The Critical Skill Sets of a Financial Planner

Many firms that are bringing on new advisors may not be properly setting them up for long-term success. With an emphasis on outdated models that are overly focused on internal culture and products, early-career financial professionals are not always prepared to meet the complex needs of today’s clients from the training they receive at work. Today, financial planners need a keen understanding of how clients think in order to build trust and provide realistic solutions that help clients meet their financial goals. To develop financial planners with these skill sets, firms should rethink their training models to emphasize these attributes so that early-career financial planners can deliver the highest level of service for their clients and ultimately be more successful.

Fortunately, new financial planning professionals who have earned CFP® certification have already received training in these areas and have demonstrated competency in each of these domains by passing a rigorous exam.

To better prepare advisors to incorporate these three skill sets, CFP Board spent two years developing a new framework that incorporates feedback from advisors, academics, experienced professionals and firm executives. CFP Board now uses the new CFP Board Financial Planning Competency Framework consisting of nine high-level competencies, as its blueprint for education, exam and CE programs going forward.

It's important to understand that the three domains of knowledge emphasized in the new Competency Framework weren’t created to improve the exam, but rather to improve the profession. This framework will allow consumers to better see the value of financial planners and the unique skills that differentiate them from other financial service professionals. However, demonstrating competency in this framework is only the beginning for financial planners. CFP® professionals will need to build this into their daily practice and incorporate the three main skill sets:

1. Technical competency
2. The ability to identify behaviors and biases (both the clients’ and their own) around money and to coach clients to make good decisions
3. Professionalism and integrity

These three skill sets must run in parallel and can be reduced to three questions that a financial planner needs to always ask themselves:

• Do I fully understand the client’s goals, financial resources and potential solutions?
• Do I understand the client’s beliefs about money, and what coaching and communication will enable them to overcome any obstacles to achieve their goals?
• Am I acting with integrity and in the client’s best interest?

Technical Competency

Being a financial planner requires skills like those of a detective. When meeting with a new client, CFP® professionals need to gather relevant information (e.g., assets, income, liabilities) and ask questions (e.g., goals around retirement, sending a child to college or buying a vacation home) to find the right set of solutions. For CFP® professionals, that solution combines a model of their client’s current financial situation with a path forward to reach their financial goals.

Being a financial planner requires skills like those of a detective. When meeting with a new client, CFP® professionals need to gather relevant information (e.g., assets, income, liabilities) and ask questions (e.g., goals around retirement, sending a child to college or buying a vacation home) to find the right set of solutions.

But the model doesn’t represent reality; it is only an approximation. The financial planner needs to ask the first question:

Do I fully understand the client’s goals, financial resources and potential solutions?

Answering this question will require the CFP® professional to fill in the gaps and apply technical financial planning knowledge to form a complete picture of their client’s financial situation. This means thinking holistically, a process natural for a seasoned financial planner. However, for early-career CFP® professionals, it can be difficult to see the connection between the client’s estate plan, taxes, retirement goals, cash flow and assets. Learning which questions to ask a client and knowing when to dig deeper typically develop over time.

At this point, the financial planners should possess a great deal of information about the client’s financial history and be able to answer the first question about fully understanding their client’s goals, financial resources and potential solutions. The financial plan presented to the client, which started as facts and figures, now takes the form of a story describing the client’s current situation and where the CFP® professional can help the client shape the future of that story. But there is more work to be done: The advisor needs to grasp more of the why to understand why the client made past financial decisions and if they are ready and willing to implement the recommendations moving forward.

Psychology of Financial Planning

The fact-finding and data obtained so far may provide clues but not complete answers to the client’s behavior surrounding money and wealth. At this point, new questions will emerge. Why has the client been overspending and not contributing to a retirement plan? If the couple has different visions of retirement — called goal divergence — why have they not resolved it by now? Why are they spending so much money on expensive cars, vacations and home improvements, and why are they using high-interest debt to finance it all? Why don’t they have an emergency fund or sufficient insurance?

In parallel with the technical data-gathering and analysis, the financial planner should be probing to gather information about the client’s beliefs about money.

This is when the planner needs to ask the second question:

Do I understand the client’s beliefs and attitudes about money, and what coaching and communication will enable them to overcome any obstacles and achieve their goals?

In parallel with the technical data-gathering and analysis, the financial planner should be probing to gather information about the client’s beliefs about money, why clients made certain financial decisions in the past and what psychological barriers need to be addressed to achieve their future financial goals. Asking these questions requires skill to make the client feel comfortable and, ultimately, honest with their answers. For the CFP® professional, it also requires active listening and empathy to ensure that the client sees you as someone who genuinely understands and wants to help them work toward a solution. Additionally, it requires the advisor to delve into the client’s past (see “The Three Time Zones of Financial Planning”) to better understand the why behind their prior decisions and how that past behavior might affect the recommendations the planner is making today.

Fortunately there are tools that help a planner to obtain this information. One tool to understand why clients made certain decisions in the past is to learn their “Money Scripts.” Questioning clients’ “Money Scripts” can reveal how their upbringing shaped their attitudes surrounding money, and if there are troubling behaviors or family dynamics that could impact them when implementing recommendations from their financial planner. Changing for Good is a research-based tool for helping clients make changes and implement their plans through a six-step change process model.¹  This model is effective for financial planners to gauge where their clients are in the decision-making process and provides tools to help coach clients to be self-motivated to implement the planner’s recommendations.

Acting in the Client’s Best Interest

At every stage of the financial planning process, financial planners should ask themselves the third question:

Am I acting with integrity and in the client’s best interest?

This becomes easier if the question is built into the financial planning process. That means communicating the disclosures required by a CFP® professional; making sure you gathered the correct information on the client’s situation, goals and objectives; and ensuring that you’ve done the proper due diligence before making a recommendation.

As part of this process, the level of planning should also be commensurate with the complexity of the client’s situation. A young couple just starting out may not need sophisticated tax planning, charitable giving options or extensive estate planning solutions, but they may need help in other areas that are more applicable to their financial situation, such as retirement planning, college education funding or a monthly budget analysis. Whatever the level of complexity, the financial planner needs to act in a way that ensures that the advice is appropriate, aligned to the client’s goals and in the client’s best interest.

Acting with integrity provides benefits beyond just doing what is right. When combined with technical competency, integrity enables the growth of trust between the client and the financial planner. We know through research (see “Solving the Trust Problem”) that clients need to know their financial planners are competent and act with integrity before they begin to trust the advice offered by the financial planner. The ability to quickly gain the trust of clients is essential for being an effective financial planner.

Developing the Skill Set

Asking these three questions about technical knowledge, psychology of financial planning and ethically acting in the client’s best interest will empower financial planners to build a sustainable practice and a rewarding career. New financial planning professionals who passed the CFP® exam and earned CFP® certification already demonstrate competency in each of these areas. However, maintaining proficiency and developing into an experienced CFP® professional requires incorporating this flexible skill set into your practice and how you think, listen to and communicate with clients. It also means questioning your skill set to ensure that you are always acting in the client’s best interest. This will not be easy, but by continuously developing the advisor’s skills on how and when you ask questions, and feeling comfortable inquiring about a client’s past, it will allow early-career financial planners to demonstrate technical knowledge, while building trust with clients to help them make lasting change in their financial lives.

1. Changing for Good: A Revolutionary Six-Stage Program for Overcoming Bad Habits and Moving Your Life Positively Forward. Prochasko, J.O. et al. (1995)

Interested in discussing how CFP Board can support your firm’s certification efforts? Contact [email protected].