Financial planners seeking formal certification will soon be tested not just on what they know — but on ethical questions and their ability to potentially communicate with clients.
Starting with the test that will be administered in March 2012, the Certified Financial Planner Board of Standards Inc. will focus on the regular tasks that planners perform, according to participants at the CFP Board directors' meeting in Washington on Aug. 13. The conference was devoted to the test's transition, which had been previously announced.
The CFP test currently consists of 285 questions, drawn from 89 topic areas. For 2012, the number of topics will be reduced to 78, with two new areas added — communication and ethics.
The goal is to ensure that people who earn the CFP certificate have a broad understanding of key concepts — such as asset allocation and portfolio diversification — and can use them practically when developing financial plans for clients. Many of these concepts have to be understood holistically, and applied in an integrated way to determine a client's risk tolerance, CFP officials noted.
Kevin Keller, chief executive of the CFP Board, said that the organization is not diluting the importance of understanding the basics; rather, he added, the Board is putting a premium on utilizing them. He drew a parallel to knowing the numerical value of Pi (3.14159) and then being able to use it to calculate the area of a circle.
“The topics will still be covered, but they'll be covered at a higher level,” Mr. Keller said.
The CFP Board, whose mission is to professionalize the planning sector, awards the CFP certificate to individuals who pass an initial exam and follow-up requirements. About 62,000 people have earned the CFP mark.
The total size of the planning sector is difficult to determine because anyone can declare himself or herself a planner. Estimates run from 150,000 to 300,000.
In promoting integration and synthesis for planners under its aegis, the CFP board is following an educational trend by placing an emphasis on critical thinking.
That orientation is illustrated in the financial plan development course, which has been added as a “capstone” to financial planning programs. The course will be part of the educational requirement for anyone sitting for the CFP exam after January 2012.
Professors from universities that teach financial planning said that students' ability to analyze and think critically is more important than technical skills when it comes to landing their first position in the planning profession.
In the summer of 2009, Texas Tech University surveyed 150 financial advisers on what they were looking for from new hires. Five non-technical competencies were among 12 rated as “very important.” They included communication, client interaction, critical thinking and organizational skills.
“These advisers want entry-level hires to have a basic understanding of the financial planning process, but most are comfortable providing higher-level education and experiences working in the firm,” a survey summary states. “Yet, they expect new staff to be able to communicate well and apply counseling principles right out of school.”
Vickie Hampton, a Texas Tech professor in the Division of Personal Financial Planning, said that colleges play an important role in meeting the growing need for planning professionals to help baby boomers who are winding down their careers.
“There is going to be a huge demand in an environment where there are a lot of retirements,” Ms. Hampton said. “We're trying to produce new financial planning graduates who become productive for their firms more quickly.”
At the University of Missouri, the effort involves experiential learning, according to Deanna Sharpe, an associate professor in the Department of Personal Financial Planning.
Missouri students are encouraged to participate in the school's Volunteer Income Tax Assistance initiative. The program, which is part of the Office for Financial Success, provides free tax services for residents of Columbia, Missouri, and the surrounding area.
The effort helps reinforce the principles of applying, analyzing, evaluating and creating emphasized in the Missouri curriculum. Performing hands-on planning tasks enhances the students' education, Ms. Sharpe said.
“It is the involvement that transforms the learner,” Ms. Sharpe said, referring to experiential learning concepts first outlined by the ancient Chinese philosopher Confucius.