More than 88,000 CFPs and thousands of financial advisors aiming to get the mark in the future have a new topic for study and continuing education: the psychology of financial planning.
The CFP Board added the category to its eight “principal knowledge topics” for 2021 — which govern CE credits effective immediately and will be assessed in the certification exam starting next year, the organization
With psychology in the mix, the organization moved education planning into the category for general financial planning principles. The CFP Board released
Advisors have been increasingly interested in the topic as part of the movement toward holistic planning and in reaction to difficult conversations such as a couple in conflict or a client upset by swings in the Dow or S&P 500, according to Sarah Stanley Fallaw, a psychologist who launched a behavioral assessment company called DataPoints in 2016.
“If they're really trying to understand their client beyond the demographic characteristics or the numbers coming in from whatever account, they're embracing it,” she says. Advisors often reach out to Fallaw’s firm in an effort “to understand what’s happening and to be able to guide them past those behavioral pitfalls,” she adds.
While behavioral finance may be the most familiar subject within the psychology realm to advisors, Fallaw selected “client and planner attitudes, values, biases” as the most important to understanding clients out of the six under the topic in the CFP Board’s new list. The other four are: Sources of money conflict, principles of counseling, general principles of effective communication and crisis events with severe consequences.
The list spans 70 areas across the eight general topics. Retirement savings and income planning receives the greatest weight on exams at 18%, followed by investment planning (17%), general (15%) and tax planning (14%). Besides education going into the general category, none of the seven other topics’ weight swung by more than two points since 2015.
Every five years, the CFP Board and a third-party research organization conduct a survey called the Practice Analysis Study in order to update the list of principal knowledge topics for planners. Although the CFP Board didn’t provide any results from its poll of 2,500 CFPs, its
“The Practice Analysis Study is an essential part of CFP Board's work to maintain the relevance of CFP certification and ensure that it reflects the current practice of financial planning,” CEO Kevin Keller said in a statement. The research also informed the organization’s “financial planning competency framework,” a wheel
The non-financial parts of the gig have been attracting further study in recent decades, as
Advisors can better serve clients with “even a base level of knowledge of how clients view money” and the biases on both sides of the relationship, according to Fallaw.
“We know that, even with the best financial plan in place or the best investment strategy, clients' personalities get in the way of how they think about spending, savings and investing,” Fallaw says, crediting the CFP Board’s for adding planning psychology to its principal knowledge topics. “I certainly feel like that's a good start.”
