Protecting Your Practice. Vessenes Katherine

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      What about persons who do not practice financial planning but have the designation “Certified Financial Planner,” “Chartered Financial Consultant,” or “Personal Financial Planner” even if they are not actually in the business of planning? One might argue that any one of these titles makes them a financial planner in Maryland even though they are not actively in the business of doing planning. That is the interpretation made by Jacqueline H. Hallihan, President, and Robert Stirling, Associate, of National Regulatory Services, Inc.13 According to them, two states, Maryland and Washington, have gone further than the SEC and have stated that simply using the CFP licensee designation after one’s name is “holding one’s self out” as providing investment advice.14

      What are the laws in your state? It can make a big difference in how you practice your profession. Call or write your state departments of securities and insurance to request a copy of their statutes and rules on financial planners and advisers. Specifically ask them how they define financial planners and whether there are any special legal requirements. You might be surprised to discover how your state departments of securities or insurance define the term “financial planner.”

      GIVEN THE DISPARITY IN legal definitions of financial planners, it is not surprising that consumers are confused. As Bill E. Carter, President of Carter Financial Management, Inc., sums up the situation, “Many consumers cannot distinguish what it is that makes someone a financial planner as opposed to another type of financial services provider.”15 This confusion is not good for the profession.

      In an attempt to clarify these issues, the IAFP established this definition: “[t]he financial planning process involves assessing an individual’s current situation and setting financial and personal goals before implementing financial decisions. It includes identifying financial problems and providing a written plan. The final steps involve implementing the plan and periodically reviewing and revising it.”16

      The IAFP also holds “[a] financial adviser is a financial services professional who helps people achieve their financial goals based on their individual condition, resources and capabilities. IAFP encourages advisers to use the financial planning process.”17

      The CFP Board of Standards, on the other hand, defines financial planning as “[t]he process of determining whether and how an individual can meet life goals through the proper management of financial resources.” It defines the “financial planning process” as typically including, but not limited to, “the six elements of data gathering, goal setting, identification of financial issues, preparation of alternatives and recommendations, implementation of client decisions from among the alternatives, and periodic review and revision of the plan.”18

      NAIC takes a much broader approach and declares a financial planner is an individual who has competence and expertise in numerous financial products and their legal framework.19

      One of the things that made those old television shows so enjoyable was how challenging it was to choose the correct person. Although the challenge may be great fun for game shows, it is not much consolation to a financial planner who is trying to practice ethically and legally.

      It is sometimes extremely difficult for even experienced professional compliance officers to determine whether a person is a financial planner or a product salesperson. The following test has been created to help you determine your status. It utilizes a three-tier concept. The first tier consists of insurance agents and registered representatives who give product advice and are compensated by commissions. The second is comprised of investment advisers whose service goes beyond product information and includes ongoing portfolio management and advice. These people are typically compensated by charging a fee for assets under management, although some may charge an hourly rate or flat fee. They may also receive commissions on specific product recommendations. The final tier of service is provided by financial planners, who may be compensated by fees, commissions, or both. In addition to asset management, financial planners provide a detailed strategy for achieving financial goals.