I live in a happy bubble of positive energy. When I meet someone new and welcome them inside my bubble, I offer them my trust, until such a time as they are no longer capable of keeping it. I used to confuse this trust with naivety. Now I recognize it as conscious choice that I make, to believe in a world where all actions stem from good intentions
With some professional associations, my choice of trust is backed by a foundation of ethical standards that have been regulated into their profession. On April 1, 2015, Financial Planners took another step closer to this group with the Financial Planning Coalition’s announcement of Unifying Standards for Financial Planning.
This announcement is a huge win for our professional members as well as for clients and the public at large. While some of my readers may file this column away into the “boring stuff” category, it’s actually super important to understand how a person’s qualifications can affect the quality of their advice. My mentor Brad Brain posted an applicable Mad Men quote on twitter. It reads:
Betsy ”A friend was telling me about diet pills.”
Physician “Is your friend a doctor?”
We offer our trust to doctors because we know that they spent years in school, passed intense examinations, trained as residents, and now they operate within the regulated standards established by their profession. Recent research by the Financial Planning Coalition found that most Canadians were unaware of the lack of mandatory standards for Financial Planners in Canada, and fewer than half knew there was a difference between a Financial Planner and a financial advisor.
The new Unified Standards for Financial Planners helps to clarify the differences by distinguishing Financial Planning as a professional service. The Standards are broken into three categories: definitions, standards, and ethics.
The Unified Standards start out by defining Financial Planning, Financial Plans, and Financial Planners (verb, noun, pronoun).
Simplified, Financial Planning (verb) is defined as the ongoing process involving regular monitoring of an individual’s progress towards meeting their goals. The definition really emphasizes the continual nature of Financial Planning. Like monitoring your health with a regular physical, Financial Planning is most effective when it is part of your routine.
A Financial Plan (noun) is defined as a written report that addresses an individual’s personal goals, needs, and priorities. The key words here are “written”, “individual” and “goals”. If it’s not in writing, it’s not a Financial Plan. If it only (or primarily) talks about products, it’s not a Financial Plan. If it’s not individualized with a detailed disclaimer, list of assumptions, and action points, it’s not a Financial Plan.
And finally, a Financial Planner (pronoun) is defined as an individual with the requisite knowledge, skills, ability, and judgement to capably provide objective advice. They must be accountable to a code of ethics that requires the interest of the clients be put before their own. Relating back to our medical example, if you are going to call yourself a physician, you better have a medical doctorate and be registered with a provincial health authority. To the same effect, if you are going to call yourself a Financial Planner, you better have the completed your pre-requisite education and exams, and be formally Certified as a Financial Planner.
Unifying national practice standards set the tone for Financial Planning in Canada. They outline the Financial Planning process and guide the client experience. This allows the client more flexibility to choose their Financial Planner based on personality, fit, and specialty, without significant concern over quality of advice.
The first step in the Financial Planning process is defining the terms of the engagement. This is typically done through a letter of engagement which should outline expectations, costs, and the scope of the work involved. Next, the client’s current situation is uncovered and the client’s goals and priorities are discussed. The Financial Planner analyzes the information provided, performs calculations and creates projections integrating all areas of the Financial Plan relevant to the client. A Financial Plan is developed which details this analysis and outlines appropriate strategies and recommendations specific to the client’s goals. The recommendations are prioritized, and the Financial Plan is presented to the client. Implementation, time frames, and the need for ongoing review are discussed.
Note that while the consideration and analysis of investment and insurance products can be a fundamental step in understanding a client’s current circumstances, the integration of these products should be considered an independent action. A Financial Plan’s primary focus is a client’s goals. Insurance and Investments are just some of the tools that can be used to reach these goals.
Code of Ethics
As important as definitions and practice standards are, it’s a Financial Planner’s accountability to a strict code of ethics that really sets them apart.
The Financial Planning code of ethics applies in any client engagement where Financial Planning services are offered. The Financial Planner must always place a client’s interests first. They must operate objectively with competence and integrity. They are fair and open, diligent, and they maintain the confidentiality of all client information. And finally, a Financial Planner shall act professionally, in a manner that reflects positively on our profession.
You go into the doctor with an ailment. The doctor knows that he can treat the ailment with either medication or surgery, and that each one is equally effective. However the doctor knows that he gets paid more to do surgery, there is a brand new procedure that just came out that he’s really looking forward to trying, and the hospital board has been pressuring him to make use of the upgrades to the operating room. The doctor smiles and says to you “Medication is safer. That’s what we should do.”
That’s an ethical standard. And that’s the difference with a Financial Planner.
Before you crawl onto the examination table and accept diet-pill advice for your finances, make sure that your financial professional is held to the standards that you expect of them. If you have questions on the difference between financial advisors and Financial Planners, or for more information on the Financial Planning process, speak with a CERTIFIED FINANCIAL PLANNER® today.
Written by Meagan S. Balaneski, CFP, R.F.P CERTIFIED FINANCIAL PLANNER®
Advantage Insurance & Investment Advisors
Investment Funds Representative
Manulife Securities Investment Services Inc.
The opinions expressed are those of Meagan S. Balaneski and may not necessarily reflect the views of Manulife Securities Investment Services Inc.