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Dr. Somnath Basu Replies to the CFP® [Mis] Trust Controversy

24 Responses

1. Sam, on April 16, 2009 at 12:06 PM said:

   In my experience, far too many – if not most – CFPs® are more interested in gathering AUMs on a percentage fee-basis. If they had to make a living using the entire financial planning process; they would starve.

   The marks are a good theoretical idea – executed very poorly. And, lay off the bong: SEC, FINRA, BDs and CFP BoS. It seems as though outsiders like Drs. Basu and Marcinko, offer a great hybrid of academics and practicality. Good for them both.

   Keep up the good work, and investigative reporting, Ann and Hope, as well. Give em’ all hell.

   Samuel

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2. Christine, on April 16, 2009 at 12:20 PM said:

   The few CFPs that are solid, honest and well rounded practitioners are usually excellent; with experiences and degrees beyond the basic CFP courses and entry level test. And those who are marginal – are usually abysmal. Unfortunately; the later stand-out more than the former … and are numerically superior. Thus, the problem is low expectations and even lower bar-settings for the macho sales ennui of Wall Street.

   For example, RIAs are outnumbers by BDs more than 100 to 1; regardless of certification designations, or the lack thereof. So, forget about the “F” word. Who will pay for ads in the trade magazines without the BDs?

   Once the market rebounds, see ya later; “F” reformers!

   Christine

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3. Ward, on April 16, 2009 at 12:28 PM said:

   Dear Dr. Marcinko, Dr. Basu, and the SEC and FINRA,

   I got my Series #7, #63 and #65 licenses one Saturday morning. I then “earned” all insurance licenses, including variable life and annuity, on another Saturday morning. Of course, the CFP® test did require an entire day.

   The above all sound pretty tough; right?

   Ward

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4. Donna, on April 16, 2009 at 10:29 PM said:

   Dr. Basu,

   Many thanks for your insights and frank opinions. I also appreciate the Medical Executive-Post for giving your words a voice. We understand the ME-P has not capitulated to some considerable pressure to censor, elsewhere.

   Donna

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5. Somnath Basu, on April 18, 2009 at 8:37 PM said:

   A recent Study in Europe on the efficacy of financial advisors

   Financial Advisors: A Case of Babysitters?

   Abstract:

   We merge administrative information from a large German discount brokerage firm with regional data to examine if financial advisors improve portfolio performance. Our data track accounts of 32,751 randomly selected individual customers over 66 months and allow direct comparison of performance across self-managed accounts and accounts run by, or in consultation with, independent financial advisors.

   In contrast to the picture painted by simple descriptive statistics, econometric analysis that corrects for the endogeneity of the choice of having a financial advisor suggests that advisors are associated with lower total and excess account returns, higher portfolio risk and probabilities of losses, and higher trading frequency and portfolio turnover relative to what account owners of given characteristics tend to achieve on their own. Regression analysis of who uses an IFA suggests that IFAs are matched with richer, older investors rather than with poorer, younger ones.

   Andreas Hackethal
   Goethe University Frankfurt – Department of Finance; European Business School – Finance Department

   Michael Haliassos
   Goethe University Frankfurt – Economics and Business Administration Area; Goethe University Frankfurt – Center for Financial Studies; CEPR

   Tullio Jappelli
   University of Naples Federico II – Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Center for Studies in Economics and Finance – CSEF

   March 15, 2009
   Keywords: Financial advice, portfolio choice, household finance
   JEL Classifications: G1, E2, D8
   Working Paper Series

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6. Disgruntled Advisor, on April 19, 2009 at 1:59 AM said:

   Dr. Basu,

   I enjoy your musings.

   The CFP BoS spends far more time looking at advertisements, brochures and websites to protect its precious “mark”, than it does policing its members. Don’t you think?

   Rather, it should examine how some of them are ripping off the public, instead. After all, marks don’t hurt people, financial advisors and CFPs hurt people.

   A Disgruntled Advisor

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7. Another Disgruntled CFP®, on April 19, 2009 at 2:06 AM said:

   Dr. Basu,

   I agree with you, and disgruntled above,

   And, the Board’s technical word smithing about using the CFP marks as a noun and/or verb; is BS too. The BoS is not a financial planning society at all; it is a registered-trademark outsourcing legal firm. Marketing – pure and simple.

   Morons join groups and unions, etc. Thinkers, leaders and those with something of value to offer society, need not.

   Another Disgruntled CFP®®®

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8. Somnath Basu, on April 21, 2009 at 6:03 PM said:

   Tx to the disgruntled. Among the many supportive letters I received, the extract from this one, I thought deserves special attention:

   Somnath,

   I just read your response in the FA update, and I agree completely with your assessment … I like your recommendations for the continuing education requirements of real college courses. The field of financial planning is difficult, when attempting to do it well. I think we can’t really prepare enough if we are going to have the nerve to manage someone else’s life savings.

   Dr. B

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9. Walker, on April 22, 2009 at 12:28 PM said:

   Br. Basu,

   I earned a Bachelor’s degree in biology, and Master’s Degree in economics and marketing from a Jesuit University. I am not a PhD. I passed the CFP® test, and all appropriate state, general securities and insurance licenses. Along the way, I obtained several state teaching certifications and licenses.

   My prior industry assignments include working as a financial planner and RIA representative for a decade. While seeing the huge earnings potential, the selling and sales culture was not for me. More recent academic assignments include teaching graduate level health economics, finance and healthcare administration courses at private universities and business schools; thus establishing modest hybrid credentials in the “real world” and “academia.”

   Unfortunately, much like my onground teaching certifications – and the online [distance] education programs that are all the rage today – the poorly designed CFP® test is not a rigorous “credential”. And, it is not difficult to pass for those accustomed to test-taking, and with marginal psychometric skills. In fact, the entire process hardly approaches the level of real “education”, in my opinion. And, the financial services industry – is not a profession at all – it is a labor sector.

   So – the logical question should really be – “what exactly is the CFP® mark”; if it is not a degree, or a rigorous credential? In other worlds, how shall we define it?

   Now, consider that the word “educate” is derived from the Latin root – ēducātus – [to bring forth anew]. With true education, we progress from memorizing rote facts from the teacher (pedagogy) – to manipulating, integrating and using them ourselves [heutagogy] – and finally teaching and learning from similar others [andragogy] in a collaborative and challenging fashion. We progress from the “known” to the “unknown” – enabled by this giant leap called education. We think and critically analyze. Some call this enlightenment – an epiphany – “then came the dawn” – or the realization of subject mastery. Others; simply call it education.

   Given this set of assumptions, the CFP® certification is not education in any didactic sense of the term. Rather, it is a registered mark for the documentation of a successful consultative sales training experience. And, as trained [not educated] representatives, this is precisely why BDs, OSJs, the SEC and FINRA, etc., are supposed to monitor FAs, and even the CFPs closely. Note the RIA or fiduciary sector is a tiny minority overall; and dominated by the BDs.

   Like any intellectual property asset – the CFP® mark is a widely advertised and promoted logo. It is ideally suited for the goal of selling financial products, gathering assets and related marketing endeavors. And, like any successful marketing campaign, perceptions have become the reality. However, the CFP is called a “mark” because that’s what it is. It is not a degree, not a rigorous credential, and does not represent true-education by any means.

   The CFP® mark is the logo of a trained financial services industry sales representative. More debate is not needed. Fewer opinions and much more education is needed.

   Many thanks for your courage Dr. Basu.

   Respectfully,
   Walker

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10. Ann, on April 22, 2009 at 1:10 PM said:

    Walker,

    I “shake my fist” at you for your eloquence and insight. Well done.

    Ann
    [Executive Director]

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11. Jordan, on April 22, 2009 at 1:29 PM said:

    Look what others from “Financial Advisor” online magazine are saying about this topic, and rather inarticulately, on the blogosphere.

    • http://www.fa-mag.com/online-extras/4064-weighing-the-cfp-mark-the-debate-continues.html

    • http://www.fa-mag.com/online-extras/4044-in-defense-of-the-cfp-mark.html

    • http://www.fa-mag.com/online-extras/4037-revisiting-cfp-credentialing.html

    At first, I laughed at their poor grammar, punctuation, spelling and debating skills; now, I just feel sad for them.

    Jordan

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12. Anonymous, on April 22, 2009 at 1:35 PM said:

    Why do you think the CFP BoS calls it … a MARK?
    Anonymous

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13. Jeff, on April 22, 2009 at 1:36 PM said:

    Mark of SHAME, for most, IMHO.
    Jeff

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14. Dick, on April 22, 2009 at 1:39 PM said:

    Dr. Marcinko and Basu,

    Thanks for sponsoring this platform and the intellectual repartee it encourages. And Jordan, I agree with you.

    Now, have you ever noticed how some recently laid-off FAs and CFPs are suing their BDs for “overtime”; so much for so-called professionals and the “independent business” men/women they purport to be? Employees all, with duty to their BD masters.

    The lawyers are salivating, too.

    Richard

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15. Bill, on April 22, 2009 at 1:49 PM said:

    Please stop denigrating my Certified Financial Planner® certification; immediately. It is the “gold standard”, for the business.

    William

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16. Sam, on April 22, 2009 at 2:16 PM said:

    Greetings Bill,

    Well argued. You are helpful, informative and articulate; and an excellent example of the modern FA and CFP® mark holder. Thanks for the confirmation of same.

    Sam

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17. Harrison, on April 29, 2009 at 8:14 PM said:

    Dr. Basu,

    Did you hear what’s happening with some mutual funds, and other “financial advisors” with AUMs. It seems as though those pesky fund fees, and assets-under-management fees, are increasing. So, if the market goes up, the FA wins; and if the market goes down, the FA wins again

    It sounds much like Citigroup’s bonus plan to me; pay for performance; and pay for retention. Isn’t SALES grand?

    And so, it seems that you, Dr. Marcinko and the others are more correct about the financial services sector; than not.

    Pity!
    Harrison

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18. Walker, on April 29, 2009 at 10:55 PM said:

    Harrison

    Good point, above. I am aware of same all over the industry.

    If the above happened to me, I would change funds and charlatan advisors, immediately. Obviously, all that marketing crap about “being on the same side of the table as the client”, is trash.

    For taxable accounts, changing the advisor is easier than funds, since there might be adverse tax consequences. This might not be so much of a problem in this current environment; so see your CPA.

    Of course, that’s why I use ETFs and Vanguard indices. Fees matter!

    Walker

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19. Montgomery, on May 2, 2009 at 2:04 AM said:

    On the Certified Financial Planner® marks

    Q: What would Ricky Ricardo say if Lucy held the CFP® certification marks, today?

    A: “Lucy … you’ve got some ‘splainen’ to do.”

    Monty

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20. Jones, on May 17, 2009 at 5:39 PM said:

    Monty, Walker, Harrison and William, etc.

    I am a CFP® mark holder [is “certificant” actually a word in the English language?] and have been in the planning business for twenty years. But, I am relatively new to this blog and may have missed something. Nevertheless, Dr. Marcinko and Dr. Basu are correct about the CFP® marks.

    The CFP® trade mark is voluntary and the CFP BoS has no power or authority to fine or censor an errant planner or to permanently remove an inept or dishonest one from the field. And, so-called “professional regulation” by means of trademark and intellectual property law is unique, yet pretty much meaningless to this non-professional sales field.

    Academics like Dr. Basu, and pundits like the logical Dr. Marcinko, provide a valuable reflection that we as a community should fully consider. Their opinions do not sound like condemnations of the marks, or CFP Board, at all to me.

    Rather, consider their observations as ‘opportunities” to improve. And, as the Wall Street collapse in 2009 demonstrates, there is so very much room for same in the retail financial product and services sales sector.

    The CFP® mark is just plain marketing hype; pure and simple. We know it, and the public knows it. Stop pretending otherwise.

    Jones

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21. Morris, on June 11, 2009 at 11:25 AM said:

    Why Vet Financial Advisors?

    Have you ever had a gut feeling that something was just not right? Well, we’ve heard many people claim to have great gut instincts that they use it to guide their decisions. But, even though trusting your own instincts is a great quality, it might not be enough to spot an experienced fraudster.

    Read what Mitch Gitter has to say about financial advisor charlatans in Financial Advisor magazine, online edition

    Link: http://www.fa-mag.com/advice/private-wealth/4230-why-investigate.html

    Enjoy; or not!
    Morris

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22. Hope, on October 7, 2009 at 3:24 PM said:

    Beware the “Up-Sell”

    Medical professionals and all clients should realize that financial planning alone is not usually profitable for advisors. They need to manage money for a percentage of assets, or sell products for a commission, to make a living. The former is like an annuity, as the money rolls in every quarter for little actual additional work. And, sales must be made every time.

    So, know that FAs prefer the former model, much more than the later.

    But regardless, beware the “up-sell” and “cross-sell”.
    True financial planners – not salesmen – are a rare and valuable breed.

    Hope Hetico; RN, MHA
    [Managing-Editor]

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23. Craig, on January 6, 2010 at 4:22 PM said:

    The “F” Word,

    In the view of many; attorneys, doctors, CPAs and the clergy are pro-typical fiduciaries, as are contemporary Certified Medical Planners [CMP™]. They have a clear duty to put the best interests of their clients, patients, congregation, etc., above their own; and to disclose conflicts of interest, etc.

    Too many others who retain this title function as poseurs. And, the stock market collapse, home mortgage and real estate fiascos this decade, all highlight the lack of general accounting, financial, business and advisory oversight of Wall Street, and the SEC, NASD/FINRA related private and government monitoring agencies.

    This includes healthcare consultants too, so beware.

    Craig

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24. Cord, on August 24, 2013 at 11:57 AM said:

    CFP Board & NAPFA Split on ‘Fee-Only’ Definition

    Two of the most influential organizations in the world of independent planners, the CFP Board and NAPFA, do not agree on the definition of one of the most hot-button terms in the profession: fee-only.

    http://www.financial-planning.com/news/cfp-board-napfa-split-on-fee-only-definition-2686250-1.html?ET=financialplanning:e14572:86235a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=FP_Daily__082213

    Maybe they should look in your dictionaries for same; or use common sense.
    A profession? … I think not!
    Salesman; all.

    Cord

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