The public is often confused by the alphabet soup of financial designations and in an attempt by the CFP Board of Standards to show differentiation they have instead highlighted what may be major shortcoming.

People like to look at credentials and think that everyone who has them has satisfied the same requirements. All too often that is not the case, and now in the financial field we are seeing the effects of grandfathering at work.

Grandfathering is the term used when the rules of the game change mid-stream and those who have met certain requirements are exempted from the new requirements.

What has brought this to mind is recent newsletter issued by the CFP Board of Standards, in which they attempt to explain the differences in the CFP® mark and the ChFC® designation. Both are used by professionals in the financial planning, investment and insurance world as well as in the legal and academic arenas.

Kevin Keller, CEO of the CFPBOS refers to the fact that the CFPBOS requires the passing of a comprehensive examination as a litmus test to demonstrate professional competency. The test does not have a traditional passing grade requirement. Instead, if I understand it correctly, certain questions within each category must be answered correctly in order to demonstrate mastering the material. Historically 5 out of every 8 candidates who take the test for the first time have passed it.

He then refers to Michael Shaw, who is an attorney and the Managing Director of their Professional Review and Legal Departments and earned his ChFC from the American College and is still listed as a ChFC in good standing despite the fact that he has not provided financial services since 1990. It appeared that Mr. Keller was dismayed that the American College continued to show Mr. Shaw as a member in good standing considering that he no longer is involved in providing financial services. However, Mr. Shaw still refers to his ChFC designation and in fact in a press release issued by the CFP Board they referred to Mr. Shaw as having both the CLU and ChFC designations.

In 1989 the American College, the academic organization that awards a number of financial designations changed the requirements of continuing education for the ChFC designation. People who had enrolled in a program prior to 1989 would not be covered by the new rules which are 30 hours of continuing education each two-year period.

The American College confirmed that Mr. Shaw is grandfathered. Each organization's CE requirements are somewhat similar.

The CFP Board did not always require a comprehensive exam. In fact it was introduced in 1991, and yet all those who were awarded the CFP® designation prior to the exam requirement are not referred to in any different matter. These people did not demonstrate the professional competency that those who took the test did. There are no asterisks next to their name although perhaps there should be since they did not take and pass the exam.

The issue here is not to decide who is right or wrong or to discuss the merits of any designation or organization but rather to point out to the public that on face value you do not really know what requirements a person authorized to use the designations has met. In the first two instances older advisers may have had to achieve less in order to use the same titles. Conversely, the newer planners who may have the least experience are the ones who have met all the current requirements.

I wouldn’t mind arbitrating a meeting between the CFPBOS and American College in order to clarify the underlying issue. My decree would be those that are grandfathered from CE requirements must meet the new standard and those that did not pass the CFP comprehensive exam have one year in which to do so. That way the public will know that the holders of each respective designation have met the same requirements and have the same ongoing obligations.

Morris, it’s interesting that you raise this. It’s something I’ve thought about on and off ever since I discovered that there was a time when you could earn the CFP® designation without passing the exam that I had to pass.

It sounds like you’re complaining that there is a lack of transparency when these organizations imply that everyone who has a certain designation has passed an exam, and I agree that it seems misleading. Interestingly, it’s also true of the CFA designation – there are people who had the “Financial Analyst” credential prior to 1990 who can call themselves CFAs even though they haven’t taken the three exams that are now required.

Still, I think it’s in the nature of a credential that its standards have to increase with time. Back when I was an undergraduate, I met a well-known chemist who was then probably in her sixties. I asked her about her Ph.D. research, and she was a little embarrassed. “Actually,” she said, “today my Ph.D. work would barely qualify me for a master’s degree!” The same is true of other kinds of professional designations; the bar keeps getting raised. So I’m not quite persuaded that everyone who was “grandfathered” should be forced to go back and meet the current requirements.

At an absolute minimum, I think that the certifying organizations should be clear about how their qualification rules have changed. If you’re going to trumpet the fact that your certification process requires a comprehensive exam (or three), you should also be up-front about the fact that not everyone with your designation had to meet that standard. Then consumers can ask: did you pass an exam, or were you “grandfathered?” Organizations (like the CFPBOS) that offer an online database of designees could easily add a field showing when the exam was passed. Grandfathered folks should be able to take the exam if they wish to show that they can actually pass the current exam.

Our ethical standards as financial professionals require that we not mislead the public. Shouldn’t the organizations that certify us hold themselves to the same standards?

Tom
Thats a very interesting point about the chemist although I take her remark to mean that the world of research had changed with so many more discoveries being made that her original work in today's world may seem primitive. Cutting edge becomes dull at different speeds in different industries. I am sure though that she did a thesis for her Doctoral Dissertation .
Thank you for your thought provoking comment!

I can see a healthy debate revolving around whether grandfathered CFPs and ChFCs should be required to take exams introduced after they earned their designations, but I can't imagine any debate regarding whether grandfathered planners should have to meet the same CE requirements as anyone else. It's disturbing that an individual who hasn't had to illustrate that he or she is keeping up on industry changes since 1990 looks on paper to be equally qualified as people who more recently earned their designation.

I hear you on the CE issue and can onlyt think that the American College felt contractually bound. Since CE credits are often fungible and many people have several designations or requirements I am not sure that it is that big of a deal. In addition I am not a big fan of CE since it is very easy to get 10 credits on line doing virtually nothing. CE is BIG BUSINESS and I think that it is the razor blade to a designations/memberships razor. My friends in education laugh that you feel that you can learn anything in 40 minutes. Heck, Ive been to conferences where bythe time you get seated and material distributed thespeaker had 10 minutes and then the session has ended and yet credits were given. There has to be a better way.

Each organization should require everyone to meet the same requirements so that the public knows that it's getting what is currently advertised, or the organizations should not be permitted to advertise.

Morris and Lon,
The CE issue is a whole 'nother ball of wax. There is such a broad range in what you are required to do to earn an hour of CE credit. In some instances you have to pass a quiz to demonstrate that you grasp the material presented; in others, all you need is a social security number and a pulse. A greater degree of uniformity would be an improvement.

The shame of advertsing that your holders have achieved a certain standard when in fact they haven't is rather abhorrent. How can the authorities allow that to exist? Does anyone know how many of each group are grandfathered?

Tom and Morris .. I see your point on CE credits. In psychology they are much more diligent.

So gentlemen, how do I pick the appropriate person?

That is an excellent question. We may have determined that "standards" aren't really standards at all but a phrase that refelcts on the current situation only.

There are a myriad of factors that can be used in determining a persons qualifications. You do need to find someone who is right for you and by that I mean has experience or training in the areas that you need assistance with.

Imagine a world where there are no credentials and it is just a career path. You have two distinct choices available and one would be to use a Registered Investment Advisor which would afford you the protection of the "fiduciary" umbrella or go the route of the Registered Rep or insurance agent. Under the latter your legal recourse may not be quite as strong as under the former however I hope that you are not a person who expects the worst outcomes!

Recommendations from people are always helpful but you do have to do your own diliigence. You want someone who has not run afoul of securities or insurance laws I would imagine. Someone who is educated? Been around a few years?

The educational requirements for the CFP designation and for the ChFC are so similar and fungible that I am not sure that you can say that either are smarter or have learned more.

You do want someone who will work for you and in my opinion, give you undivided loyalty. That means that you come before them, not that you are their only client.

If you are looking for an answer that says one credential over the other then I am not biting!

Morris as always you raise some interesting and thought provoking points. I am not as concerned about the exam issue for CFP or ChFC holders as I am about the CE issue you mentioned. While you are right that not all CE is created equally, I find the 60 hours you and I are both required to have as NAPFA registered advisors to generally be beneficial and a good way to keep current in areas such as investing, estate planning, etc. The issue of what holding a given designation entails should be made clearer to the public. However I would say the fact that an individual has made the effort to obtain the CFP, the ChFC, the PFS, or other designations should say something positive about their committment to the profession. In my opinion, professional designations should only be a part of the equation when a consumer is looking for a financial advisor.

The committment to education is important and obtaining a designation is an educational process. The issue is not at the "holder" level but at the sponsor level.

Morris,
This is both interesting and distressing. Imagine if nurses were 'grandfathered' in because they were hospital-trained upteen years ago, and passed hospital competencies only. How could their skills be compared to those of us who had to pass boards, and continue updating our knowledge with continuing ed mandates? Have you ever heard anyone ask a nurse what kind of training s/he has, and where s/he obtained it?
It seems to me that the general population sees the designation 'LPN' or 'RN' and assumes a specific level of education and skill. For the layman, it is likely the same when financial professionals are concerned; we assume credentions indicate a certain level of expertise. The fact that they don't, apparently, is disturbing and misleading. I encourage you to do what you can to raise awareness and rectify this situation.
Sincerely,
Jill Benjamin

It would be interesting to know how many practicing CFP certificants were exempted from taking the 10-hour exam. Every year that passes, that number should fall, eventually becoming zero. Since we know the exam was instituted in the early 90s, we're approaching 20 years and my guess is that there weren't all that many CFPs in total back then, as there has been tremendous growth in the last 20 years. We could be talking about a very small percentage of approximately 58,000 CFPs in the country today.

Interestingly, another angle on this debate is the "challenge exam". Allied professionals such as CPAs, attorneys and others can skip the five core tests that lead up to the 10-hour two-day exam and simply take the 10-hour exam in an attempt to pass it outright. In other words, they "challenge" the exam. If they pass and meet all other requirements, then they earn the right to use the CFP marks. The idea is that they have already obtained parallel skills and knowledge allowing them to earn the CFP marks more quickly.

I agree with Roger that if a financial planner has taken the time to earn and maintain the CFP marks, it is a good indication of overall commitment to the profession.

For me, the ongoing work among the CFP Board, the Financial Planning Association (FPA), The National Association of Personal Financial Advisors (NAPFA) etc. in driving financial services reform in Washington is the greater issue here.

Walt

I am not sure that the number declines dramatically and if I had to take a guess I would think that about 25-30% of the 58K CFP holders are pre test.

I am not sure what point you are making with regard to the challenge exam, is it good or bad or simply incorrect advertising?

I think that the reader above you, Jill, hit the nail or the head and yet she wasn't referring to an individuals committment..

Here's my last thought on this subject. . .

As a test-taker, I wholeheartedly agree with standards of competence and professionalism in our industry. Self-governing organizations such as the CFP Board of Standards work hard to create and enforce those standards. As in many industries, the bar continues to be raised.

My point about the "challenge exam" is that there is another way people can become a CFP practitioner. I'm not suggesting it is inferior, simply that the governing body has determined an alternate equivalent route to the same place. I hold those practitioners in the same high regard.

Are clients of those CFPs less well-served? In my humble opinion, it's not likely.

Every generation of governing officials aims to create the highest standards for serving their constituents at the time. It's not false advertising at all. Critical thinking tends to evolve over time as regulations change, consumer expectations change and technical proficiency becomes harder to achieve and demonstrate. We should all strive for incremental improvement through life-long learning.

It doesn't bother me a bit to think that some CFPs didn't take the certification exam 19 years ago. If they are still practicing, maintaining the minimum CE every two years, have no disciplinary actions against them, and have long-term clients that appreciate their counsel, then that speaks volumes.

Finally, thank you for generating a healthy debate on this subject. In the wake of all the financial scandals over the last year, standards of competency are high on most people's wish list.

The public deserves to know that everyone claiming a credential has earned it and maintains it. There should be no more grandfathering. People who were grandfathered should have to take and pass the same test as everyone else, and everyone should continue to be required to earn continuing educational credits to maintain their certification.

You said it very sweet and succinctly.