This is a guest post from Dylan Ross, a Certified Financial Planner and owner of Swan Financial Planning, LLC, a registered investment adviser in New Jersey.
The term “financial planner” is often applied to a variety of finance-related occupations, and its use is largely unregulated. Just about anyone can call himself or herself a “financial planner” without obtaining any licenses, certifications, or any specific credentials. Because there is such a mix of activities and circumstances that, when combined, constitute what is generally accepted as financial planning, the need for certain licenses, certifications, and registrations will depend more on what they actually do in practice than what they call it.
Who’s in charge?
There is no single regulatory authority that governs the conduct of financial planners in the United States. Most financial planners provide investment advice and insurance advice, two independently regulated activities, in addition to the overall financial planning process
The U.S. Securities and Exchange Commission (SEC) or state securities authorities regulate investment advice that involves securities. State insurance departments regulate insurance advice. There is no required regulation for the financial planning process; however, some financial planners are regulated by the Certified Financial Planner Board of Standards, Inc. (CFP Board) by becoming CERTIFIED FINANCIAL PLANNERâ„¢ (CFPÂ®) practitioners.
Various governmental and non-governmental groups enforce the rules, laws, and regulations that apply to financial planning. Financial planners and financial planning practices register with or receive licensing and certifications from these various entities. These registrations, licenses, and certifications may also be granted to individuals or business that are not practicing financial planning.
Any person or business providing advice relating to securities for compensation must register as an investment adviser with either the U.S. Securities and Exchange Commission (SEC) or their state’s securities authority. There are a few specific exemptions to the registration requirement; however, those exemptions to securities advice do not apply if it is part of financial planning services. This means any person or business that provides financial planning with advice related to securities must register.
Financial planners and financial planning practices usually register at the state level unless they also manage assets. If they manage assets, the amount of assets that they manage will determine whether they register with the state or the SEC.
Typically, business entities register as Registered Investment Advisers (RIAs), and each person that provides advice on behalf of the RIA is registered as an Investment Adviser Representative (IAR). Registration usually requires an application, an examination, and a filing fee. There are no experience or educational requirements.
Financial planners that also choose to sell securities and collect commissions must also become a Registered Representative of a securities broker/dealer firm. The Financial Industry Regulatory Authority (FINRA) and securities exchanges primarily regulate the activity of security sales. Additional exams such as the Series 6 and Series 7 are only required to sell securities and do not authorize or qualify someone to be a financial planner, nor are they necessary to practice financial planning.
In many states, financial planners and their businesses are required to have appropriate insurance licenses in order to advise on the need, use, and purchase of insurance, even if the planner does not actually sell any insurance. Licensing requirements vary from state to state, but typically involve a pre-licensing education requirement, application, examination, licensing fees, and an ongoing continuing education requirement.
There are no certifications required in order to offer financial planning services, and the only organization that specifically regulates the actual practice of financial planning is the Certified Financial Planner Board of Standards, Inc. (CFP Board). However, the CFP Board only has authority over CFPÂ® certificants. The CFP Board also enforces practice standards and a code of conduct, and they have the authority to suspend or revoke the certification.
Requirements to become a CFPÂ® professional include the successful completion of approved educational courses in financial planning, a Board administered examination, a bachelor’s degree, three years of financial planning experience, agreement to ethical standards, meet candidate fitness standards, payment of certification fees, and ongoing continuing education.
There are several additional certifications available to financial planners geared toward specialized activities such as college planning or divorce planning. Many of these are granted by membership organizations, and include some type of educational or examination requirement, dues or fees, and possibly continuing education.