Personal Financial Planning

Article excerpt

[Editor's Note: The author of the following letter, a CPA, heard a broadcast by a prominent radio host who gives advice on financial matters. The author took issue with the advice given on the selection of a financial planner and wrote to the producer of the broadcast.

While the letter was in response to a specific discussion, it also serves as an excellent comparison of the attributes of the various financial planners and their educational requirements.

The designations (and the organizations which issue them) cited in the letter are as follows:

PFS--Personal Financial Specialist, AICPA

RIA--Registered Investment Advisor, Securities and Exchange Commission.

CFP--Certified Financial Planner, International Board of Standards and Practices for Certified Financial Planners.

ChFC--Chartered Financial Consultant, The American College (Insurance Specialty)]

To Whom It May Concern: We spoke briefly by telephone today, and you suggested I write this letter to you. I am a CPA/PFS, CFP, and I want to address the comments made today on how to locate a competent personal financial planner.

The advice given to the caller may be summarized as follows:

* Select a planner with whom you are comfortable and who relates to you well, someone you trust;

* Select a planner that has bona fide credentials; CFP and RIA were mentioned as the preferred credentials, while ChFC was accorded a lesser standing due to a perceived insurance bias; and

* Consider the RIA credential, because it evidences a stronger educational background and allows the planner to sell and/or advise upon a more diverse universe of investment products.

While I heartily agree with some of this advice, I do not believe all of it is accurate. Furthermore, I feel there were several significant issues that were omitted from the discussion.

Specifically, the assertion that the RIA credential requires a greater educational background is a misrepresentation. I understand that registration with the SEC requires only the completion of an application and the payment of a nominal fee ($150). All it seems to guarantee is that the SEC has the planner's name in its files and that the SEC may then choose to audit or otherwise investigate the planner. It is also my understanding that in practice, the SEC tends to audit registrants infrequently. Furthermore, the RIA only relates to the rendering of investment advice It is not relevant to any other type of personal financial planning services. Unfortunately, too many people think investment planning is synonymous with personal financial planning. It is only a small piece. More importantly, no mention was made in the discussion of the different compensation arrangements available in the marketplace and the conflicts of interest that exist with commission-driven planners. Lastly, the omission of CPAs from the list of alternative choices for a planner overlooks potentially the ideal choice.

CPAs were providing personal financial planning services long before the phrase for the discipline was coined. This occurred because CPAs were recognized by their clients as their most trusted personal advisor. This element of trust goes right to the heart of the paramount criteria mentioned on the program. The CPA's advice was also sought because the CPA was already intimately familiar with many aspects of the client's situation. The CPA already had valuable insight.

From the comments made regarding the RIA credential, I infer that additional education and regulatory oversight are viewed as desirable. I submit to you that it is the CPA who has the most demanding initial and continuing education requirements of any credential. Furthermore, CPAs are licensed by their individual states and must adhere to the rules and regulations of their boards of accountancy and, if they are members, the strict codes of ethics promulgated by the AICPA and various state institutes and societies. …