Last week the board of the Institute of Financial Planning started a 4 week consultation with its members in view of its proposed merger with the Chartered Institute of Securities and Investments. The board will decide on the 4th of September.
Talking to financial planners, responses have been rather mixed, with some questioning why we even need a merger in the first place and if this is really a good thing for the financial planning profession. At this stage, it’s probably worth mentioning that while I serve as the chair of the London branch and on membership committee, this post is my personal thoughts. You can read IFP’s official statements here. Overall, I think it’s an exciting development and needless to say, I’m backing the merger. But, that not to say that I don’t share some of the concerned that raised by some planners.
So, let’s get the bad news over with first. Let’s be completely frank on the question of the reason for the merger. The reality is, a key driver of this merger is that the Financial Planning Standard Board (which owns the CFP patent outside of the US) wants wider adoption of the CFP certification among financial professionals globally and UK in particular. It has been pushing the IFP for years (as it should) to increase the number of CFP certificants in the UK, a task that that has become increasingly challenging for the IFP given its relatively small size, competition from the likes of PFS’s Chartered designation and the frustrations many planners feel about the inconsistencies in the CFP assessment process. While there’s been efforts on the part of the IFP to revamp the process, I’m not sure enough has been done to change the perception among advisers.
Currently, there are just over 1000 CFPs in the UK and the FPSB wants to push that number up, and is looking to partner with a larger organization to achieve this. My understanding is that, even if the IFP members decides not to go ahead with the merger, the CFP certification will likely be taken over by the CISI in any case. And, with the CFP gone, the need for the IFP to exist in its current form is significantly diminished. Sure, the amazing community, the membership and events including the much loved IFP Conference, industry representation can all continue, but CFP holders will likely need a new organization in order to renew their licenses in the future. I think the IFP leadership should be commended for being bold in their thinking and looking for a way to preserve the great legacy of this organisation.
I appreciate that this may not be the most positive interpretation of what’s going on but let’s back off a bit to consider some of the good things about this merger. Here’s a question; is financial planning a distinct disciple from wealth management? Isn’t wealth management, if done right, just simply financial planning for folks with lots of money?
… the face of financial services in 2015 looks very different to that of 1986. Years of regulation, and not least the RDR, has ensured that the original precepts of founding (the IFP), of fee for service, the planning process and a client first approach has now been adopted by all advisers – to one degree or another, in any case.
In the meantime we have seen the traditional model where wealth management is provided by City stockbrokers and private banks largely fall away….
Rather, we have seen an increase in the amount of ‘first generation’ wealth manager, and with that has grown the need for more complex client relationships, and access to tools and skills that the traditional ‘trader’ type stockbroker simply did not possess.
But planners do. So in this context, where many financial planners are both doing the financial planning role, as well as increasingly the ‘wealth management’ role, this merger starts to make complete sense.’
Admittedly, many so called ‘wealth managers’ focus primarily on portfolio management, while financial planners tend be more holistic; addressing important issues such as goal setting, risk management/insurance, pensions, tax, trust and estate planning. Some might throw in ‘life planning’ ( and may be even a little bit of ‘yoga’ 🙂 ) to help clients identify what’s really important to them and implement a strategy to achieve client goals.
There is of course the emerging school of thought (driven in part by sales pitches from discretionary investment managers) that financial planners should leave portfolio management to the ‘specialists’. The argument is that, given the vast scope of financial planning, it’s hard to see how planners can manage portfolios at the same time as address all the other aspects of financial planning. However, I see no reason why portfolio management is more of a specialist area than say, trust and estate planning or ‘retirement planning’ and why this specialist function can’t sit within financial planning as opposed to being a very different field entirely and having to be outsourced to a third-party. Indeed, scaled financial planning firms tend to keep their portfolio management functionality in-house, rather than outsourced.
To me, wealth management should encompass all aspect of the client’s wealth, not just their investment portfolio. This is something many financial planners have been doing for years. Accordingly, I believe that this merger gives financial planners a chance to help shape the future of wealth management.
There are some quibble amongst planners I’ve talked to over qualifications. The terms of the proposed merger means that CFP holders will gain the Chartered Wealth Manager designation, subject to passing a short online CISI Ethics test. There’s a similar route for CWMs to gain the CFP. This begs the question, are the two designations really that similar? CWM is a QCF Level 7 qualification, while the CFP is Level 6. Clearly, the two qualifications are different, but I think there is significant overlap and they can be considered substitutes for another. With many CFPs holding other designations such as the IMC and the PSF Chartered status, I think its only appropriate that the knowledge base required for the CFP is adjudged to be equivalent to the CWM.
The CWM has deeper content on portfolio management contents than the knowledge base required to pass the CFP. The CFP on the other hand requires a broader understanding of pensions, tax and risk managements than the CWM. However, let’s not forget that the point of the merger isn’t necessarily to make financial planners out of portfolio managers overnight (or at all) and vice versa. The exemptions gives planners who want to deepen their knowledge of portfolio management access to a range of CPD programs and exams. If the merger goes ahead, the CISI will develop a new Level 4 financial planning qualifications.
And of course, there’s a clear opportunity for the CISI to sort of the inconsistencies in the CFP assessment process, possibly a conversion to the traditional exam!!! Let’s not forget that the CFP certification process in the US includes a coursework and a 3 hour long exam.
Finally, some planners have raised the point about the risk of financial planner getting lost within the CISI, given its larger investment management audience. My view is that the IFP within the CISI, is no different than the PFS sitting within the CII. It’s up to us to get our voices heard and to sell the strength of the IFP’s model of wealth management! Personally, I see this as a chance to shout about the financial planning model among CISI’s 20,000 strong members in the UK. Of course, there’s an incredibly bigger opportunity to secure wider representation for the profession with policy makers and regulators. And given its extensive affiliations with universities, a chance to bring new blood into financial planning profession. What’s not to like?
Whatever you think, spare a thought for the incredible impact the IFP and its founders have had on this profession, and for the hard working of staff, whose lives will likely be changed (hopefully for the better) by the proposed merger!