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TravelerMSY just asked about CFA presence at FWF. I am curious about Certified Financial Planner presence here, and am hoping others are also.

For those interested but unfamiliar, the steps for becoming certified as a CFP are as follows:

education (at least a bachelor's degree, plus prescribed course work or its equivalent)
exam (passing the CFP examination)
experience (2-3 years equivalent in an appropriate line of work) and
ethics (passing background checks, agreeing to a code of ethics, et cetera).

Application fees ($125) and annual dues ($325) are fairly modest.

Questions for CFPs out there (would appreciate your thoughts on any and all of these):


How did you get certified? Specifically:

How difficult did you find the exam?
Did you take courses to prepare for it, and if so how helpful were they?
What study/preparation materials did you find the most valuable?
What materials were most helpful in being a good planner, and were they the same ones?
How did you fulfill the experience requirement? Was your stated experience readily accepted?


How helpful has the credential been for you? In particular:

Has it been of great help in soliciting new clients?
How useful was it in searching for employment?
Have other credentials proven more useful?


How happy have you been practicing in the field?

Would you recommend it to others interested in giving financial advice?
Do you feel like the field is changing rapidly, and if so for better or for worse?
How difficult is it to find a profitable, satisfying profession in this field?


TIA for your replies. Will be very interested in hearing the FWF communities' thoughts on all this!

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Dubvalley, thanks for chiming in.

Edit: dshibb just noticed what I didn't, you're talking about CFA certification, which ... (more)

DaveHanson (Jul. 26, 2013 @ 12:55p) |

Dave CFP vs. CFA...

dshibb (Jul. 26, 2013 @ 3:56p) |

Whoops, thanks dshibb...missed that.

DaveHanson (Jul. 26, 2013 @ 3:57p) |

Thanks for visiting FatWallet.com. Join for free to remove this ad.

I'm in the early stages of working on it. I have 10+ years experience in the financial services industry. My undergraduate degree is from a CFP accredited program--meaning it satisfies all of the coursework requirements (a bachelor's degree alone is not enough), you have to complete coursework in the following topics:

General principles of financial planning
Insurance planning
Investment planning
Income tax planning
Retirement planning
Estate planning
Interpersonal communication
Professional conduct and fiduciary responsibility
Financial plan development (capstone) course

The capstone requirement is new (as of 2012), and not something that I completed as a part of my undergraduate degree program. In order to sit for the exam, I will have to request a transcript review from the CFP board.

I have a couple of friends who have taken, and passed the exam, and it is no cake walk...which is good because if it were easy, everyone would do it and the value would be diminished.

As to your questions about attracting clients, I work with 2 CFPs and it definitely adds credibility and enhances the ability to attract higher net worth clients. All else being equal, having a CFP certainly gives you an edge over others without it. On the other hand, the phones aren't ringing because of the CFP designation--very rarely have clients/prospects active sought our services because they searched & found our firm as being headed by 2 CFPs.

Thanks for taking the time to reply, raringvt, very interesting.

raringvt said:   (a bachelor's degree alone is not enough), you have to complete coursework in the following topics:

General principles of financial planning
Insurance planning
Investment planning
Income tax planning
Retirement planning
Estate planning
Interpersonal communication
Professional conduct and fiduciary responsibility
Financial plan development (capstone) course

The capstone requirement is new (as of 2012), and not something that I completed as a part of my undergraduate degree program. In order to sit for the exam, I will have to request a transcript review from the CFP board.


Thank you for the clarification.
I have a couple of friends who have taken, and passed the exam, and it is no cake walk...which is good because if it were easy, everyone would do it and the value would be diminished.
Agree completely. I'd only add that I hope the exam focuses on areas of concrete value to practitioners. I'm familiar with the widely decried gaps between legal education (both law school and the bar exam) and what practicing lawyers need to know to help their clients.

All else being equal, having a CFP certainly gives you an edge over others without it. On the other hand, the phones aren't ringing because of the CFP designation--very rarely have clients/prospects active sought our services because they searched & found our firm as being headed by 2 CFPs.That makes sense to me.

My guess is that a CFP, or something similar, might be considered by many clients to be a necessary qualification, but far from sufficient to win their business.

I am a CFP (tm) Professional and am so glad I dedicated the time and money to accomplish this years ago. It took over a year and a half of coursework/study to be ready to take the exam and I had almost a decade of experience at the time. My answers may be shorter than I would like because I also have a pile of tax returns to complete today and am short on time, but I can elaborate or answer any private messages if requested.

I got certified by following the Boston University program after college and about 9 years of experience as a financial planner (it all counted toward the experience requirement). After completing the educational courses I had to travel out of state for a 2 day comprehensive exam. There was a gentleman at the test that was taking it for the 7th time (at $495 per try). It is a all or nothing test meaning you have to pass all of it, you can not just take/pass part of it and come back and take the part you failed. You had to pass all the coursework before you could take the test and it had a 51-52% pass rate (only about 51-2% of qualified to take the test actually passed, but that number has gone up).

The total costs just for study/books/test were over $5,000 back in 2007 and have gone up.
I believe renewal fees are about $365 every 2 years. There are also organizations that many designees join that run a couple dollars a year each.

Having the designation helps with credibility and marketing, but is more of an item that helps to differentiate me from all the others financial advisors/planners/consultants out there. It also increased my knowledge base to be able to more effective assist and communicate with my clients.

Also there is a 30 hour CE requirement every 2 years because there is constant change in the field. I feel the change is good, but it presents constant pressure to keep up with new tax/estate laws and relay relevant information on to clients and change/implement strategies accordingly. Technology is changing the field also for the better with new tools/apps/software. These tools/information also allows more investors/individuals to have information/calculators/tools where they can put together their own financial plans and manage their own investments more effectively than in the past.

Overall the CFP (tm) designation is a costly, difficult designation to get, but can have a high return on investment for someone that is serious about this career and wanting to gain knowledge in order to help people. I'm self employed, so I can not speak on the whether the designation helped me get/maintain a job, but I value the designation so highly that I offer to pay the costs for my advisors in my office to get the CFP (tm)designation. I know that there are good advisors/planners that do not have the designation, but when a client interviews me I try to educate them about the designation and encourage them to work with a CFP (tm) professional. None of my other licenses/credential/awards are as helpful as this designation. It was by far the hardest to get and the most valuable item out of my professional qualifications.

There were a lot of questions that I may not have answered completely, but am happy to answer/PM with anyone that has specific CFP(tm) related questions. Thank you.

As someone overqualified to give investment advice, I could never get the math to work out as a business. Credentials aside, I think you need to be able to raise a huge amount of assets and that marketing is probably the single most necessary requirement. $100M AUM charging 1% fees is only $1M gross before all your costs, staff, office, etc. that seems very far fetched in my book, which is why I didn't bother to try for this credential despite having several offers from potential customers.

Thank you scurlock33,

scurlock33 said:    It also increased my knowledge base to be able to more effective assist and communicate with my clients.Would you elaborate on this please? What specifically did you find most helpful in the CFP curriculum/exam prep?

None of my other licenses/credential/awards are as helpful as this designation. It was by far the hardest to get and the most valuable item out of my professional qualifications. I've heard this from other FP's I respect. Thanks for confirming that.

xerty said:   As someone overqualified to give investment advice, I could never get the math to work out as a business. Credentials aside, I think you need to be able to raise a huge amount of assets and that marketing is probably the single most necessary requirement. $100M AUM charging 1% fees is only $1M gross before all your costs, staff, office, etc. that seems very far fetched in my book, which is why I didn't bother to try for this credential despite having several offers from potential customers.

Genuinely curious about what insanely high costs you're thinking of. They don't represent that much costs. Much lower than most small businesses.

A) Most marketing campaigns(assuming you're referring to mailer or advertising) is a complete waste of money.
B) If somehow you succeeded at building a book through those methods you wouldn't have to continue engaging in that marketing any more.

dshibb said:   Genuinely curious about what insanely high costs you're thinking of. They don't represent that much costs. Much lower than most small businesses.
I'm with dshibb on this, xerty. Suppose you have just ten clients, with AVG net worth of $5 million, and assets invested with you of $3 million. At 1% in average fees, you're looking at $300,000 gross revenue, and a workload easily handled by yourself and one secretary. If you work hard and are good at what you do, those numbers should increase over time.

The key is offering an attractive package to high net worth individuals, who are of course targeted by every player in the finance industry.


Also, note that being a highly qualified trader is very different from being a financial planner. The latter is part counselor, confidant, sounding board, et cetera...a much more generalist skill set than a broker or trader.

Before choosing to focus solely on insurance, I had a complete financial planning* practice. I was not a CFP. At one point, I was going to get one. Why? People were asking if I was a CFP. Why didn't I get it? People stopped asking if I was a CFP.

The knowledge of a CFP is important to have, but keep in mind that it is truly only a beginner's level of knowledge. To me, the CFP wasn't about the knowledge since I had the necessary knowledge. It was a question of what a CFP would do for me. It was truly just about the letters. I decided that in my case it was close to useless. What does having those letters allow one to do? Nothing. CFP, the letters as opposed to the knowledge, seems to me more about how one markets their practice as opposed to anything else.

*"Financial Planning" means whatever a person wants it to mean.

BrodyInsurance said:   Before choosing to focus solely on insurance, I had a complete financial planning* practice. I was not a CFP. At one point, I was going to get one. Why? People were asking if I was a CFP. Why didn't I get it? People stopped asking if I was a CFP.Why do you think they stopped, Brody?

Would be interested to hear why you chose to "focus solely on insurance", if you're willing to share.

No doubt CFP designation is a marketing tool. I would hope that barriers to entry required to get it would tend to add more value to a financial planner's practice than, say, law school or the bar exam would to a typical lawyer's practice. But perhaps that isn't true.

It is interesting that having ever been a licensed lawyer, or having a PhD in econ or business, is sufficient to waive out of the education requirement entirely.

DaveHanson said:   note that being a highly qualified trader is very different from being a financial planner. The latter is part counselor, confidant, sounding board, et cetera...a much more generalist skill set than a broker or trader.
Sure, I understand that. I guess it depends on what value added you see yourself providing - investment selection, tax planning, handholding, etc. You do have to recommend or chose investments for them, as well get them comfortable with them. If a crash like 2002 or 2008 comes along, you've got to try to keep them happy when both their AUM and yours just dropped by 1/3 or more.

I think at the end of the day the reason I decided I wasn't really interested, aside from the business model (I'd rather raise AUM at 2&20 not, 1% flat), was that it seemed like most of the people who need your help aren't going to understand its correctness (or they could do it themselves). Consequently keeping them seemed like more of a psychological game rather than an exercise in offering superior value for money. Maybe that's just my weird perspectives.

No doubt CFP designation is a marketing tool. I would hope that barriers to entry required to get it would tend to add more value to a financial planner's practice than, say, law school or the bar exam would to a typical lawyer's practice

What barriers? All you need is a bachelor's degree (in anything). CFP's are a dime a dozen.

That's not to suggest that the exam and the handful of required course are necessarily not challenging, but it certainly can't be realistically compared to a graduate degree in law.

Why do you want to get CFP, and not, for example, the ChFC?

http://www.investopedia.com/articles/professionaleducation/08/cf...


As far as I know, no designation allows you to sell products with the designation alone, there are other specific licenses depending on the types of products you are selling.

tjguitar85 said:   That's not to suggest that the exam and the handful of required course are necessarily not challenging, but it certainly can't be realistically compared to a graduate degree in law.Respectfully, you're missing the comparison, tjguitar85. I'm not suggesting that CFP designation is more challenging than getting a law degree, much less joining the bar.

My point was about how much value the required work provides the financial planner. My own experience, including as professor for law students and spouse to a licensed lawyer with a top-five law degree, is that precious little of the prep work a lawyer must do to get credentialed is helpful in teaching them to practice law.

I don't know as much about how valuable a CFP's training is to their work, and am curious what others what more knowledge think.

Why do you want to get CFP, and not, for example, the ChFC?I'm not seeking either credential. I'm just trying to learn more about them, and figured FWF members might provide some interesting perspectives on this.

I would be interested to hear more about why you favor the ChFC over a CFP.

I don't favor either. I imagine that I would only get either designation for marketing purposes only.


I would imagine that if you want to manage people's money professionally, you have to 'prove' why you should be qualified to do that. Maybe a designation helps with that, maybe it doesn't. It seems that a designation would help.


However, If I were able to develop a client base through word of mouth of existing contacts, I probably wouldn't bother with a designation. Most of the education is available without being 'certified'.

I view CFP's about the same as realtors. The only value they provide is for the insanely stupid/lazy. Both professions seem to be the "fall to" professions when you can't find work. I am sure there are good CFP's in the field but if you are using the same online tools that I can get for free, what value are you?

tjguitar85 said:   It seems that a designation would help....

However, If I were able to develop a client base through word of mouth of existing contacts, I probably wouldn't bother with a designation. Most of the education is available without being 'certified'.


Most of the "top 1%" folks I work with and know socially--especially doctors and other "professionals" in private practice (versus, say, business executives or finance guys)--seem more comfortable with the idea of trusting their money to someone who has certain credentials, in addition to great word-of-mouth (which I agree is an absolute must). The credential addresses their "due diligence", even though word-of-mouth/reputation generally seals the deal.

My experience may be unrepresentative, however. Would love to hear agreement or disagreement on this point from financial advisers.

Dave, I agree. My point was why should the average joe want to use a cfp more than a chfc or some other designation? Do most people even know the difference?

In my opinion, the cfp seems very basic, but I havent a clue if a different designation would be any more useful.

Good question tj.

My sense is that CFP is the most salient among the alphabet soup of financial planner credentials out there. But I certainly have no firm grasp of how much difference it makes compared to other designations. Was interesting to hear scurlock33 above call it "by far the most valuable" of his credentials (although we don't know what others he may have).

DaveHanson said:   BrodyInsurance said:   Before choosing to focus solely on insurance, I had a complete financial planning* practice. I was not a CFP. At one point, I was going to get one. Why? People were asking if I was a CFP. Why didn't I get it? People stopped asking if I was a CFP.Why do you think they stopped, Brody?

Would be interested to hear why you chose to "focus solely on insurance", if you're willing to share.

No doubt CFP designation is a marketing tool. I would hope that barriers to entry required to get it would tend to add more value to a financial planner's practice than, say, law school or the bar exam would to a typical lawyer's practice. But perhaps that isn't true.

It is interesting that having ever been a licensed lawyer, or having a PhD in econ or business, is sufficient to waive out of the education requirement entirely.


Financial planning is incredibly easy and the same for 99% of the people. There are a handful of basics that everybody needs and until those are handled, their financial goals are pretty meaningless. Therefore, the basic advice is the same for most people.

There is almost no money to be made in "financial planning"*. I know of nobody who makes a good living doing financial planning. All of the money is made in "financial plan implementation"**. On the investment side of the equation, money can only be made from people with fairly substantial assets. On the insurance side, money can be made with anyone who has a decent cash flow.

Ex. "Jim" is 27 year old attorney making $100,000. His financial planning will take about 30 seconds. He is a waste of time as an investment client because it will be many years until he has substantial assets. On the other hand, I can easily make $1,000 on his insurance needs while doing the very best for him along with many easy sales in the future.

After close to 20 years, I went to a straight insurance practice primarily as a business decision. 1)I didn't want to work with only high net worth people. 2)It is in insurance in which my expertise allows me to confidently know that working with me is always the right decision for the client. I couldn't say that I could do better for someone with their investments, but I could/can do it with insurance.

"Financial Planners" and "CFPs" and "wealth managers" are a dime a dozen. How many people out there solely claim to be insurance agents (not P&C)? Even those who are insurance agents try to hide this fact under some other guise. I am trying to be the go to guy for life and disability insurance.

I think that they probably stopped asking about the CFP because I was able to present myself professionally and the fact that I had knowledge was probably evident. I also usually came highly recommended. There was simply no reason to question my knowledge. When the subject did come up, not having it was never an issue. In fact, the only ones who really seem to care about it are the DIY crowd and they usually wouldn't become clients regardless.

Prospect: "Are you a CFP?"
Me: "No. Do you know what a CFP does or why someone should become a CFP?"
Prospect: "Don't you need a CFP to do financial planning?"
Me: "No (with a smile and a chuckle). A CFP is a beginner's designation that allows the person to do absolutely nothing. It gives clients of new financial planners the comfort of knowing that their planner has a baseline level of knowledge. It is a marketing tool. What allows an advisor to charge for financial planning and to properly implement the plan are the Series 65, Series 7, and an insurance license. I have had these along with all of the necessary continuing education for the last 15 years. My promise to you is to never give you a wrong answer. Fortunately, I have become pretty good at saying, 'I don't know. Let me get back to you on that'."

As for ChFC vs. CFP, it truly makes no difference. The short version is that there are only two differences. The ChFC requires more classes. The CFP requires a final exam.

Prospect: "I wanted to work with a CFP."
Person with ChFC: "Do you know the difference between a CFP and a ChFC?"
Prospect: "No."
Person with ChFC: "The classes are identical, but the ChFC requires an additional two classes focusing on insurance expertise. Investment firms primarily care only about managing investments and want to ignore the important insurance issues, so they push for the reduced class load of the the CFP. The CFP gets marketed to the public so it is much better known and accepted despite that reduced class load."


*"financial planning": putting together a financial plan for a client to follow
**"financial plan implementation": punching the client in the nose and twisting their arm behind their back to make sure that the client implements what they need to do.

Thanks for taking the time to pen that very interesting answer, Brody.

BrodyInsurance said:   Financial planning is incredibly easy and the same for 99% of the people. There are a handful of basics that everybody needs and until those are handled, their financial goals are pretty meaningless. Therefore, the basic advice is the same for most people.Generally I agree. I would say that perhaps 90+% of middle- and working-class people, good financial advice/planning is indeed very similar. (But couldn't the same be said for insurance? You figure out what covers them for life, disability, P&C, and then you're done?)

For wealthier individuals, financial planning/implementation (I'm following convention and considering them together) is far less easy/simple to be done well. Especially these days, with unpredictable tax law changes, differentials between earned/investment/inherited income and wealth, a huge variety of legally permissible trust arrangements, et cetera.

There is almost no money to be made in "financial planning"*. I know of nobody who makes a good living doing financial planning. All of the money is made in "financial plan implementation"**. On the investment side of the equation, money can only be made from people with fairly substantial assets. On the insurance side, money can be made with anyone who has a decent cash flow.

Ex. "Jim" is 27 year old attorney making $100,000. His financial planning will take about 30 seconds. He is a waste of time as an investment client because it will be many years until he has substantial assets. On the other hand, I can easily make $1,000 on his insurance needs while doing the very best for him along with many easy sales in the future.
You make a fair point here that his investment client income streams are likely minimal. OTOH, as you say, they take very little marginal time and effort over his insurance needs. Moreover, if the client is successful, the potential revenue to be garnered from the investment side will grow dramatically, unlike the insurance side.

I wonder how many folks make a successful business model out of marketing themselves as a one-stop shop? "Come to me, and I'll cover you WRT your insurance AND investment needs, and put them together in an integrated package." Of course I'm sure you considered something like that, and had good reasons for not doing it.

After close to 20 years, I went to a straight insurance practice primarily as a business decision. 1)I didn't want to work with only high net worth people. 2)It is in insurance in which my expertise allows me to confidently know that working with me is always the right decision for the client. I couldn't say that I could do better for someone with their investments, but I could/can do it with insurance.Very interesting. Your point about working only with HNW folks is well taken. It's striking how much the chase in the FP field is all about the affluent, leaving the bottom 90% (or even 99%) service options that are nearly as attractive.

"Financial Planners" and "CFPs" and "wealth managers" are a dime a dozen. How many people out there solely claim to be insurance agents (not P&C)? Even those who are insurance agents try to hide this fact under some other guise. I am trying to be the go to guy for life and disability insurance. I gather the answer to your rhetorical question is, "not very many"? IME there's a lot to be said for being the "go-to guy" in any key niche, and life/disability is certainly that.

I think that they probably stopped asking about the CFP because I was able to present myself professionally and the fact that I had knowledge was probably evident. I also usually came highly recommended. There was simply no reason to question my knowledge.I have no doubt your knowledge, professional demeanor, and recommendations are vital. Even the limited way in which you can present yourself at FWF does you great credit. I would only note that the following also helps your case: the Series 65, Series 7, and an insurance license. I have had these along with all of the necessary continuing education for the last 15 years.That's impressive, and immediately addresses the qualifications threshold than many folks, including those with HNW, might have. I can see how anyone who sports those qualifications simply wouldn't need to worry about keeping a CFP designation current on top of them, even if he didn't want to focus solely on insurance.

Generally I agree. I would say that perhaps 90+% of middle- and working-class people, good financial advice/planning is indeed very similar. (But couldn't the same be said for insurance? You figure out what covers them for life, disability, P&C, and then you're done?)

For wealthier individuals, financial planning/implementation (I'm following convention and considering them together) is far less easy/simple to be done well. Especially these days, with unpredictable tax law changes, differentials between earned/investment/inherited income and wealth, a huge variety of legally permissible trust arrangements, et cetera.


Yes, it is the same for insurance. In fact, the insurance should be part of this basic financial planning. The point that I'm trying to convey is that the value that we bring to the table isn't in the planning, it is in the plan implementation. Telling the person that they need a Roth IRA, a $2,000,000 term policy and to supplement their work disability policy accomplishes almost nothing. It is getting them to take the necessary action where we add value. (planning vs. plan implementation)

You make a fair point here that his investment client income streams are likely minimal. OTOH, as you say, they take very little marginal time and effort over his insurance needs. Moreover, if the client is successful, the potential revenue to be garnered from the investment side will grow dramatically, unlike the insurance side.

I wonder how many folks make a successful business model out of marketing themselves as a one-stop shop? "Come to me, and I'll cover you WRT your insurance AND investment needs, and put them together in an integrated package." Of course I'm sure you considered something like that, and had good reasons for not doing it.


I know many people who make 6 figures both in insurance and investments. The majority of people seem to do both even if they just focus on one. That was my practice. I sat down with people and I didn't focus on insurance or investments. Instead, I focused on helping people achieve their financial goals. This lead to both insurance and investment sales.

What I am doing, focusing solely on insurance, isn't better. It is just better for me personally. Part of it is just my personality. I want to help everybody who I can help. That character trait is a negative when it comes to the investment side of the business. Advisors can't afford to service small clients. Someone who is going to be successful focusing on the investment side of the business, must only work with people with substantial investable assets. Smaller clients can't be ignored, and they tend to take more work and not less. I didn't want to be in a position of telling someone, "Sure, I can help you with this disability policy, but you don't meet my minimum of $250,000 for my investment clients."

Also, there are some personal reasons for my switch to just an insurance practice. I don't mind discussing them, but they really aren't appropriate for this venue.

Very interesting. Your point about working only with HNW folks is well taken. It's striking how much the chase in the FP field is all about the affluent, leaving the bottom 90% (or even 99%) service options that are nearly as attractive.

This is because of everything being fee based. When an advisor sells ABC Mutual Fund for a commission, they have no requirement to meet with that client in the future. When an advisor "advises" their client to buy ABC Mutual Fund in a fee based account, that advisor is going to be required to meet with that client on an on-going basis. Having to meet with non-profitable client hurts the advisor. Advisors charging fees simply can't afford to work with clients who are not affluent.

BrodyInsurance said:    The point that I'm trying to convey is that the value that we bring to the table isn't in the planning, it is in the plan implementation. Telling the person that they need a Roth IRA, a $2,000,000 term policy and to supplement their work disability policy accomplishes almost nothing. It is getting them to take the necessary action where we add value. (planning vs. plan implementation)IME, it depends a great deal on the particular client.

For example, I have an HNW client who needs no prompting at all implementing the recommendations sketched out for him. He is happy to make the calls to convert qualified and taxable IRA funds to his Roth IRA, or handle the refinance application. What he wants is guidance figuring out where to refinance and why; how to convert his retirement funds, how much, and where; etc. Giving him optimized answers to those questions frees him to act without insufficient info, and/or second guessing what information he does have. No question this makes him a model client in many respects, especially because he has no problem living below his considerable means in the first place.

I understand that most clients are not like this. But then again, if you gradually accumulate a portfolio of such folks--and clients who appreciate your approach will refer you to their HNW friends--you can weight your practice towards clients as it grows.

Thanks for explaining your thinking on transitioning only to insurance.

Very interesting. Your point about working only with HNW folks is well taken. It's striking how much the chase in the FP field is all about the affluent, leaving the bottom 90% (or even 99%) service options that are nearly as attractive.

This is because of everything being fee based. When an advisor sells ABC Mutual Fund for a commission, they have no requirement to meet with that client in the future. When an advisor "advises" their client to buy ABC Mutual Fund in a fee based account, that advisor is going to be required to meet with that client on an on-going basis. Having to meet with non-profitable client hurts the advisor. Advisors charging fees simply can't afford to work with clients who are not affluent.
That assumes a couple of things though:

-That you use an AUM business model for investments rather than hourly or some other model (many advisers do not).

-That you provide something like the same level of personal service for investment services to non-HNW folks (rather than farming that out to an assistant, putting them in an excellent low-fee lifecycle MF that fits their situation and doesn't require regular monitoring by you, et cetera.)

This is not to dispute your main point, which is completely valid. Just mulling over other ways to handle the non-HNW cases.

Some of this conversation avoids real factors of suitability vs fiduciary and who has regulation over what you do that really make a difference on why some folks chose one path vs another. Also planning doesnt pay...implementing or purchasing pays under most scenarios. I dont think its accurate to say that the value is strictly in the implementation without recognizing thats where the person making the recommendation typically gets paid.

dhodson said:   Some of this conversation avoids real factors of suitability vs fiduciary and who has regulation over what you do that really make a difference on why some folks chose one path vs another.By all means, chime in on these please. FWIW my view is that all of these relationships should be fiduciary, tho of course that isn't the case at present. Also planning doesnt pay...implementing or purchasing pays under most scenarios. I dont think its accurate to say that the value is strictly in the implementation without recognizing thats where the person making the recommendation typically gets paid.Depends on your business model. AUM can work either way. So can hourly. For commission based models you're correct.

DaveHanson said:   Depends on your business model. AUM can work either way. So can hourly. For commission based models you're correct.
For financial planning, nothing works for middle or lower class clients. You can't make any money charging them 1% AUM because they might only be paying you $1k/year or less. You can't charge them hourly because at $300/hour or whatever, they can't or won't choose to afford you. The fact is that the value of your time as a financial planner is set by the large clients (assuming you can get them), and the hourly wage you can get from them, whether you charge hourly or by AUM, is so much bigger that it's just not worth your time to do small customers unless you want to do it as charity.

So this is why I said being a successful financial planner basically comes down to whether you can bring in a good number of HNW clients. If you can, great. If you can't, don't bother.

IME, it depends a great deal on the particular client.

For example, I have an HNW client who needs no prompting at all implementing the recommendations sketched out for him. He is happy to make the calls to convert qualified and taxable IRA funds to his Roth IRA, or handle the refinance application. What he wants is guidance figuring out where to refinance and why; how to convert his retirement funds, how much, and where; etc. Giving him optimized answers to those questions frees him to act without insufficient info, and/or second guessing what information he does have. No question this makes him a model client in many respects, especially because he has no problem living below his considerable means in the first place.

I understand that most clients are not like this. But then again, if you gradually accumulate a portfolio of such folks--and clients who appreciate your approach will refer you to their HNW friends--you can weight your practice towards clients as it grows.


Most clients aren't like this, but let's use him as an example. He gets the recommendations, takes the time to understand them and then he handles the implementation. Let's combine this with your next point.

That assumes a couple of things though:

-That you use an AUM business model for investments rather than hourly or some other model (many advisers do not).


If the advisor isn't handling the investments on an AUM basis of that HNW client, how is he going to make a decent dollar from his recommendations?

Have you ever met a fiancial advisor who neither earns commissions or charges AUM fees and makes a good living? I don't think I know of any who make a six figure income. I am sure that they exist, but it's a very hard way to do it.

Without getting paid for implementation, it becomes very difficult for financial planning to be a viable career.

-That you provide something like the same level of personal service for investment services to non-HNW folks (rather than farming that out to an assistant, putting them in an excellent low-fee lifecycle MF that fits their situation and doesn't require regular monitoring by you, et cetera.)

If you are charging a fee, it doesn't matter what you put them in, you need to monitor their situation and meet with the client. They truly do need to be farmed out or not accepted as clients in the first place. It's different if they are being sold products for a commission.

This is not to dispute your main point, which is completely valid. Just mulling over other ways to handle the non-HNW cases.

It is unfortunate, but the fee-based model really means that the advisor has to charge too big of a fee to make it worth it to the client or the fee is too small to make it worth it to the advisor.

Ex. "Jim" works for ABC Brokerage Firm. He charges 1%. His cut is 40%. Charlie wants to rollover a $20,000 IRA. Dave would make $80 +/- year from this client. Every minute with the client is time spent not working or attracting bigger clients. Jim is much better off not having this client. These types of clients will kill a career.

This is why we are seeing so many advisors with high minimums.

xerty said:   For financial planning, nothing works for middle or lower class clients.As explained above, I agree with your basic point here, xerty. HNW clients are where the substantial compensation is.

Like Brody, I'm disinclined to work with only HNW folks. So I'm keenly interested in exploring ways to reach out to those less affluent demographics that doesn't compete with earning a good living. Is being Suze Orman or Dave Ramsey the only model that pencils out, other than Brody's (insurance only)? I don't think that's an imaginative enough conclusion. But I don't pretend to have a well-formulated or tested answer. Would love to hear answers from others who have thought hard about this.

dhodson said:   Some of this conversation avoids real factors of suitability vs fiduciary and who has regulation over what you do that really make a difference on why some folks chose one path vs another. Also planning doesnt pay...implementing or purchasing pays under most scenarios. I dont think its accurate to say that the value is strictly in the implementation without recognizing thats where the person making the recommendation typically gets paid.

"Suitability vs. fiduciary"...do you know where that is an important subject? On the internet boards like Bogleheads. In the real world with real clients, it is a subject that almost never comes up. In fact, the only time that I have every heard it come up is when a fee-only advisor is trying to use it as a marketing advantage.

It just makes no sense to think that one is going to be more honest because they are using their 65 as opposed to their 7.

"planning" vs. "plan implementation": You are correct that the value is not strictly in the implementation. This is just where the ulk of the money is made. Planning without implementation is useless.

BrodyInsurance said:   Most clients aren't like this, but let's use him as an example. He gets the recommendations, takes the time to understand them and then he handles the implementation. Let's combine this with your next point....
If the advisor isn't handling the investments on an AUM basis of that HNW client, how is he going to make a decent dollar from his recommendations?
Who says the advisor isn't receiving an AUM fee?

For example, what if you charged 1% fee for > $1M accounts if you handled the implementation, and a .75% fee if they did? I understand that there are logistics to work out, and there is the psychological difference between actually forking over the .75% fee from "your" account, versus having 1% disappear more passively from the account the client has with the planner. But these need not be insurmountable, esp if the client appreciates that he is saving money by doing it that way.

Alternatively, the HNW individual pays you $300 an hour..AND refers you enthusiastically to his other HNW buddies, many of who want more hand-holding and a traditional 1% fee arrangements. That could work nicely, no?

Have you ever met a fiancial advisor who neither earns commissions or charges AUM fees and makes a good living? I don't think I know of any who make a six figure income. I am sure that they exist, but it's a very hard way to do it.Understood Brody. I don't know many financial advisors personally, and the ones I have met are rarely impressive. That was one reason for starting the thread here...I hoped FWF might include some sharper, more innovative financial planners amongst its readership.

If you are charging a fee, it doesn't matter what you put them in, you need to monitor their situation and meet with the client. They truly do need to be farmed out or not accepted as clients in the first place. It's different if they are being sold products for a commission.Are you referring to regulatory/legal requirements here, e.g. of being a fiduciary? Or something else?

Suppose I'm a middle-class client, and I like you and want you to work with me. I understand that if your only choice were to give me the same face time, monitoring, etc. that you gave your HNW clients, I'd be out of luck. So why wouldn't I be open to a "no frills" package that benefited from your ideas, and that was more viable for both of us?

BrodyInsurance said:   dhodson said:   Some of this conversation avoids real factors of suitability vs fiduciary and who has regulation over what you do that really make a difference on why some folks chose one path vs another. Also planning doesnt pay...implementing or purchasing pays under most scenarios. I dont think its accurate to say that the value is strictly in the implementation without recognizing thats where the person making the recommendation typically gets paid.

"Suitability vs. fiduciary"...do you know where that is an important subject? On the internet boards like Bogleheads. In the real world with real clients, it is a subject that almost never comes up. In fact, the only time that I have every heard it come up is when a fee-only advisor is trying to use it as a marketing advantage.

It just makes no sense to think that one is going to be more honest because they are using their 65 as opposed to their 7.

"planning" vs. "plan implementation": You are correct that the value is not strictly in the implementation. This is just where the ulk of the money is made. Planning without implementation is useless.


Actually the fiduciary vs suitability is important all the time in the real world. The client may not use the word fiduciary but they certainly are under the impression that they are getting and some how paying for the best advice. Its not a boglehead only concept. Frankly all the time here we have posts about products that are likely inappropriate sales. Aditionally many advisors do chose to acquire, hold, or surrender certain titles etc in order to avoid the issue. So its very real world and not boglehead world.

Who says the advisor isn't receiving an AUM fee?

I'm just trying to make the point that if he isn't receiving an AUM fee, the fact that the client is HNW doesn't mean too much. If a client is doing all of their own implementation, they probably aren't willing to pay an AUM fee.

For example, what if you charged 1% fee for > $1M accounts if you handled the implementation, and a .75% fee if they did? I understand that there are logistics to work out, and there is the psychological difference between actually forking over the .75% fee from "your" account, versus having 1% disappear more passively from the account the client has with the planner. But these need not be insurmountable, esp if the client appreciates that he is saving money by doing it that way.


It may be insurmountable. Have you ever seen it done that way? I haven't. The client with the $1,000,000 account is going to say, "Do I really want to pay this $7,500? I would have made more money this year if the money was in my checking account." Client acquisition is very difficult. Client retention needs to be fairly easy. This would make client retention much more difficult.

Alternatively, the HNW individual pays you $300 an hour..AND refers you enthusiastically to his other HNW buddies, many of who want more hand-holding and a traditional 1% fee arrangements. That could work nicely, no?

I think that the answer, in general, is "no". I think that there is a reason why we see very few successful advisors with an hourly fee model. Imagine that this HNW individual needs estate planning help and it makes sense to fund an ILIT with $100,000 a year. The hourly advisor is going to make $900 for his three hours of work. The insurance agent is going to make $70,000 for "selling" the policy.

Are you referring to regulatory/legal requirements here, e.g. of being a fiduciary?


Yes.

DaveHanson said:   xerty said:   For financial planning, nothing works for middle or lower class clients.As explained above, I agree with your basic point here, xerty. HNW clients are where the substantial compensation is.

Like Brody, I'm disinclined to work with only HNW folks. So I'm keenly interested in exploring ways to reach out to those less affluent demographics that doesn't compete with earning a good living. Is being Suze Orman or Dave Ramsey the only model that pencils out, other than Brody's (insurance only)? I don't think that's an imaginative enough conclusion. But I don't pretend to have a well-formulated or tested answer. Would love to hear answers from others who have thought hard about this.


No. I don't believe that one only has to work with high net worth folks. I am saying that one can only work with high net worth folks (decent amount of investable assets)if they are only charging fees. If one is willing to earn commissions, they can work with people who don't have lots to invest.

BrodyInsurance said:   
"planning" vs. "plan implementation": You are correct that the value is not strictly in the implementation. This is just where the ulk of the money is made. Planning without implementation is useless.


This is very much correlated by our own experience. After getting a moderate amount of money (high 6 figures plus some royalties for patent sale) in our late 20s, we went to a CFP for helping us drawing us a plan (investments, insurance, disability, etc). Cost ended up about $1k total including some basic directions for implementation. Looking back from a more educated standpoint now, like Brody mentioned earlier, planning was trivial but so was implementation after minimal education on our part. Once the plan was implemented, as not so HNW individuals, we never saw what value the CFP could provide us that would justify paying $10k or more every year (which at the time seemed like a lot of money).

So I wonder if the other part of the issue is that for middle/working class people willing to educate themselves and do the legwork, there's just not enough perceived value in a CFP. If it's also not worth the time for the CFP to deal with such clients either, it's pretty obvious why neither party seek each other out.

That said, ignorant as we were and without good word of mouth recommendations, when we looked for a suitable financial planner, we definitely asked if they were a CFP. Could someone without the certification have done the job as well? Most likely but we didn't have other benchmarks.

BrodyInsurance said:    The client with the $1,000,000 account is going to say, "Do I really want to pay this $7,500? I would have made more money this year if the money was in my checking account." Client acquisition is very difficult. Client retention needs to be fairly easy. This would make client retention much more difficult.Agreed that client acquisition, esp HNW client acquisition, is very difficult. Moreso for the little independent guy, when big banks with their private banking and investment services are all competing furiously for his business.

If the client is thoughtful, why should the "do I really want to pay $7,500" be more difficult to affirm than is the "do I really want to pay $10,000" question asked of him by every traditional AUM arrangement? And more intriguingly than that, it should be a way to differentiate yourself from the thousands of other planners clamoring for your client's business.

To answer your question, I don't know advisers who've done it this way. But again, I know few advisers period...and most I do know are textbook cases of follow-the-crowd, conventional wisdom planners, so their complete adherence to tradition is hardly surprising.

Again, I'm not even necessarily advocating the .75%, "planning only" option I'm sketching here. I'm just trying to explore ways that planners can better serve their clients. My perspective is that banks and planners alike move in herds, and that there can be a competitive advantage in offering something distinctive that makes sense--especially if you're looking to attract clients who are friendly to such "cutting edge" thinking.

Alternatively, the HNW individual pays you $300 an hour..AND refers you enthusiastically to his other HNW buddies, many of who want more hand-holding and a traditional 1% fee arrangements. That could work nicely, no?

I think that the answer, in general, is "no". I think that there is a reason why we see very few successful advisors with an hourly fee model. Imagine that this HNW individual needs estate planning help and it makes sense to fund an ILIT with $100,000 a year. The hourly advisor is going to make $900 for his three hours of work. The insurance agent is going to make $70,000 for "selling" the policy.

Do you have any data, or links to decent literature, on the success or failure of the hourly model?

I think a more viable model is a hybrid fee arrangement. Something like:

$300/hour for $0-99,999 in AUM
$200/hour for $100-499 AUM
$100/hour for $500-999 AUM
$0/hour (1% fee only) for >$1,000,000 AUM

This is way to serve a mix of HNW and aspiring individuals without simply saying, "I don't take clients with less than $1 million investable".

Actually the fiduciary vs suitability is important all the time in the real world. The client may not use the word fiduciary but they certainly are under the impression that they are getting and some how paying for the best advice. Its not a boglehead only concept. Frankly all the time here we have posts about products that are likely inappropriate sales. Aditionally many advisors do chose to acquire, hold, or surrender certain titles etc in order to avoid the issue. So its very real world and not boglehead world.

"fiduciary" vs. "suitability" doesn't have an impact if the client doesn't choose an advisor based upon that criteria.

The client is under that impression and they should get the best advice. Whether they get the best advice has nothing to do with whether the advisor is working under the fiduciary standard. It is all about whether the advisor is knowledgeable and honest.

Here's a quiz for you. "Jim" has $500,000 in his bank account. He wants to invest his money. Susie sells mutual funds and stocks. Sara "advises" for a 1% fee.
Jim has debt at 20%.

Who is more likely, Susie or Sara, to tell him to pay off his debt before investing?
I guarantee that it has nothing to do with one of the two having a fiduciary standard.

Fees vs. commissions isn't a choice that advisors enter into because of fiduciary standards. It is a mode of compensation question that is answered as a business decision. Many people do both. Working on one side of the fence or the other doesn't impact one's integrity.

The most unethical fiduciaries who I have met are the one's who basically say, "Work with me because I am a fiduciary."

Very interesting datapoint Shandril.

My guess is that you guys in your 20s, with significant assets already and a patent sale behind you, would be extremely attractive potential clients: smart, long life expectancy, potential for genuine HNW going forward.

What, if anything, would have demonstrated sufficient value add to keep you with your planner? Anything else you either would have liked, or would like, to see a financial professional offer?

If the client is thoughtful, why should the "do I really want to pay $7,500" be more difficult to affirm than is the "do I really want to pay $10,000" question asked of him by every traditional AUM arrangement? And more intriguingly than that, it should be a way to differentiate yourself from the thousands of other planners clamoring for your client's business.

The difference is one word, "inertia." If the client has to proactively pay their bill, much of your time will be spent "reselling" to existing clients. You want your clients to have to make an effort to leave you as opposed to having to make an effort to stay with you.

Do you have any data, or links to decent literature, on the success or failure of the hourly model?

I don't. All that I know is that I currently do not have a decent fee-only person to whom I could refer a client. The ones who I did know changed their compensation model to allow them to earn more money.

I think a more viable model is a hybrid fee arrangement. Something like:

$300/hour for $0-99,999 in AUM
$200/hour for $100-499 AUM
$100/hour for $500-999 AUM
$0/hour (1% fee only) for >$1,000,000 AUM

This is way to serve a mix of HNW and aspiring individuals without simply saying, "I don't take clients with less than $1 million investable".


I have no problems with this. I just think that it is extremely hard to find enough clients to earn a decent living on an hourly fee model. If someone wants to do it and can make it work, fantastic. I think that what you'll find is that the majority of people who are doing it this way, have one of the following:
1)A spouse who can support the family
2)A pension
3)A second job

That said, ignorant as we were and without good word of mouth recommendations, when we looked for a suitable financial planner, we definitely asked if they were a CFP. Could someone without the certification have done the job as well? Most likely but we didn't have other benchmarks.

The CFP has done a great job of marketing itself. It made sense for you to look for a CFP because at the very least, it guarantees a base line level of knowledge.

I hope that nothing that I have written has come across as "anti-CFP" because that would not be an accurate description of my feelings.

BrodyInsurance said:   Actually the fiduciary vs suitability is important all the time in the real world. The client may not use the word fiduciary but they certainly are under the impression that they are getting and some how paying for the best advice. Its not a boglehead only concept. Frankly all the time here we have posts about products that are likely inappropriate sales. Aditionally many advisors do chose to acquire, hold, or surrender certain titles etc in order to avoid the issue. So its very real world and not boglehead world.

"fiduciary" vs. "suitability" doesn't have an impact if the client doesn't choose an advisor based upon that criteria.

The client is under that impression and they should get the best advice. Whether they get the best advice has nothing to do with whether the advisor is working under the fiduciary standard. It is all about whether the advisor is knowledgeable and honest.

Here's a quiz for you. "Jim" has $500,000 in his bank account. He wants to invest his money. Susie sells mutual funds and stocks. Sara "advises" for a 1% fee.
Jim has debt at 20%.

Who is more likely, Susie or Sara, to tell him to pay off his debt before investing?
I guarantee that it has nothing to do with one of the two having a fiduciary standard.

Fees vs. commissions isn't a choice that advisors enter into because of fiduciary standards. It is a mode of compensation question that is answered as a business decision. Many people do both. Working on one side of the fence or the other doesn't impact one's integrity.

The most unethical fiduciaries who I have met are the one's who basically say, "Work with me because I am a fiduciary."


while that may be the worst folks you have met, to say it doesnt impact what people do just isnt true nor does your quiz have any value. Its also a reason why some industries have fought against a fiduciary standard. While one can be honest etc without having any standard at all, the standard isnt irrelevant.

Skipping 117 Messages...
Whoops, thanks dshibb...missed that.



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