Financial Advisors are well-dressed used car salesman

CFA General
#121

Greenman, I have 2 responses to that.

  1. The CFP covers investment management, security analysis on a light level. Am I ready to say the CFA is overkill? Not sure about that , because I’m assuming the client is large enough to afford the fees. If the client is too small, then it’s a bad business practice to begin with because your attention will be divided over hundreds of client households.

  2. I don’t know what business you’re in, so I’ll answer to this as if you were a financial advisor. If you look at the CFP curriculum, it covers a pretty good amount of estate planning that is relevant to millionaires. I believe an understanding of estate planning separates the men from the boys, because that’s where a lot of foresight and tax expertise is rewarded. As far as I know, the CFA doesn’t teach people about trusts, gifting, and estate taxes.

When I attended my review course, there were 10 students who were going for their CFP in 2 weeks. Every single one of them struggled with the estate planning section. Not a single candidate felt uncomfortable explaining basic investment theory and products to retail customers.

If you asked me which credential is “better” for financial advisors, I’d say the CFA proves more intelligence and investment expertise, where the CFP proves more relevance to holistic financial planning.

#122

CFA L3 has trusts, gifts, estates and ways to calculate which options are more tax effective. At least when compared to the CFP materials available in my country, the CFA materials have an edge in that they actually show students how to do the math, so if the law changes, for instance, the CFA content allows you to easily recalculate your client options, as long as you understand said law.

The weakness of the CFA is that a charterholder will not understand the laws and taxes for any specific jurisdiction. The CFP has much more depth in that. I’d say a financial advisor should have the proper knowledge from the CFP, but should also be able to do the math to put the numbers on different options - maybe even run some Monte Carlos and what not.

You seem to be a very valuable financial advisor, covering all your bases and providing a full unbiased service to your clients. That’s not very common and, unfortunately, some clients can only tell the difference after they’ve been taken for a ride.

#123

After you take Levels 2 and 3, your perspective will probably change. There’s a whole lot of stuff that’s completely useless to the retail advisor. Multiple regression and heteroskadicity, swap valuation, pension plan accounting, returns analysis, anything involving risk management at Level 3, etc.

They struggle with estate planning because 1.) it’s extremely complex, and 2.) there are “right” and “wrong” answers, per the IRC. And if you get an answer “wrong” (in real life), it will cost you a lot of money, because the tax return will reflect it.

Investments, at least at the retail advisor level, are extremely easy. Decide your allocation to equities, then decide your allocation between foreign/domestic, then decide your allocation to large/small caps. Diversify, so that when one asset goes down, another one goes up. And rebalance every 366 days.

Again, I think you’ll find that when you “get down in the weeds” of investments, they’re not as easy as the CFP makes them out to be. (I could be wrong–I’ve never taken the CFP exam.) For example–can the average CFP explain why some alternative assets have leptokutotic distributions and how this affects the distribution of their returns? Or how the use of appraisal data may bias the Sharpe ratio and make it appear more favorable than the Sharpe of a fund that uses daily pricing?

I guess what I’m trying to say is–retail advisors feel comfortable explaining basic investment theory, because they’re only explaining the most very basic “onesie-twosie” stuff. If you put a “basic CFP” across the desk from a “basic CFA”, the deficiencies in the CFP curriculum would probably become evident. The same is true with CFP vs. CPA, or CFP vs. attorney.

For the record–I’m a CPA in a tax practice. (And I have to correct a lot of mistakes that CFP’s make, and I have to answer a lot of questions that CFP’s cant answer.)

#124

By the way, I’m not disagreeing with you. I’ve said before that I think there’s a large divergence between the CFP body of knowledge and the practical application of the CFP designation. What is intended to be a holistic study of personal financial planning actually has, in reality, become a designation for mutual fund salesman to hawk their wares.

That being said, I believe that if I were to go back in time, I would NOT do the CFA exam. If I wanted to do financial planning or retail investment advisory, I would do the CFP. And if I wanted to do valuation, I would do the ABV or ASA. Those are the only two areas of practice that I’m really interested in that the CFA focuses on.

#125

^ But if you never did the CFA exam, you would be posting on a CFP board instead of on AF. You wouldn’t want to go back in time.

#126

I looked ahead at the level 3 curriculum and see that they talk about the math behind estate planning, but estate planning has a lot of non-numbers issues to consider that the CFP does a decent job of addressing. In any case, my point still stands - both credentials add value but the CFP is more for comprehensive (personal) financial planning.

As to your comment about clients, it’s a mixed bag. There’s 3 groups of people:

The smart ones : they know upfront not to trust the traditional advisor. Most of these clients would have hired a financial advisor five years ago if they had met one that was truly unbiased AND qualified. They probably have some business/sales experience so they know how to identify hustlers.

The victims: these people had a negative experience with a guy at Merrill Lynch or Wells Fargo, that only had his series 7 sales license. Now that they’ve been burned, they’re going to be a lot more selective if/when they hire a new financial advisor.

The idiots : these people are too dumb, at least to be my client. Even when you hit them over the head with the fact that they’re being swindled, or that they are unable to do their own financial planning, they dont know or don’t care. I have actually heard some individuals say things like “I don’t care what credentials a financial advisor has, I only care what he can do for me”. Would they take that same attitude with their physician?

The problem is that most people in America are idiots, but a lot of them aren’t economically qualified to be in my business anyways hehe.

I think another problem in my field is that the real advisors know that we make up 1% of the industry, but the GENERAL PUBLIC mistakenly believes that 50% of the financial advisors are qualified and unmotivated by financial kickbacks. If you don’t believe me, ask your neighbor about his financial advisor at UBS. He’ll probably say something like “oh yeah, he’s wonderful, he works for free”

#127

Well yes, I have looked at the level 2 and level 3 curriculum in advance. The academic and “overkill” nature of the level 2 is what financial advisors always use as the cop-out as to why they won’t go throug the CFA curriculum. You’re correct in saying that most clients won’t require that kind of analysis.

But going through level 1 is providing tremendous and relevant value as to reading annual reports and understanding the ins and out of financial reporting. Secondly, just because the client doesnt require it doesnt mean the client/advisor won’t benefit greatly from it.

Part of my motivation for going through the CFA is an issue of pride and ego. There are people in my circle of friends who are NOT financial advisors, but have passed the CFA. One of them is in technology and the other is computer consulting for an accounting giant. If they can do it, there’s no reason a guy like me who’s living and breathing this profession can’t man up and do it.

Disclosure : No client/prospect has ever asked me if I have a CFA.

#128

^ Most people have never heard of CFA. I was like 26 before I even heard of it, met anyone who had it, or knew what it was even for. And even then, I thought the tests would cover a textbook a piece max, before I got my package from CFAI of course.

#129

There’s going to be some kind of investigative report about FA’s on CBC Marketplace tonight at 8pm. For those of you not lucky enough to live in Canada they might have it online after it airs.

#130

the stuff you’d learn in your CFA studies is stuff you’d never learn amidst your daily activities as an advisor. that said, that stuff is very important in understanding how markets work and enhancing your ability to analyze securities. having evidence of why you recommended a security not only makes your average investment recommendation better but it greatly lowers your legal costs should a security perform poorly and a client wishes to sue.

almost everything you learn in your CFP studies need to be learned on the job or on the fly while you’re helping a client out. the fact that the rules change so often make the rules you learned 5+ years ago mostly irrelvant. those who recenlty get a CFP can say, I know most of the rules now and for the next 5 years, but after that, unless I take it upon myself to keep up with changes to the Tax Code, among others things, I’m no different than someone without a CFP. all of the CFPs I asked knew very little about what should be well-known details involved in Estate Planning. I had to research the information myself. p.s. the CFPs I asked are high level support staff within my firm all of which had decades of experience. CFPs are useless.

When i asked an academic councillor at my alma mater about potentially taking the CFP and what additional courses I’d need to take, the councillor said “you have a CFA, don’t get a CFP. the university is dropping all courses which support the CFP program”. she mentioned a lack of professionalism and coordination within the designation’s governing body as a key issue and this was reflecting poorly on the university and its ability and ease in placing graduates in jobs. plus the annual dues are brutal.

#131

One of my issues with the CFA (aside of not being allowed to use it as a noun) is that the material doesn’t go deep enough. It covers a lot of things, but just scratches the surface. I hear the actuarial exams do the opposite.

#132

This is what I think about when I think of financial advisors:

[video:http://www.youtube.com/watch?v=zvICN8DNMpY autoplay:1]

Best part – smarmy douchebag bragging about having his Series 7 license…

#133

^ Best scene in movie history!

#134

Yeah but to be fair, that represented financial advisors from 1950s up until the 1990s. I’d like to think it’s nearly impossible for an FA to survive under that model after 2005. But then again, I never worked in a wirehouse.