CFP Board Financial Planning Competency Handbook. Board CFP

section illustrates ways to facilitate higher-order cognitive thinking relative to each topic in both the traditional classroom as well as the online learning environment. Professional Practice Capabilities outline what practitioners should be able to do relative to three distinct career stages. Vignettes in each chapter, In Practice, illustrate how each particular concept is applied and/or exists in practice. Part Two outlines the domains that are part of the CFP Board Examination requirement. This section defines each of the domains and presents the associated Techniques for completing the domains as well as how they occur In Practice. There are questions specific to each of the chapters in Part One that assess the reader’s content knowledge relative to each of the topic areas. Students can benefit from these questions to test their understanding of these vital areas, as well as CFP^® professionals who can also choose to obtain the full 28 credit hours by taking and passing the test. Visit www.wiley.com/go/wileycfpboard2e for more details.

      Part Two is devoted to the financial planning process, illustrating the rationale, techniques, and contexts where the process takes place. In this edition, a case, The Jameson Family, runs through each stage of the financial planning process, outlining how each step affects the context as well as how the context can impact each step.

      Finally, Part Three focuses on the interdisciplinary nature of financial planning, focusing on both the theory and practical implications of related disciplines such as behavioral finance, marriage and family therapy, psychology, communication, and others. The purpose of Part Three is to bring new theory into this discipline for faculty and researchers while driving implications related to this theory directly to practitioners.

      It is important to note that this book is designed to have universal applicability for the profession of personal financial planning. However, certification and practice requirements vary depending upon location of residence. The reader is encouraged to visit www.CFP.net for information about requirements for certification within the United States and www.fpsb.org for information about requirements outside of the United States.

      Preface

Charles R. Chaffin, EdDCFP Board

      Personal financial planning has grown and evolved considerably over the past several years. The field hardly existed just four decades ago.1 As the population’s financial planning needs have grown, so too has practice. As of 2015, there are over 71,00 °CFP^® professionals in the United States, and the designation exists in 24 countries worldwide.2 Many labor forecasts are predicting a significant rise in the number of employment opportunities in personal financial planning even in the midst of a stagnant global economy. In order to meet this need, an increasing number of institutions and countries are preparing and certifying individuals to become personal financial planners. With an increased need has also come a growing complexity in the financial planning needs of the client. This increased complexity requires higher skill on the part of the practitioner. Practitioners must demonstrate proficiency relative to a broad range of content areas, from retirement planning and estate planning to insurance, taxation, and investments. Within all of this complexity, financial planners are also required to communicate with the client in an effective manner. This communication may be as involved as presentation of complex information in an accessible manner or as simple as listening and empathizing with a client regarding a serious life event. Given the increased need and complexity of this growing field, personal financial planning has taken some important steps in the past several decades. However, has it matured into a profession?

      In the last analysis, the law is what the lawyers are. And the law and the lawyers are what the law schools make them.

– Felix Frankfurter 3

      A profession, at its foundation, entails a specialized body of knowledge and skills. Education precedes any other attribute of a profession. Wilensky explains how the University of Pennsylvania Medical School was founded in 1795, long before the development of the American Medical Association in 1847.4 As Abbott suggests, there have to be doctors before one can develop an association of them.5 This specialized body of knowledge is developed through practical experience as well as empirical study of every facet of the discipline. The knowledge gained from practical experience and research is then disseminated to current and future professionals. The dissemination, and therefore acquisition and application, of this body of knowledge, occurs at institutions of higher learning where prospective professionals learn how and when to solve real-world problems relative to a chosen profession. At these institutions, the individuals entrusted to prepare these future professionals have both a high level of education relative to this field of study as well as practical experience. The experiences of the faculty members within these institutions enables them to devise learning experiences that bring the subject matter to life, offering opportunities for the prospective professionals not only to hone their new skills relative to a specific problem, but also to learn when to utilize these skills in contexts they will encounter in practice.

      In financial planning, the colleges and universities that offer CFP Board registered programs are locations where individuals learn specialized knowledge relative to several content areas across financial planning. This specialized knowledge is more than just the memorization of a series of inert facts, but is instead a basic theoretical understanding, most immediately followed by application and creation that directly relate to contextual settings within the discipline of personal financial planning. The aspiring professional needs to be able not only to comprehend and subsequently apply basic theoretical content relative to a given content area, but also to ascertain how this content area directly relates to the other basic content areas across the discipline of financial planning. For example, estate planning and taxation do not exist in a vacuum relative to a client’s needs, but may directly relate to the investment and retirement needs of the future client. The financial planning professional must have a working knowledge of the relationships among these key and vital content areas.

      The education of the financial planning professional goes beyond basic theoretical content and actions in practice, but also teaches important communication skills. The successful financial planning professional must be able to develop a plan for the future client relative to the client’s needs and situation, and, just as importantly, must communicate it to this client in an effective manner. Successful personal financial planners are ones who can effectively present, articulate, listen, and in many cases show care and empathy for their clients. This success is no different from that in many other disciplines where communication and engagement are vital to success. In his book, Blink: The Power of Thinking without Thinking, Malcolm Gladwell discusses the reasons why doctors get sued by their patients:

      The overwhelming number of people who suffer an injury due to the negligence of a doctor never file a malpractice suit at all. In other words, patients don’t file lawsuits because they’ve been harmed by shoddy medical care. Patients file lawsuits because they’ve been harmed by shoddy medical care and something else happens to them… What comes up again and again in malpractice cases is that patients say they were rushed or ignored or treated poorly. 6

      It is, therefore, the relationship between the personal financial planning professional and the client that is a key contributor to success. It is not that doctors, lawyers, or personal financial planning professionals do not need to have achieved a high level of understanding and application relative to the demands of their field of study; it merely means that these professionals must also possess the ability to communicate, engage, and, on some level, care for their clients and patients. The act of communicating in personal financial planning is one that requires education, where the individual learns how to present complex areas such as investments in a way that is both accessible and relevant to each client.

      Within any society, professions hold an extraordinary amount

2

CFP Board, CFP^® Certificant Profile (November 30, 2012). Retrieved from www.cfp.net/media/profile.asp.

3

Quoted in H. T. Edwards, “The Growing Disjunction between Legal Education and the Legal Profession,” Michigan Law Review (1992): 34–70.

4

Harold L. Wilensky, “The Professionalization of Everyone?” American Journal of Sociology 70, no. 2 (1964): 137–158.

5

Andrew Abbott, “The Order of Professionalization: An Empirical Analysis,” Work and Occupations 18, no. 4 (1991): 355–384.

6

Malcolm Gladwell, Blink: The Power of Thinking without Thinking (New York: Little, Brown, 2005).