The Profession of Fee-Only Financial Planning
The independent profession of Fee-Only Personal Financial Planning grew out of the frustration of consumers who wanted to take control of their financial lives and could not find an objective advisor to guide them or a reliable source of education for themselves. These are every individual’s most basic concerns when they think about creating a secure financial future for themselves.
John E. Sestina, CFP®, ChFC, started to change that in the early 1970s when he began to offer financial planning on a fee-for-service basis, much the same way your physician or attorney charges. He believed that tailoring the advice to the needs of the client—not advice based on the commissions paid on the sale of financial products—would become the wave of the future. In 1982, Sestina and two other visionaries founded the National Association of Personal Financial Advisors (NAPFA) to support other professionals who wanted to put clients first and to serve as a hub for consumer financial education.
The NAPFA website gives you complete details on what Fee-Only means in action, why comprehensive planning holds the greatest benefits for you, how Fee-Only planners charge, and how to find a NAPFA member near you. With the turbulence in today’s financial markets, NAPFA also offers a generic sequence of what to do when financial disaster strikes with "Getting a Handle On Your Financial Matters During Life’s Tough Times."
The People in Fee-Only Financial Planning
Fee-Only Personal Financial Planning is the fastest-growing segment of the entire financial services industry right now. This profession has grown enormously in the past few years purely by giving consumers peace of mind through advice they can trust.
As you might expect, there are a lot of people calling themselves Fee-Only planners purely because that’s what consumers demand. The National Association of Personal Financial Advisors (NAPFA), one of my professional associations, understands this. To help consumers sort through all the confusing terminology, they published Don't Get Burned by the Financial Planner "Name Game" on their website.
The alphabet soup of professional designations and organizations can also get pretty confusing. I have compiled The ABC's of Financial Planning to help you get a better handle on who’s who and how they earned it.
The ABC's of Financial Planning
CFA: Chartered Financial Analyst. This prestigious credential is most frequently held by institutional money managers and stock analysts. It is issued by the Association for Investment Management and Research in Charlottesville, Virginia, after several years of appropriate work experience and rigorous testing. Phone: 800-247-8132 or 804-951-5499
CFP®: CERTIFIED FINANCIAL PLANNERTM. Founded in 1985, the CFP Board confers the designation on applicants who complete a ten-hour examination on course work completed at the College for Financial Planning and agree to abide by its code of ethics. An indicator that one is committed to the profession, there are more than 32,000 CFPs in the U.S. and 13 countries around the world. Phone: 303-830-7500.
ChFC: Chartered Financial Consultant. Designation earned from the American College in Bryn Mawr, Pennsylvania, that includes meeting all the requirements for the CLU designation plus taking three additional specialized courses. Since its inception in 1982, more than 32,000 men and women have met the educational, experience, and ethics mandates needed to earn the ChFC designation. Phone: 888-263-7265 or 610-526-1490.
CLU: Chartered Life Underwriter. Since the first examinations were held in 1928, more than 85,000 have earned this designation conferred by the American College in Bryn Mawr, Pennsylvania. Held most often by life insurance agents, CLUs must have three years of experience in the field, complete ten college-level courses, and sign a code of ethics. Phone: 888- 263-7265 or 610-526-1490
CPA: Certified Public Accountant. To earn the CPA designation, candidates must pass an extensive and rigorous examination administered by the American Institute of Certified Public Accountants (AICPA) and receive approval from accountancy boards at the state level. Headquartered in New York City, AICPA has more than 330,000 member CPAs. Phone: 212-596- 6200
Enrolled Agent: An EA has passed a test on tax law and is entitled to practice before the Internal Revenue Service (IRS). This designation does not indicate special proficiency in the area of financial planning.
FPA: Financial Planning Association, formed in January 2000 from the merger of the Institute of Certified Financial Planners (ICFP) and the International Association of Financial Planners (IAFP). Members include "individuals and companies who have contributed to building the financial planning profession and all those who champion the financial planning process." Phone: 800-322-4237.
MBA: Master of Business Administration. This graduate level degree usually indicates that its holder has significant background in finance. NAPFA: National Association of Personal Financial Advisors. Located in Buffalo Grove, Illinois, NAPFA is the largest association of Fee-Only Financial Planners (approximately 600 members) and has trademarked the term Fee-Only™. NAPFA was founded in 1982 on the idea that planning services coupled with commission sales constitutes a built-in conflict of interest that does not serve consumers. Phone: 888-333-6659 (FEE- ONLY).
PFS: Personal Financial Specialist. This designation is issued by the American Institute of Certified Public Accountants (AICPA) to members who pass an examination and have professional expertise in personal finance. It is not necessary to by a state-licensed CPA to earn the PFS credential. Phone: 212-596-6200
Registered Representative: This designation is held by a stockbroker who has passed a series of exams given under the authority of the National Association of Securities Dealers (NASD). The examination does not have a specific financial planning component.
RIA: Registered Investment Adviser. Not strictly a credential, one becomes an RIA by submitting specified filings with the U.S. Securities and Exchange Commission (SEC).
When you enter the process Fee-Only Financial Planning goes further to guarantee your rights to fair treatment than any other approach.
Bill of Rights for Consumers of Financial Services
As a consumer of financial services, you have the right:
- To know and understand exactly what services you can expect to receive and how they can benefit you.
- To know how the financial professional is compensated for his/her services.
- To know and understand the true costs of all services so you can make informed choices.
- To know the advisor's education, experience and professional credentials.
- To be informed about any potential conflicts of interest or disciplinary concerns.
- To know whether the professional is in compliance with state and federal regulations.
-- John E. Sestina, CFP®, ChFC
Father of Fee-Only Financial Planning, 1993