Protecting Your Practice. Vessenes Katherine

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or not an agent qualifies as a financial planner.

      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.”

Industry Definitions

      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

DILEMMA

      A FEW OF US are old enough to remember a popular television show in the fifties and sixties, in which people would stand on a stage while four astute panelists would have to deduce what they did for a living. Now picture if you will the Financial Planner Game. Four people are standing on a stage. While they are all in the financial services industry, they are not all financial planners. You as a panelist must decide who the financial planners are.

      • SUSIE STOCKBROKER is a registered representative for a large brokerage firm. She also has an insurance license. Susie specializes in clients over the age of 60 and emphasizes municipal bonds. Her business card reads: Registered Representative, Life Insurance Agent.

      • LARRY LIFE INSURANCE SALESMAN is an agent for a large insurance company, who occasionally brokers with other companies. He specializes in buy-sell arrangements. His card reads: Insurance Executive.

      • IVY INVESTMENT ADVISER has securities and insurance licenses and is a registered investment adviser. She charges a fee for services and specializes in pension benefits. Her card reads: Pension Consultant.

      • CHARLIE CPA has no insurance or securities licenses and is not a registered investment adviser. He advertises himself as a financial planner who specializes in estate planning and tax reduction strategies. His card reads: CPA, Estate, Tax, and Financial Planning.

      Question: As a panelist, how many of the four do you believe should remain seated because they are financial advisers and not really financial planners? As they would say on the old TV program, “Will the real financial planner please stand up?”

      Answer: Charlie CPA stands up. Although on the surface Charlie looks like a regular certified public accountant, his business activities need to be analyzed more carefully. There is no question that providing tax reduction strategies is part of the business of being an accountant. What about his financial plans? If his activities fit into the definition established by the SEC, he is also a financial planner on the federal level. In many states, merely by holding himself out as a financial planner as he did on his business card, he becomes a financial planner whether he is actually doing planning or not. In this case we know that Charlie is indeed doing planning and he is holding himself out as a planner. Consequently, Charlie, much to his surprise, is more than a CPA; he is also a financial planner.

      Susie Stockbroker remains seated because she holds herself out as a registered representative and insurance agent who does no planning. If Susie was performing planning activities as defined by the SEC or state laws, she would be legally labeled a planner no matter what she calls herself.

      Larry Life Insurance Salesman can use the same analysis as Susie and remain seated. Does Larry do financial planning as defined by state law or the SEC? Larry is not doing detailed written asset allocation models or estate planning projections. Instead, he simply analyzes the buy-sell arrangement and makes an insurance recommendation.

      Ivy Investment Adviser’s registration as an investment adviser will not alone make her a planner. It is true she does have to be registered in order to charge for investment advice, but is she a planner under the SEC’s definition? If she is limiting her advice to pension plans, but not performing planning as defined by the SEC, she is not a financial planner. Ivy, who thought she was a financial planner, may feel a bit bewildered, but should remain seated too.

      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.

Financial Planner Test

      First

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