FPI holds financial planners to a high standard

Professional, objective financial advice has, until fairly recently, been hard to come by. 
Countless South Africans have lost money at the hands of salespeople calling themselves financial advisers, who, among other transgressions, have exposed clients to high-risk investments or needlessly “churned” them into new products. Driven by commissions and preying on the vulnerable and ill-informed, they succeeded in giving the industry a bad name and eroding public trust.

Since its formation in 1981, the Financial Planning Institute (FPI) has been instrumental in elevating financial planning to the status of a profession and winning back the trust of consumers.

This week is Financial Planning Week, so I thought it appropriate to update you on the FPI, the professional body for financial planners, and give you an idea of what its members can offer you.

While the terms “financial adviser” and “financial planner” are often used interchangeably, “financial planner” has come to be reserved for the professional echelon of the financial advice industry, at the pinnacle of which are FPI members holding the internationally recognised Certified Financial Planner (CFP) designation.

The FPI has been offering the CFP certification to South African financial planners for about 20 years. A non-profit body, it is a founding and affiliate member of the Financial Planning Standards Board (FPSB), a global network of organisations in 27 countries and owner of the CFP mark outside the US. According to the FPSB’s website, there are more than 181 000 CFP professionals worldwide.

According to David Kop, executive director: relevance at the FPI, there are about 4800 CFP professionals in South Africa, of which 3800 are practising. This represents a relatively small portion of all financial advisers and intermediaries in the country, which number in the tens of thousands.

Of the practising CFP professionals, about half are employed by the large product providers or are so-called “tied agents” of these companies, offering only their products. The remainder are independent advisers with their own businesses or employed by independent advisory firms, and these planners typically offer a range of products from different providers.

Members must uphold the institute’s values and, importantly, adhere to its Code of Ethics and Practice Standards, which, essentially, ensure that your interests come first (see “Ethical code”). They must also earn a specified number of CPD (continuous professional development) points a year, ensuring they are on top of developments in financial services.

The CFP professional

To qualify for the CFP designation and become a fully fledged member of the FPI, a financial planner must possess a postgraduate diploma or BCom Honours in financial planning, have three years’ relevant practical experience, and have passed the CFP professional competency examination.

Lelane Bezuidenhout, recently appointed chief executive of the FPI, says six tertiary institutions around the country offer the postgraduate diploma or BCom Honours in financial planning. The curricula of these courses have been structured to meet the international standards set by the FPSB.

Kop says that more and more young people are embarking on a career in financial planning when they leave school, as against people “drifting” into the industry from other careers, as tended to be the case in the past. He says the FPI provides a well-supported and well-defined career pathway for school leavers wanting to become financial planners – other designations on the pathway are Financial Services Advisor and Registered Financial Practitioner. The FPI and its members also provide mentorship to help prospective planners gain the necessary work experience, particularly in drawing up financial plans for clients.

Financial planning at its best

Kop and Bezuidenhout see the professionalisation of the financial advice industry being driven mainly by the consumer, who, with greater access to information and a greater awareness of what is available – through the wonders of technology – is demanding more in terms of choice and transparency. Kop says there is a distinct move to separate the selling of products from advice, and it is gratifying to see regulators putting their weight behind this change.

At the heart of financial planning is the drawing up of a long-term financial plan for you and your family. The FPSB provides CFP professionals with practical guidelines on engaging with clients and drawing up and maintaining a financial plan (see “The FPSB’s six-point planning process”). But, as I have pointed out in previous columns, there is a lot more to the profession than number crunching (see Rands & Sense, directed at financial planners, by Kevin Feather from Allan Gray).

The FPI has recognised this shift, which Kop says is away from the business of transactions to the business of relationships.

Bezuidenhout says the behavioural side of financial planning, which ensures that investors remain on track with their long-term objectives, is more and more evident in the CPD events scheduled for its members. One such event was the Humans Under Management conference, held recently in Johannesburg and Cape Town, which focused specifically on the human side of the profession, including life coaching and listening skills.

Bezuidenhout says: “Fintech solutions can do the basics for you, but only a human can really understand what your personal issues are, and this is the true value a professional can bring to the client.”

The FPSB’s six-point planning process

A CFP professional should:

1. Establish and define his or her professional relationship with you. This involves, among other things, establishing what the planner is qualified and licensed to advise you about and sell you, and what and how you will pay for the service provided.

2. Collect your information. The more comprehensive the details of your finances and personal history you provide, the more detailed and relevant the advice will be. This step also involves you defining your needs, concerns and goals.

3. Analyse the information. It’s now up to the planner to analyse what you have provided and do the necessary number-crunching.

4. Prepare and present the plan, with recommendations. The planner prepares a plan for you, with proposed ways for you to reach your stated goals.

5. Implement the plan. This is the active part of the process, which is usually ongoing. You may decide to carry out the planner’s recommendations by yourself.

6. Monitor and revise the plan. The planner should ensure you are on track and be on hand to make necessary changes or revisions if there are changes in your personal circumstances.

Ethical code

FPI MEMBERS must ask themselves the following eight questions related to the principles underlying their code of ethics:

1. Clients first: Did I act in the best interest of the client?

2. Integrity: Am I prepared to read about my actions in tomorrow’s newspaper?

3. Objectivity: Am I convinced that I did not allow any emotions to cloud my judgement?

4. Fairness: Have I done what any reasonable person would have done under the same circumstances, or if I had the power of hindsight at some point in the future, would I have given the same advice?

5. Competence: Do I have the collective and sufficiently updated knowledge and skills to render the best advice and service?

6. Confidentiality: Am I sure that I have made all efforts to protect confidential information?

7. Diligence: Have I applied all my skill and motivation to act in the best interest of the client in a timely manner?

8. Professionalism: Have I inspired trust in myself as a professional and in the profession as a whole through dignity and respect in all my actions?

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