Financial planners – suitably qualified or not?

4th May 2020

Some financial planners recently stated on LinkedIn that since Scott Page is (according to them) not a licensed financial planner, his opinions should be ignored. They did not point out some flaw in article or in the comparison between the industry fund and index funds. Their position was simply that he did not hold the license and the educational qualifications of a financial planner.

I reflected on the temerity of those comments over the weekend and then looked into the educational qualifications for financial planners in Australia. Well, it was cold and wet, restaurants and pubs were closed, and I was not allowed to go sailing!

Here is basically what I found – The Financial Planning Association of Australia offers a ‘CFP Certification Program’ which covers 4 units and an assessment. The first covers ‘professionalism’ and ethics. The second relates to developing strategies and formulating recommendations for clients. The third to developing strategies for those leaving the workforce. This unit includes superannuation and estate planning. The fourth unit focuses on developing investment strategies based on the client’s circumstances. This unit is comprised of 7 components, which are: process of portfolio construction, asset allocation and risk, investment strategies and structures, investment managers and products, alternative investments, exchange-traded markets and applied decision making. The Handbook states that this unit “involves at least a basic level of understanding of investment, insurance, superannuation, estate planning and taxation and familiarity with the financial planning process, including the client interview and record-keeping and documentation requirements.”

What is particularly notable is that the CFP Certification Program does not include the assessment or valuation of financial instruments, companies, property trusts or even managed funds.

I would expect an investment advisor to have a thorough knowledge of the main asset classes and the investment opportunity being considered and to undertake detailed analysis, value different investment options, determine the expected return-for-risk and compare them against alternative investment options. In the case of a managed fund I would want to see a critical analysis of it as well as a comparison with a relevant index fund. A basic understanding of portfolio construction would also be insufficient for me. I would want a detailed analysis of the portfolio proposed to me, together with a ‘what if’ analysis on reasonably foreseeable changes, which would include a major stock market correction.

If I were seeking investment advice or asked to recommend someone, I would suggest an advisor who holds a CFA (Chartered Financial Analyst) qualification, which comprises advanced analysis on a wide range of investment alternatives. The CFP Certification Program is well below the level of expertise I would expect from an investment advisor.

This leaves me to ponder why licensed financial planners (who do not hold the CFA qualification) are even permitted to provide investment advice.

Written by: Mark M.J. Morris of Rogers Morris Pty Limited, an investment business focused on unlisted securities