Kitces is wrong about the CFP Board. Here's why

Michael Kitces is among the brightest minds and most prolific thought leaders for the financial planning profession, but his perennial endorsement of the CFP Board of Standards and his willingness to advance the board’s public misinformation campaign are decidedly enigmatic. This is most recently illustrated by Kitces’ puff piece for the CFP Board — “Will the CFP designation become a requirement?”, published by Financial Planning in December.

The piece begins with a case for the CFP designation becoming a requirement for all financial planners because there are currently no competency standards for the profession. He writes: “This low barrier for entry has meant that even licensed insurance sales people who technically can’t be paid for dispensing advice can call themselves advisors.”

On the surface, Kitces appears to have a legitimate point. It is true that there is currently no academic requirement for becoming an SEC-registered financial planner or investment advisor. However, as Kitces is well aware, all SEC-registered financial planners must provide a copy of SEC Form ADV Parts 2A and 2B (a.k.a. “The Customer Brochure”) to all prospective clients.

This plain-English document begins with a disclosure of the planner’s educational background and experience. If the planner has no formal academic training in finance, it will be immediately obvious to the reader. As a practical matter, the public disclosure requirements of SEC-registered financial planners actually create a barrier for would-be planners with no academic qualifications or professional training.

Scott Wenger

Paradoxically, professional designations, such as the CFP mark, offer a path to perceived credibility for those who have no related academic experience. As Kitces describes in his bio, this is exactly the path he took to obtaining his credibility after entering the financial services field as an insurance salesman with no prior academic experience. In fact, as he chronicled in a recent podcast on the history of financial planning, the CFP designation was specifically created to give insurance sales people a modicum of credibility for giving financial advice. He went on to say that for decades the CFP Board has gone out of its way to encourage non-SEC registered brokers and insurance agents to obtain and use the marks.

As such, it should not be terribly surprising that consumers express confusion over who is a real financial planner and who is not. In the words of Fi360 founder, Don Trone, “The [CFP] Board has done more harm to the fiduciary movement than any other organization.”

Despite its endorsement by the American College of Financial Services (formerly known as the American College of Life Underwriters), the CFP designation itself has no academic standing. Until 2008, no college degree was required to sit for the exam, and, even today, no prior academic background in finance or economics is required. Further, for all the criticism Kitces heaps on the SEC in his piece, non-SEC registered CFP’s have no requirement to disclose their education or work experience.

Additionally, while the CFP Board proclaims to be the “Highest Standard” for the financial planning profession, its self-defined “fiduciary standard” is far weaker than the SEC’s standard. Specifically, as presented in the CFP Board’s updates to its Code of Ethics and Standards of Conduct, which go into effect in October, there is no requirement for certificants to provide written disclosure of conflicts of interest. There is also no requirement for commission-based insurance agents and brokers to disclose the amounts or percentages of commissions they may receive.

As per Knut Rostad, president for the Institute for the Fiduciary Standard, the CFP Board’s new standards “fall very short of a real fiduciary standard. It’s not even a close call, given what is not required of CFPs.”

In contrast, the SEC’s fiduciary standard, as articulated in its publication Regulation of investment Advisers by the U.S. Securities and Exchange Commission, requires all financial planners to disclose all conflicts of interest in the Customer Brochure. The SEC’s standard also requires financial planners to make “full disclosure of material facts,” which includes specific disclosure of the amounts and forms of payment the planner may receive.

For all of the misperceptions that Kitces spins in his narrative, perhaps the most egregious is his suggestion that the CFP Board is somehow more qualified to handle enforcement than the SEC. As he states in the second paragraph: "… given the SEC’s lax enforcement of the Investment Advisers Act of 1940, there’s not a strong regulatory partner in this fight." The absurdity of this suggestion is demonstrated anecdotally in A Tale of Three Background Checks.

The CFP-certified advisor referenced in the graphic has five disclosure events, as revealed by FINRA BrokerCheck and SEC Investment Adviser Public Disclosure websites. These disclosures consist of three customer complaints resulting in settlements of $75,000 or more, a termination for cause from a different employer and a recent bankruptcy filing. For its part, the CFP Board of Standards Verification of Certification and Background check website effectively gives a ringing endorsement of this individual as a CFP in good standing with a completely clean conduct history and no bankruptcy filing.

The tagline from the CFP Boards’ widely syndicated, multi-million dollar “Can you tell the difference?” PR campaign states: “If they’re not a CFP Pro, you just don’t know. Find a Certified Financial Planner Professional who’s thoroughly vetted at LetsMakeAPlan.org. CFP® - Work with the Highest Standard.”

Per the example above, so much for “thoroughly vetted.” So much for “the highest standard.” Perhaps it is time for the financial planning community at large and the regulators to wake up to the self-serving, anti-consumer misinformation campaign that is being waged by the CFP Board and its acolytes, including Mr. Kitces.

For further reference, see also: Why the CFP Board Should Not Govern the Financial Planning Profession in Advisor Perspectives. This article applies much-needed fact-checking to the CFP's messaging and suggests the CFP Board itself is responsible for much of the consumer confusion over who provides objective financial planning advice and who does not.