David christianson, a senior advisor at Wellington West Total Wealth Management Inc. in Winnipeg, describes a critical moment in every financial planner’s business life — when a potential client insists that he or she simply wants to buy a Canadian equity fund.

“Generally, you would turn the client away,” says Christianson, who helped write the practice standards for the registered financial planner designation, a title conferred by the Institute of Advanced Financial Planners. And that marks the difference between a planner and a salesperson.

“You learn to approach things differently,” Christianson says. “Sure, it occurs to you that it might make you some money. But it’s not an appropriate engagement.”

If you are an advisor who wants to be seen as more than a salesperson, there’s only one way to start — with how you act. That’s the message from the organizations that bestow financial planning designations. From the IAFP’s perspective, as well as that of the much larger Financial Planners Standards Council, which bestows the certified financial planner designation, there’s no excuse. If you want to call yourself a financial planner, there are well-known and published rules to live by.

“We believe that the public deserves professional service around this thing called ‘financial planning’,” says Cary List, acting president and CEO of the FPSC in Toronto. “If you look at any profession, it has standards.”

Professional standards ensure that when a client walks into the office of an advisor with a financial planning designation — be it in Vancouver, Toronto or Fredericton — the advisor follows a set planning procedure and adheres to specific ethical practices.

Advocis, which supports the CFP and bestows the chartered life underwriter designation through its CLU Institute, is updating its best practices manual in conjunction with the release this month of a Web-based portal. The portal includes downloadable tools for strong business practices that, the association says, will help insulate advisors from errors and omissions claims.

Advocis has substantially revised its old manual, which had been entitled The Six Steps of Financial Planning.

“The new manual is an initiative by Advocis to provide additional material to members, some of whom hold the CFP designation, to support CFP standards,” says Debbie Ammeter, chairwoman of the best practices committee at Advocis and vice president of advanced financial planning support atInvestors Group Ltd. in Winnipeg. “This is an initiative to provide more member support. There’s heavy emphasis on the financial planning process and the best practices to implement that process into a business.”

In addition to providing a theoretical framework for financial planning, it will offer immediate updates on the quickly changing regulatory landscape and a due diligence section.

Both List and Christianson point out that practice standards benefit advisors, as well. It protects them from malpractice suits.

If a client or regulator lodges a complaint, the advisor has a much better chance of successfully defending him- or herself when there is a practice standard to which to refer, notes Christianson: “The advisor can say, ‘This is the process I always follow because I have it in my notes. But also because we always do it. And here’s my procedures manual’.”

In general, IAFP, FPSC and Advocis best practice standards jibe. The steps may be numbered differently, but the concepts are the same. And in describing holistic financial planning, they have more in common than they differ.

“There is not much value in comparing the practice standards head to head,” says Christianson, a fee-based planner. At the FPSC, List, who has his CFP, agrees: “That’s nitpicking, don’t you think?”

For advisors who aspire to be financial planners, here are the rules to live by:

> Code Of Ethics

Advocis, the IAFP and the FPSC reference their own codes of ethics as the guiding principles by which their practice standards were written. Both the CFP and the RFP refer to values such as integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence, ongoing education and a promise to abide by provincial and regulatory laws.

The organizations say they hold financial planners to account in these values. If they’re proven to be wanting in any area, the organizations discipline the advisors. In a worst-case scenario, an advisor could be barred from membership in a professional organization and from using the organization’s designations.

@page_break@> Letter Of Engagement

The letter of engagement was not used frequently a few years ago, but it has become an integral part of financial planning.

It tells the client who you are and sets out your professional limitations. It also explains your compensation structure and the legal relationships you may have with dealers or other business organizations, says Wellington West’s Christianson: “So, it avoids misunderstanding up front.”

The letter, which can be drawn up shortly after or during your first meeting with a client, defines the scope of the work you’ll do — identifying the topics covered and the work to be performed. It describes which of the six components of comprehensive planning are being addressed: cash and debt planning; income tax planning; investment planning; retirement and financial independence planning; insurance and risk planning; and, estate planning.

“We actually anticipate a lot of memoranda of understanding to state to the client, ‘You’ve asked me for a service that is not putting my financial planning expertise to use’,” says List. “And while I’m happy to provide it to you, I’m offering you a limited service.”

In the letter, planners should assure the client that his or her data won’t be used for anything apart from the financial plan. The letter also establishes reasons that one or the other party may end the relationship.

When Advocis’s new best practice manual is published later this month, it will include sample documents online. Any financial planning practice should develop generic letters that outline the professional’s expertise, sales licences and compensation structure, but also leave room to disclose challenges or concerns that are particular to each case.

> Goals And Concerns

This is the first of a two-step process during which you get to know your client as well as you can. You may find these goals evolve or are clarified as you get to know your client over the months and years.

You’ll want to know when your client wants to retire; his or her life expectancy; if the client has children for whom he or she wants to pay education costs; the client’s tolerance for investment volatility; potential disposition of businesses or other assets to spouses or children; travel plans; and trusts and goals for large charitable donations.

You’ll need to know some basics right away, of course. But most planners eventually develop a methodology that includes questionnaires and different ways of drawing this information out. It won’t all happen in one meeting, Christianson says.

“We find that, over the course of two to three years of annual meetings with clients, asking them ‘mission’ questions, you eventually get down to the core of what makes them tick,” he says.

This step reflects the integration of the entire financial planning process, says List, because the interdependency of all the information becomes clear when you see it together.

What you have identified as your client’s goals, needs and priorities will determine your final recommendations. “And you need to gather that information in order to make the recommendation,” says List.

> Pure Data Gathering

This step determines whether you will be able to meet the client’s needs, and if the client is willing and able to provide the information to complete a financial plan.

Christianson says most financial plans do not end with the client walking out the door in a tight-lipped huff. As long as the client believes he or she is the focus of the process — rather than a sales pitch — the client generally is willing to provide the necessary information.

“Real financial planning engagements are carried out by financial planners,” says Christianson. “And those people are pretty successful at getting the full information from clients. Clients and consumers can tell pretty quickly if an advisor is there to provide them with advice and education … or to find the shortest route to providing them with products.”

The type of information required from the client will depend on the depth of the service you have agreed to in your engagement letter. This may include brokerage and mutual fund statements, insurance contracts, several years of income tax returns, mortgages, trust agreements, wills and powers of attorney, loans and any other relevant documents.

Occasionally, financial planners will have to make qualified recommendations for clients who are not forthcoming with all of the required information. “But this step guards against that happening because it doesn’t serve the client’s best interest,” List says.

Ammeter says the new best practices manual for Advocis will include a section on the collection of client information, including questionnaires for determining goals and risk tolerance, and worksheets on collecting hard data for analysis.

> Summary Of Client’s Situation

For the summary, the financial planner crunches the numbers, completing a cash-flow analysis.

You’ll analyse the household balance sheet; determine your client’s debt ratio; look at savings rates; review his or her investment portfolio’s asset allocation; consider life insurance requirements; and identify other financial risks.

Generally, you’ll give the client an idea if he or she is on track to meet goals and needs.

“Often clients find out about potential shortfalls and they are shown what adjustments they can make, or what might be needed,” says Christianson. “Other times, people find they’re on track to exceed goals and they can aspire to more, or retire early. It identifies opportunities — and that’s probably the most universal — to improve the person’s life without them making big sacrifices.”

> Recommendations, Other Solutions

You’ll present a plan that highlights the analysis you’ve completed, including a summary of the client’s objectives and your assessment of his or her progress toward established goals.

The report will include recommendations to help the client meet those goals. Some items may be simple, Christianson says. If they have credit card interest accumulating in one place and cash in another, “they have to pay that credit card off,” he says. “They can borrow later at a better rate if they need the cash to buy investment assets.”

A range of financial products may be offered. One of the requirements of both the CFP and RFP, based on their organizations’ codes of ethics and practice standards, is that the client should be presented with some alternatives, with an analysis of the pros and cons of each.

“That’s what differentiates a financial planner from a salesperson,” says Christianson. “Giving options. Including giving, in an objective fashion, the potential consequences of doing nothing.”

And, List says, if your clients could benefit from products that you can’t provide with your licence, “you may have an obligation to bring in other professionals.”

> Implementation

You and your client now need to work out a timeline for putting some of your ideas into action.

“The actual buying of a security is not part of your duties,” List says. “The practice standards are about making sure that you, as a planner, are working with the client to agree on what has to be done, who may do it and what time is appropriate.”

If you sell products, all regulatory disclosure applies both on your sales commission and on the products that you are selling.

The client, too, may have responsibilities. If your solutions include savings plans, he or she will need to know when to start.

The Advocis online manual promises not to be product-centred. It will also include points on debt restructuring, how to set up emergency reserve funds and schedules for transferring pensions into locked-in RRSPs. “It covers lots of situations that commonly arise in financial planning, regardless of what the solution may be,” Ammeter says.

> Monitoring

Circumstances can change quickly and, at a minimum, as a professional financial planner, you’ll want to revisit your client’s financial plan at least once a year; balance sheets should be updated at least every three years.

During these meetings, you’ll want to re-visit your client’s goals and needs, noting changes in his or her financial situation. You also want to make sure the client is living up to his or her end of the bargain.

Your letter of engagement often comes back into the process, List says, and it is often altered and signed.

“You help push the client into actions that you know will help him or her,” List says. “But you also protect yourself as a CFP from the client coming back and saying it didn’t work. Well, perhaps it didn’t work because they didn’t do what they agreed to do!”

> Looking Ahead

Some industry participants believe today’s designations are not stringent enough for today’s financial planners. JoAnne Anderson, an advisor at Raymond James Ltd. in Toronto who recently attained her CFP title, believes the designation should be just the beginning for all advisors. Anderson says today’s planners should have to participate in a professional internship program before they get their designation.

“Ideally, we should have the same kind of apprenticeship or articling program that chartered accountants and lawyers have,” says Anderson, who about 20 years ago helped set the exams for an earlier version of the RFP designation.

“They need to learn and they need to have some hands-on experience before they’re awarded their professional credentials,” she says. “We need that same kind of process for the next generation of financial planners.” IE