Consumers not aware of planner qualifications can face serious financial risks

A recent survey conducted by independent financial services group, acsis, has highlighted the potential risks consumers can face if they are not aware of the type of qualifications their financial planners possess.

The acsis Financial Security Barometer revealed that of respondents who make use of a financial planner, 67% indicated that their planner had a formal qualification. However, when they were asked to specify the qualification, 43% could not do so.

According to Gerhardt Meyer, Executive Head of Advice and Development Solutions at acsis and Chairman of the Financial Planning Institute of Southern Africa (FPI), these statistics show that consumers do not seem to place value on formal qualifications. “This is a very concerning trend as the financial planning environment has become significantly more complex over the past few years. It is no longer safe to rely on a financial planner’s ability based on anecdotal evidence or a false sense of trust because someone has recommended the person.”

He says that when hiring a financial planner who does not possess the correct qualifications, consumers run the risk of receiving incorrect information that could cost them by way of lost growth opportunities, inadequate risk coverage or even over-taxation. “Financial planning requires a complex set of skills, ranging from up-to-date technical skills, to critical client engagement skills. Not only do planners need an appropriate qualification as a starting point, but they need to be aware of the most recent developments.”

“The financial planning profession is evolving at record-breaking speeds and planners who have not been exposed to the most recent advances will not be able to offer their clients the holistic benefits that these skills bring to the financial planning process.”

According to Meyer, these statistics also indicate that consumers are unsure of what they should expect from their financial planners. “Many consumers assume that financial planners are simply financial product distributors, when they in fact play a much broader and more vital role. This is worrying as it indicates that financial planners are not clearly defining and explaining their value proposition. If consumers clearly understand what professional financial planners truly have to offer, they would most definitely be interested in knowing how the person is qualified to provide that professional service.”

The survey also revealed that only 2% of respondents were positive that their financial planner is a Certified Financial Planner (CFP®). In order to possess the CFP® designation, a planner needs to meet the experience, education, examination and ethics requirements of the Financial Planning Institute (FPI). “Planners that do not possess one of the FPI professional designations might not be up to date with the latest financial planning developments and implementation solutions available and, if that is the case, might cause more harm than good when it comes to financial security,” says Meyer.

He says that the FPI is aware of the fact that consumers do not understand nor appreciate the value of the various designations held by professional financial planners. “This is an issue that the industry is grappling with globally. In the United States, for instance, the CFP® Board has put a four-year, US$36 million campaign in place to promote awareness around CFP® qualifications. In the US, UK, Canada and Australia, the concept of a financial planning week, where financial planners offer their time free of charge to consumers who need advice, has also proved to be successful in promoting the financial planning profession.

”Locally, the FPI is currently working on a strategy to increase the visibility of the financial planner designations and the associated benefits. This revised strategy is close to finalisation and the industry will shortly see changes as to how the designations are promoted to improve public awareness.”

Meyer says that in order to combat this, financial planners should ensure that consumers correctly understand their value. “Even if consumers don’t ask, planners have a duty to educate clients on the importance of appropriate qualifications as they have direct contact with consumers and can spread the message more efficiently.”

He says that consumers can consult the Financial Services Board (FSB) website to confirm regulatory registration and the FPI website to confirm whether a financial planner is a member of the FPI.