFPs in 1990, when Australia was the only country to use the qualification, to 44,188 in 2004. Australia, Canada, Japan and South Africa are currently streets ahead of the other members with thousands of CFPs.

In 2004, Australia had 5,336 CFPs. Switzerland, the United Kingdom, Germany, New Zealand and Malaysia are also FPSB members, but have comparatively small numbers of CFPs.

The International Association Community is another global association that meets twice a year, and is comprised of membership organisations which support the CFP marks.

The US FPA’s president-elect, Elizabeth Jetton, says all members are committed to the creation of a global standard for financial planning. The push for this global standard began in 2001, but because of the complexity of the issue, and the impact it could have on the profession, the standard will not be launched until the end of this year.

“We are fortunate to have a wealth of opportunities to support financial planning around the world,” says Jetton. “And we believe strongly in the creation of a global financial planning profession.”

According to the Australian FPA’s education unit general manager, Chris McMillan, Australia’s FPA is the only member of the FPSB that offers the full CFP education program under its own banner. All international affiliates provide either linkage to a tertiary institution or a registered education provider for study towards the CFP.

She says the decision to mandate bachelor degree entry confirms the FPA’s priority of developing professionalism across the industry. “It should be noted that none of the international affiliates deliver a full postgraduate level program for CFP preparation,” she says.

The need for qualifications

McMillan says the FPA has raised the bar on qualifications to align Australian standards with the international standards set by the FPSB. To reflect this alignment with international standards, the FPA board decided in 2003 that the CFP program should be redeveloped to include five units; comprising one compulsory foundation unit, three elective units covering technical areas, and one compulsory capstone or integrative assessment only unit.

The first four units were to be educational units, and the capstone would be the assessment/examination unit comprising a comprehensive financial plan case study. “In implementing this resolution, a clear distinction between the education and the examination requirement has occurred. In recognising a variety of education pathways before candidates complete the certification assessment, the FPA has reaffirmed that appropriate education programs for CFP certification are delivered by other providers,” McMillan says.

While raising the bar for CFP certification is undoubtedly a plus for the financial planning industry, the change has created some issues for prospective students. After 2007, applicants must hold a financial planning bachelor’s degree or other degree approved by the FPA, although there are a few alternative pathways to becoming a CFP.

An FPA Diploma of Financial Planning or Advanced Diploma of Financial Services should be upgraded to an undergraduate degree before entry.

Those who have completed postgraduate studies in financial planning, preferably at masters level, or hold a certified practising accountant or certified accountant designation, have an advantage over other students, and may be exempt from completing one or more of the technical units in the CFP program.

Transitional arrangements

To support aspiring practitioners who have commenced studies in financial planning, the FPA is providing transitional arrangements for those who do not hold a degree. The requirement to hold a degree can be waived if the candidate commences the CFP program up to, and including, semester two 2006, and if they have three years proven experience. The candidate must also complete the program before December 31, 2008.

The association will be conducting flexible CPA assessment periods in 2006, and under this model the deadline for the completion of the assessment for CFP1 will be the last assessment date offered for 2006.

Industry response

McMillan says in general the response from the planning community to the changes has been positive. “In terms of implementing the degree requirement, we have not had a big reaction to it — some students have indicated that they now see it as a clear choice between those who aspire to be CFP practitioners, and those who choose to remain as qualified financial planners,” she says.

The Australian FPA is following a very similar tack to the US, which also announced that beginning in 2007, in addition to fulfilling the education requirement, a bachelor’s degree in any discipline will be required in order to attain CFP qualification. A bachelor’s degree in any major from a regionally accredited US college or university will be accepted, and evidence will be required at the final stage of initial certification.

A CFP must also complete 30 hours of continuing education every two years in financial planning areas such as estate planning, retirement planning, investment management, tax planning, employee benefits and insurance.

RetireInvest financial planner and member of the FPA’s Quality Education Accreditation Committee, George Flack, welcomes the change in the Australian standards, and says the new rules will aid in professionalising the industry.

“Setting the high jump bars to pole vault bars now will assist our industry,” he says. “We need to set the standards higher, and we need to ensure governments and regulators also co-operate in these areas by becoming more attuned to our industry.”

Flack says he is more likely to hire a planner in his Bendigo-based practice if they are a CFP. He offers staff study leave as part of their employment, and new staff are encouraged to achieve their qualifications as soon as possible. He adds that keeping up with legislative and political change is also important.

“The first step is always to get the qualifications, and the second is the hardest — maintaining them — hence continuing professional development will assist,” he says.

Experience vs qualifications

Centrestone chief executive officer Rob Keavney is not convinced about the changes, however, and says the shift in the rules could make it harder for some capable people to do well in the industry. “There are some very skilful people who, for some reason, decided not to get a degree, who would make very good financial planners,” he says. “We’ve got enough tests of intelligence — I would have thought if you can pass the educational qualifications to get in the industry, having to get a degree before doing your CFP is unnecessary.”

Keavney says the planning industry has already come a long way towards becoming a recognised profession. “A few years ago any halfwit could become a financial planner, and the industry has gone a long way to gaining credibility. But at the same time, you meet people who have got a CFP and they think that makes them a highly qualified planner. I think we are undervaluing experience.”

Financial Services Partners managing director Geoff Rimmer agrees. He says the amount of study needed to become a CFP has become excessive, and is meeting with FPA head Kerrie Kelly to clarify what the changes will mean for his business. “A CFP is almost equivalent to a doctoral study with the amount of study planners have to do. I am not opposed to having people of the highest calibre in the industry, but clients will want a balance of experience to go with the qualifications,” he says.