The role of a financial advisor has morphed from the person clients call when they want to buy and sell stocks to someone akin to a money therapist who gives holistic advice on all aspects of a client’s financial life. Today’s financial planners bear little resemblance to yesteryear’s stockbrokers and may be equally distinguishable from the financial professionals of the future.
As a relatively young profession – the financial planning profession as we know it didn’t get its start until about 1970 – the financial services industry continues to evolve. Each passing year seems to bring new ideas and criteria for what makes a great financial advisor and planner.
To learn more about what it means to be a top-tier financial planner in 2022, we spoke with Kevin Keller, CEO of the CFP Board, a role that keeps him on the forefront of the financial planning evolution. He shared his thoughts on the key skills all financial planners should have, the importance of financial psychology and how financial planners can get the most out of their careers in 2022. Here are edited excerpts from that interview.
What are the critical skills clients value in their financial planner?
Clients expect a financial planner who is competent, ethical and acts in their clients’ best interest.
So it came as no surprise to us that our consumer research identified “integrity” as the most important quality for those working with a CFP professional or a non-certified advisor.
In that study, consumers found that competency in financial advice was the second most important skill they value in their financial planner. This was followed closely by professionalism, financial needs analysis and consulting. Communication is also a critical skill, as an advisor’s proactivity and responsiveness to client questions and concerns can make all the difference.
Lastly, an overwhelming majority of clients value their advisors being certified.
For example, 90% of consumers see an advisor’s certifications as important and 86% of consumers prefer an advisor who has passed a certification exam and rigorous education program. Consumers are more likely to express satisfaction when working with a certified professional, as well as more likely to recommend the professional’s services to others.
This data confirms to us that clients see a CFP professional as a highly trained and trusted advisor to help guide their financial life journey.
Why is the psychology of financial planning now being considered one of the critical knowledge areas clients value in their financial planner?
Financial planning is a client-centered profession, and advisors must consider their clients’ needs, goals and motivations. They should also better understand that behavior is critical to their clients’ meeting their financial goals.
This became even clearer through the COVID-19 pandemic. Financial planners must not only possess knowledge about financial strategies, but also be sensitive to and understand the emotional context of money and finance. They should also understand that coaching helps clients think differently about things, such as having a stake in their future self.
The psychology of financial planning merges traditional financial knowledge with best practices from finance, financial planning and the human sciences. It draws on the latest breakthroughs in behavioral finance, client and planner attitudes, values and biases, and psychology and counseling. And it has become an essential element of the financial planning practice.
How can advisors enhance these skills in themselves?
First and foremost, gaining certification is paramount. Clients working with a CFP professional report higher satisfaction with their advisor’s competency across all areas, compared with clients of non-certified advisors.
CFP certification signifies that someone has mastered a profession’s body of knowledge. It also indicates that they have made a commitment to the CFP Board to act as a fiduciary when providing financial advice to a client. This means they have agreed to put the client’s best interests first, so they can provide the client confidence and security on their financial journey
In addition to certification, four out of five consumers prefer an advisor who takes all areas of their financial life into account – what is commonly called a holistic approach.
Taking a holistic approach, practicing effective communication and learning about the psychological components of financial planning can help advisors give more personalized advice. It will also help build trust and inspire confidence in clients.
With cyberattacks increasing in the financial services sector, what can financial advisors do to ensure that they and their clients are protected?
Because of their proximity to clients’ data and assets, advisors are a high-value target for cybercriminals. They must be exceptionally careful not to compromise that security and trust with their clients.
Luckily, one of the most common advisor security breaches, password mismanagement, is also one of the easiest to avoid. Employing multifactor authentication on all devices can be an advisor’s most valuable defense.
The best practice today for advisors and firms is to stay current on cyber compliance policies and proactively take steps to improve their practices where needed.
In a recent conversation with CFP Board’s Industry Insights, cybersecurity expert Brian Edelman said financial advisors should follow the NIST framework. It is a guideline for cybersecurity practices and compliance that has been adopted by regulators across industries, including the SEC and Finra. According to Edelman, the primary requirements of this framework include developing an information security policy, appointing a chief security officer and conducting risk assessments that evaluate the unique vulnerabilities of your firm.
How does increasing the number of female financial planners help firms and their clients?
Only 23% of CFP professionals are women. And when you look at all non-CFP certified advisors, the percentage of women is even lower: 18%.
However, by the year 2030, women are expected to control much of the $30 trillion in financial assets that the baby boomer generation will possess. There is a clear and growing discrepancy between the client and advisor demographics that firms must work to reconcile. Encouraging women to become financial planners is one way the workforce can better reflect the population it serves.
But increasing the number of female financial planners reaches beyond improving representation. Recent research commissioned by CFP Board and Aite Group shows that female CFP professionals bring unique strengths to wealth management firms and their clients.
For example, the emphasis that female CFP professionals place on holistic financial planning can be an important differentiator for firms at a time when automated financial planning services and self-directed investing platforms are on the rise. Female CFP professionals are also more likely to give retirement planning advice or provide written financial plans to their clients.
With more female CFP professionals, firms can provide competent, ethical and holistic financial planning advice to their increasingly diverse clientele and help retain clients seeking female advisors.
When you consider these findings against the shifting demographics of wealth in our country and the evolution of financial services, the benefits of increasing the number of women in our profession become quite clear.
How can firms help increase the diversity of the financial planning profession?
Financial planning firms must embrace diversity, equity and inclusion, known as DE&I, practices to foster a more diverse financial planner workforce that reflects the changing demographics of wealth in the United States.
Increasing diversity in the financial planning profession depends on building support for the effort from the bottom up and the top down. Firms should make it a strategic imperative tied to their mission and values. Basically, a firm must foster an inclusive environment and amplify the same tone from leadership.
Once a firm develops a strategy, it must also establish and track metrics to ensure accountability across all levels. It should also regularly engage employees and integrate feedback and other program evaluations to determine a firm’s baseline. This should help determine where there is room for growth, as well as track DE&I progress.
Once financial planning firms have these elements in place, consumers should quickly see the benefits. When people of color see more financial planners who reflect their diverse backgrounds, there is potential for greater opportunity for transparency and trust to be built between the financial planner and client. This may be especially true for people affected by discrimination in the past.
What are ways that financial planners can give back to the communities in which they serve?
Financial planning is a profession dedicated to providing service, which is why so many in the field seek out ways to give back to their communities.
One way to give back to the community is to provide pro bono services to people who need sound financial advice. Nearly two-thirds of CFP professionals provided some pro bono services in the past year. Planners can volunteer with the Foundation for Financial Planning, where they can serve some of the most financially vulnerable members of our society by providing pro bono financial planning services like tailored coaching, budgeting, debt management and much more.
Alternatively, advisors can volunteer with organizations in a variety of ways. Nearly three out of four CFP professionals engaged in other volunteer activities, such as offering advice on different ways people can donate money or time to charitable organizations, serving on a board or as an advisor to a charitable organization, and establishing or helping people organize a fundraiser for people in need.