Financial planner
From Wikipedia, the free encyclopedia
A Financial Planner or Personal Financial Planner is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes but is not limited to these major areas: tertiary education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners). The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, he is guided by a process known as the financial planning process which should result in creating a detailed strategy for making their clients as wealthy as possible.
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[edit] Objectives
Why would people plan their finances with the help of a financial planner? It is because of the complexity of knowing how to perform the following:
•To provide direction and meaning to financial decisions;
•To understand how each financial decision affects the other areas of his finances; and
•To adapt more easily to life changes in order to feel more secure.
This is particularly difficult to cope without professional help as the case in a fast changing environment.
[edit] Definition
We may broadly define personal financial planning as a process of determining an individual's financial goals, purposes in life and life's priorities, and after considering his resources, risk profile and current lifestyle, to detail a balanced and realistic plan to meet those goals.
By 'process', it means financial planning is a step-by-step guide that is not specifically attributed to any particular financial product or service. In other words, any content-based practitioner, e.g. life insurance adviser, accountant, investment adviser, etc., can make use of the same steps listed in the process to perform the financial planning function for their client.
The above definition uses the individual's goals and purpose in life as strategic guideposts for mapping a course of action on 'what need to be done' to reach meaningful goals in meaningful ways for him. The goals and purposes in life are the reference points or outcomes to aim at when the financial plan is constructed. Along side the data gathering exercise, the purpose of each goal is determined to ensure that the goal is meaningful in the context of the individual's situation. Through a process of careful analysis by an experienced financial planner, these goals are then subjected to a reality check by considering the individual's current and future resources available to achieve them. In the process, the constraints and obstacles to these goals are noted. The information will be used later to determine if there are sufficient resources available to get to these goals, and what other things need to be considered in the process. If the resources are insufficient or absent to meet any of the goals, the particular goal will be adjusted to a more realist level or is replaced with a new goal.
To plan for the future would usually require some forms of self-constrains in postponing some enjoyment today for the sake of the future. To be effective, the approach to financial planning should consider the individual's current lifestyle so that the 'pain' in postponing current pleasures is bearable over the term of the plan. It is in times where current sacrifices are involved that the strength of the plan's purpose for each goal is called upon to ensure that the pursuit of the goal will continue. The plan would consider the importance of each goal and prioritized them accordingly for taking action. It should be noted that many financial plans fail because these practical points were not sufficiently considered.
[edit] Scope
What does financial planning covers? Financial planning should ideally cover all areas of the client’s financial needs and finally to end with the achievement his goals and objectives in each of the targeted areas. Usually, the scope of financial planning would include the following:
•Risk Management and Insurance Planning: To make provision against cash flow risks through sound risk management and insurance techniques:
•Investment and Planning Issues: Planning, creating and managing capital accumulation to generate future capital and cash flows for reinvestment and spending.
•Retirement Planning: Planning to ensure financial independence when one retires.
•Tax Planning: Planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes.
•Estate Planning: Planning for the creation, accumulation, conservation and distribution of assets.
•Cash Flow and Liability Management: Maintaining and enhancing personal cash flows through debt and lifestyle management.
[edit] The personal financial planning process
The personal financial planning process is generally accepted as a six-step process as follows:
Step 1: Setting goals with the client This step (that is usually performed in conjunction with Step 2) is meant to identify where the client wants to go in terms of his finances and life.
Step 2: Gathering relevant information on the client This would include the qualitative and quantitive aspects of the client's financial and relevant non-financial situation.
Step 3: Analysing the information The information gathered is analysed so that the client's situation is properly understood. This include checking whether there are sufficient resources to reach the client's goals and what those resources are.
Step 4: Constructing a financial plan Based on the understanding of what the client wants in the future and his current financial status, a roadmap to the client goals is drawn to facilitate the achievements of those goals.
Step 5: Implementing the strategies in the plan Guided by the financial plan, the strategies outlined in the plan is implemented using the resources allocated for the purpose.
Step 6: Monitoring implementation and reviewing the plan The implementation process is closely monitored to ensure it stays in alignment to the client's goals. Periodic reviews are undertaken to check for misalingment and changes in the client's situation. If there are any deviation or significant changes to the client's situation, the strategies and goals in the financial plan are revised accordingly.
[edit] Job function
Professionally, a financial planner is someone who specializes in the planning aspects of finance, in particular personal finance, as contrasted by a stock broker who is only concerned with the actual investments or a life insurance intermediary who advises on risk products. In today's context, he performs his job guided by the financial planning process, which is usually a six-step process, and considers the client's situation from all relevant angles and recommends solutions that are integrated. The six-step financial planning process has been adopted by the International Organization for Standardization (ISO) and the details can be obtained from the organisation (Refer [1]). Financial planners are also known by the title financial advisor in some countries, although these two terms are technically not synonymous, and their roles have some functional differences. Although, there are many types of 'financial planners', the use of the title today is more lean towards those who mainly consider the whole financial picture of a client and then provide solutions in a holistics and comprehensive manner manner. To differentiate from the other types of financial planners, they are sometimes called 'comprehensive' financial planners. Other financial planners may specialize in one or more areas, such as, insurance planning and retirement planning. There are also a small group of planners who termed themselves as fee-only financial planners. As the name implied, these planners make a living by planning and advising clients on their finance for a fee, which is their only source of earnings.
[edit] Licensing, regulation and self-regulation
Currently, the title of 'financial planner' is largely an unregulated term in many countries. This has allowed financial services personnel in these countries with no restrictive rules to use the title indiscriminately. Commonly, financial products intermediaries, such as life insurance and unit trusts agents, use the title to project a professional image to their client even when they are not trained in the professional aspects of financial planning. This has often led to abuse. Clients may be deceived to receive financial planning services that are unprofessional and from providers who are unethical.
To promote financial planning as a profession, financial professionals and practitioners from across the globe (starting from the United States) involved in the trade begin to form trade organisations to provide self-regulations and to maintain some orderliness in the industry. Some, such as the FPA, begin to organise high-level training programmes and certify members who successfully completed these programmes. Howerver, the title of 'financial planner' continues to be of common usage among individuals in the financial industry in most countries where the financial planning concept exists at some level as there are little or no legal barriers to prevent them from using the title. Expectedly, the governments in many countries where the financial planning profession is taking roots begin to play an increasingly active role in tasking themselves to ensure the market is orderly. More stringent laws and guidelines were progressively introduced to keep the profession in check.
In Australia, the financial planning services are initially delinated by law by the granting of licence to deal in securities or advise on investments. Licences are issued under the stringent criteria by the Australian Securities and Investments Commission (ASIC), which has evolved these regulations vigourously over the years. Financial planning is now a highly regulated industry in Australia especially where financial advice to the public is involved. Practitioners who offer advice that could influence a client's decision to purchase a financial product must meet minimum training requirements and be licensed by the ASIC. The meaning of 'licenced' refers to Australian Financial Services Licence (AFSL) holders and representatives or authorised representatives of licence holders. Broadly, most people embarking in financial planning will start as an authorised representative of a licence holder.
Becoming a financial planner involves two main steps:
1. Meet the training requirements of Policy Statement 146
2. Select a licence holder to be affiliated with
The licence holder is the authorised representative, and will be ultimately responsible for the advice given by the planner and hence must make sure its representatives meet all compliance and training prerequisites. As at November 2005, there were approximately 4300 licence holders registered with ASIC and over 42,500 authorised representatives in Australia.
Then, in 2001, the Singapore government introduced the Financial Advisers Act (FAA) to regulate the conduct of financial advisory business in the country. However, the FAA do not specifically require a high level qualification before a financial practitioner can use the title 'financial planner'. The Act also defines a financial adviser to mean a firm with a corporate structure which is properly licenced by the Monetary Authority of Singapore (MAS) to perform financial advisory business. In both the Australia and Singapore situation, there is no law specifically on 'holding out' oneself to be a financial planner.
[edit] United States
In the United States of America, the NASD regulates and oversees the activities of more than 5,050 brokerage firms, approximately 172,050 branch offices and more than 663,050 registered securities representatives. A financial advisor or stock broker should be licensed to provide any consultation on investment in securities. Typical licenses needed to promote the sale of stocks are the: Series 7 (stock broker exam), Series 63 (state exam), and Series 65 or 66 RIA Registered Investment Advisor Law exam. Generally, any advisor who charges a fee for investment advise would need to also have the Series 65 or 66 license. Thus, anyone can call themselves a financial planner but they would still need NASD licenses to provide advice for a fee or be registered as an investment advisor with the SEC Securities and Exchange Commission in the USA. Many brokerage firms still claim an exemption for their employees who sell fee based products and services.
[edit] Licensing
The first country to introduce legislation that require a person to be licensed before he can hold himself out to be a 'financial planner' is Malaysia. This is quite unexpected as the financial planning concept is considered quite a new introduction in the Asian region as compared to those in the west, such as the United States and Australia where the profession is more established. The Securities Commission(SC) (refer [2]) of Malaysia introduced legislation through amendments made to the Securities Industry Act in 2003 to regulate financial planning and the use of the title or related-title of 'financial planner' or to conduct activities related to financial planning.
In 2005, amendments to the Malaysian Insurance Act require those who carry out financial advisory business (including financial planning activities related to insurance) and/or use the title of financial adviser under their firm (which, like in Singapore, must be a corporate structure) to obtain a licence from Bank Negara (BNM) (refer [3].) Some persons who offer financial advisory services, e.g. licenced life insurance agents, are exempted from licensing for them to engage in financial advisory business.
Among others, one of the basic requirements to apply for a financial planner or financial adviser licence in Malaysia is the key company officers, e.g. directors, must be a RFP designee (most, if not all Malaysian FChFP designees also hold the RFP designation). Subsequently, in Septermber 2006, the CFP qualification is included as one of the alternative that can be used by the financial adviser licence applicant. With this development, the demand for financial planning courses begin to take root in more concrete forms in Malaysia. The licence applicant must also be a member of a self-regulatory organisation (SRO)in financial planning that is recognised by the authorities. For this purpose, the two SROs that are currently recognised by both the Security Commission and Bank Negara is the Malaysia Financial Planning Council (MFPC) and the Financial Planning Association of Malaysia (FPAM). This requirement is to ensure there are some form of self-supervision in place for those practicing financial planning.
In some countries,e.g. United States, financial planners must be registered as an investment advisor first. This requires an employee within a firm to pass the series 65 or 66 Registered Investment Advisor Exam. Or, a private advisor or company can apply to the state and SEC for a RIA Registered Investment Advisor License or Status.
It should be understood that being 'licenced' to practice financial planning is not the same as merely having a professional 'qualification' in financial planning. A person may be professionally qualified in financial planning, but without a licence required by the law, he cannot practice the trade in that country or call himself a financial planner there. As of now, there are quite a bit of qualifications related to financial planning that can be found in world. The most prestigious financial planning designations are those which are not just of advanced standing and well-known, but are also recognised by the relevant authorities for licensing purpose. The FChFP, RFP,CFP, ChFC, RFC, FFSI, CWM, MFP, or PFS, FPS designations are advanced financial planning or closely related qualifications that are independently offered and regulated by esteemed financial industry organizations but not all are recognised for licensing purpose.
In some palces, individual employees within a licensed & Registered Investment Advisor firm such as a: brokerage, bank or insurance company may be exempt if providing complementary financial planning services in relation to their existing products and services. Moreover, financial planners should be extremely careful in providing estate planning or taxation advise for a fee as these fields are highly regulated by the local bar associations lawyers and public accountants CPAs. "Investment Advisor" also includes any person who uses the title "financial planner" and who, for compensation, engages in the business, whether principally or as part of another business, of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of a regular business, publishes analyses or reports concerning securities.
From California Department of Corporations
A financial planner will be registered with the state if they have <25 million in AUM and with the SEC if they have >30 million in AUM, and they are required to present you with their ADV Part II or equivalent before you enter into a contract with them. No certification, tests or training ensure that any planner is suitable for you or any investor, and it is important to read their ADV Part II, interview them, and fully understand any contract that you enter with them.
[edit] History of certifications
As a newly emerged profession, it is quite expected that there will be a lack of regulation in the financial planning industry, especially in the early years of development. The need for some forms of self-regulations and the demand that a financial planner should be competent and trustworthy have prompted several independent financial services organizations to introduce certifications and ethical benchmarks to meet these challenges in accordance to the need in each country. Those who meet the requirement of the certification process and ethical standards will be awarded a professional financial planning designation.
Probably the earliest and the most well-known of the financial planning certification service mark is the Certified Financial Planner(CFP), which has gained global recognition because of its active standard setting activities and worldwide presence. The CFP designation was first introduced in the United States in the earlier 70's to meet the need of the consumers. The CFP mark now belongs to the CFP Board of Standard’s (“CFP Board”), USA, which have member association all over the world. CFP Board was founded in July 1985 as the International Board of Standards and Practices for Certified Financial Planners, Inc, (IBCFP) by the College for Financial Planning (College) and the Institute of Certified Financial Planners (ICFP). The IBCFP became Certified Financial Planner Board of Standards Inc.(CFP Board) on February 1, 1994. As a professional regulatory organization acting in the public interest by fostering professional standards in personal financial planning, CFP Board establishes and enforces education, examination, experience and ethics requirements for CFP® certificants. The CFP service mark is promoted all over the world through its member associations, the FPAs.
Another well-known certification mark with a unique history is the Fellow Chartered Financial Practitioner (FChFP), which is conferred by the Asia-Pacific Financial Services Association](APFinSA). The FChFP designation is the first known professional designation in financial planning that is completely developed in Asia and the programs leading to the designation is tailored to each country's need by local professionals and practitioners who writes these courses. It is also among the earliest to be vigorously promoted in this region. The FChFP designation was pioneered by the National Association of Malaysian Life Insurance and Financial Advisors (NAMLIFA) and was first launched on 31st May 1996 to its members in Malaysia as an 8-module financial planning programme. The FChFP was adopted by APFinSA in 2001 (of which NAMLIFA is a member) as the highest professional financial services designation amongst its member associations in 11 countries. This development effectively made the FChFP designation a regionally recognised designation in financial planning.
Through the Insurance and Financial Practitioners Association of Singapore (IFPAS), Singapore was the second country to successfully introduce the FChFP designation to its practitioners in 2003. It was during this time that the original letters of the designation 'ChFP' was modified to 'FChFP' to prevent the public from confusing it with the CFP mark. The FChFP designation has since spread to all over the Asia-Pacific region and is quick gaining strength in places like Hong Kong, China and Taiwan.
The Registered Financial Planner (RFP)designation is conferred by the Malaysian Financial Planning Council (MFPC)which was registered in 2004. (Note: The MFPC's RFP designation should be differentiated from the RFP designation conferred by the Registered Financial Planners Institute from the United States.) The Malaysian RFP designation and the MFPC was created through the collaborative work of the Life Insurance Association of Malaysia (LIAM), National Association of Malaysian Life Insurance and Financial Advisors(NAMLIFA) and Malaysian Insurance Institute (MII) who also become the founding members of the Association or Charter Promoter Organisations (ChPOs). Since then, other organisations such as the Malaysian Association of Chartered Financial Consultant (MAChFC) have joint the Association as a member.
The Personal Financial Specialist(PFS) credential was established for CPAs in the United States who specialize in personal financial planning. The credential is awarded exclusively to AICPA members who have demonstrated considerable experience and expertise in that area. As of today, the AICPA has granted approximately 3,300 CPA/PFS credentials.
In Australia, the financial planning specialisation, CPA (FPS), is available to those members of CPA Australia who can demonstrate their eligibility through experience and education within the financial services industry.
The objectives of the FPS designation is to:
- achieve public recognition for those who hold the specialisation enhance the quality of financial planning services that members provide
- increase practice development and career opportunities for CPAs
The FPS is only avail to CPAs and is based on a points system, where a minimum of 100 points must be accrued. It should be noted that while all CPA Australia members who provide financial product advice must be licensed by ASIC, it is not mandatory for a member to be licensed to first obtained the CPA (FPS) designation.
The Chartered Financial Consultant (ChFC) is another prestigious financial planning qualification, which is conferred by American College, USA).Since 1982, the ChFC has remained among the most extensive education available for professionals seeking a designation in financial planning. Todate, more than 41,000 individuals have attained this distinction. This designation has also spread to Asia, where designees are found in countries like Singapore, Malaysia, Indonesia, China and Hong Kong.
In Europe, the European Financial Planner (EFP) designation conferred by the European Financial Planning Association (EFPA) is gaining ground as a financial planning certification mark. The EFPA is the largest professional and educational organisation for financial planners and financial advisors in Europe and is the only Financial Planning Association created solely in the interest of european financial planning consumers and practitioners.
In one of the significant recent developments, several major financial services organisations with international/regional affiliations have grouped together to form the Federation of Financial Standards Associations(IFFSA). The organisations that originally initiated the IFFSA concept are the European Financial Planner EFPA and the Asia-Pacific Financial Services Association (APFinSA). It is expected that more organisations will join as associates of this new entity.
The rest of the certification qualifications related to financial planning include: Fellow, Financial Services Institute (conferred by LOM], USA); The highest known conditions set for conferment of a financial planning credential seems to be those of the CWM Chartered Wealth Manager (conferred by the AAFM) designation which requires an accredited MBA, PhD or CFA to apply (Note: This entry requirement is not uniform and only applies to some places where the AAFM operates).
[edit] Education
In America, more than 150,000 financial services professionals have earned advanced degrees and designations from The American College. Their leading financial planning programs include ChFC programme and courses leading to the CFP certification awarded by the CFP Board of Standards.
Another American organisation active in the promotion of financial planning courses is the International Association of Registered Financial Consultants(IARFC), which confers the Registered Financial Consultant (RFC) designation. The IARFC has introduced a financial planning self-study and examination process for Registered Financial Consultant applicants.
In Singapore, the Financial Planning Association of Singapore (FPAS) appoints educational providers to conduct tutorials for students interested in taking the CFP examinations. Two of its active education providers are Financial Perspectives and FTC. The Singapore College of Insurance(SCI) conducts localised courses leading to the ChFC designation which is awarded by The American College. Finally, the Insurance and Financial Practitioners Association of Singapore (IFPAS) uses the educational provider, Professional Education and Consultancy (PEC) to conduct tutorials for its FChFP students. These training companies, i.e. Financial Perspectives, FTC and PEC, also provide a host of other financial related trainings to the financial practitioners in Singapore.
As for Malaysia, the Financial Planning Association of Malaysia (FPAM) has active education providers such as IMS, IFPA, PNB, KDU and IBBM to conduct its CFP courses. The Malaysian Financial Planning Council (MFPC) also appoints education providers for its RFP courses. Some of them to date are MII, NAMLIFA, MIM-IMS, IBBM, OUM, Kolej Kasturi and Regent School of Economics. For the FChFP, the courses are conducted in-house by the National Association of Malaysian Life Insurance and Financial Advisors (NAMLIFA) and its branches throughout the country. Other Malaysian training providers active in supporting financial planning education in the non-designation domain include BrainStation Academy, AD Capital and Jon Wise.
Globally, cross-recognition agreements are being developed to facilitate the learning of financial planning. The 2 major accrediting agencies AACSB and ACBSP in the west, which accredit over 560 of the best business school programs, provides the Certification of MFP Master Financial Planner Professional from the American Academy of Financial Management, which is available to AACSB and ACBSP business school graduates with finance or financial services related concentrations.
