The CFP Board, which sets the national standards for financial planners, has announced in the past year or so a series of changes meant to strengthen the designation. It beefed up the ethics curriculum and hired a director of investigations to make sure planners comply with standards. And this summer, it will begin disclosing whether members have filed for bankruptcy within the past five years — something that could affect a consumer's decision to hire them.
Maryland's ambassador is John Hauserman, a Marriottsville planner and the author of "RetirementQuest: Make Better Decisions." Hauserman has been a financial adviser for 20 years and a CFP since 2007.
Why did the CFP Board launch the ambassador program?
They felt like people didn't understand the value of the [CFP] mark. But they have a dual mission. One is to understand the value of the mark, and the other is to educate the public. So we as ambassadors should be doing those two things.
What's the difference between a CFP and all the other designations out there?
The CFP is uniquely qualified to provide a holistic view of a person's finances. A CFP has gone through rigorous training. On average, it's two years of course work and a rather grueling two-day exam. It has about a 45 percent pass rate. And then they are held to a pretty high standard of ongoing education, and that includes ethics. … Other industry organizations are catching on to this, but the CFP was one of the first to come out and just completely endorse the concept of the fiduciary standard. … If you're an independent adviser, you are held to this fiduciary standard of putting your clients' needs first. As a broker, you're not.
Investors had a lot of mistrust of financial advisers. The Bernie Madoff scandal didn't help. And neither did finding out recently that Goldman Sachs employees reportedly called their clients "muppets." What do you think about this lack of trust of the industry?
Our industry began for the most part in the Industrial Revolution era. And it was hard-closing, hard-jiving, churn and burn, and if a few people fall into the meat grinder along the way, so be it. And those players are still that way … selling real estate because it was a hot thing; selling the funds that would trade through the wire houses and pay extra for the trade because it wasn't their money, it was the clients' money. … It's no wonder people don't trust them. … [Still,] most of the people I have met in the industry are very good, well-intentioned people who want to do their clients well.
The most common question I get from readers is, "How do you find a trustworthy adviser who isn't just interested in selling you investments?" So how do you find one?
There is a little bit of homework you need to do. … You have to know a little bit about what the process looks like because that way you will know if they are cutting corners. … You can check out your adviser. There [are] a number of ways to do that. There is BrokerCheck, which is through FINRA [Financial Industry Regulatory Authority]. And the CFP Board also has a link, Letsmakeaplan.org, where you can check out your adviser. The CFP Board also at Letsmakeaplan.org has a tool where you can find a CFP in your area. It's a person who is in good standing with the board. That's the only way to be on there and you have to be accepting clients. … They also have a CFP Consumer Guide to Financial Self-Defense.
What can a planner do that someone can't do on their own?
Take the time. … People have all the access to all the tools. There are no secrets anymore. The biggest thing that you get from an adviser is a broad base of knowledge and experience. … Another important thing an adviser is generally able to do: They don't have the same emotional attachment to your money. They are much more likely [to be] able to help you stick to a disciplined game plan.
Can you suggest some questions that a consumer would want to ask planners or advisers before hiring them?
The question I would ask absolutely is "How do you get paid?" If they say, "Oh, the investment company pays me," be aware that's a commission. It's not necessarily bad to earn a commission, but it is a transaction-oriented approach. So if you're looking for someone to be on the same side as you and hold your hand through retirement, you're far less likely to get that with a transaction-oriented approach. Obviously, I think it's important that they are a CFP. I would ask how long they have been in the business. … "Describe your ideal client" would be a very good question to ask.
For instance, if you're a business owner and you have a lot of complex issues, you wouldn't want someone who has never worked with a business owner before. … Likewise, if you're relatively simple — half a million dollars in your 401(k), you need an asset allocation model, some general advice — you probably don't want the adviser that works with all business owners because they charge for all kinds of things that you are never going to use.
Last year, the CFB Board strengthened its ethics curriculum and recently hired a director of investigations. Can you elaborate on those moves?
They are very serious about their mission to protect and serve the public and to do that by making sure that CFP practitioners are well-educated. Now that there are 65,000 of them and growing, [board members] wanted to make sure they had the manpower to enforce adherence to the fiduciary standards and all the other things. Their holy grail is to make sure that [the CFP] mark is meaningful to the public and to the industry.
What would you advise the Mega Millions winner?
I thought you would suggest taking the lump sum.
Before you take a lump sum, it's not as much a math decision as it is a personality decision. When I have people come to me and they have the option of taking a pension as a lump sum when retiring, the first questions I ask: "Did you save any money in your 401(k)? Do you have credit card balances?" And if the answer is, "No, I haven't any money in my 401(k), and yes, I have credit card balances," then I just say, "Stop there and take the pension. Because your relationship with money hasn't historically been very good. And my experience has been that it's probably not going to change when you get a lump sum. … In fact, it will make it worse."