When grandfathering looks out of place

Mike Taylor writes that the drive for higher educational standards for financial planners has served to regenerate criticism of those people who were grandfathered into their Certified Financial Planner designation. 

When the Commonwealth Bank earlier this month announced that it would be lifting the minimum education standards for those employed by its planning businesses and the move was promptly endorsed by the Financial Planning Association (FPA) a number of Money Management readers started talking about grandfathering. 

However they were not talking about grandfathering in terms of the Future of Financial Advice legislation, they were talking about grandfathering in terms of the Certified Financial Planner (CFP) designation which sits very much at the heart of the Commonwealth Bank’s higher education standards. 

It was lost on no one earlier this month that after having been close to scathing about the culture which gave rise to the problems within the Commonwealth Bank’s financial planning practices, the FPA had then sat down with the big banking group to help develop a range of remedies at the core of which sits higher educational standards and the embrace of professionalism. 

 However the core issues with respect to CFP grandfathering are, the Commonwealth Bank’s undertaking that “existing Senior Financial Planners will be required to obtain the Certified Financial Planner certification with the Financial Planning Association of Australia”; and that the bank “commits to making membership of a relevant financial services industry association a minimum standard required of all CFP financial planners by 30 June 2015”. 

Two things arise from this: 

• The FPA seems likely to benefit from an increase in members as those Commonwealth Bank planners who are not already members of the organisation seek to ensure they fulfil that requirement. 
• The FPA, which administers the CFP designation in Australia, will benefit from a likely upturn in the number of planners seeking to obtain the designation. 

However, according to some Money Management readers, there exists a third consequence - while planners employed by the Commonwealth Bank will be working hard to lift their educational qualifications and to obtain the CFP designation, there will remain a still significant cohort who will be using the CFP designation without having necessarily obtained the now-necessary underlying degree qualification. 

Who are these people? They are the long-standing members of the FPA who were allowed grandfathered CFP status when the regime was implemented in Australia more than 20 years’ ago. 

The reality of the CFP grandfathering arrangements is that they represented a necessary and not unique accommodation when the designation was introduced. Not unique because other countries which introduced the designation adopted a similar approach. 

The FPA has always defended that decision, with one of the more overt examples being when its former Deputy Chief Executive and head of professionalism, Deen Sanders, dismissed as “uninformed” suggestions that planners grandfathered into the program at its inception were less worthy of maintaining the designation than recently accredited degree qualified planners. 

Speaking in 2010, Sanders said that when the program had been introduced to Australia, the FPA had “applied the best mechanisms we had available at the time”. 

“We absolutely hold that those people are deserving of the right to remain a CFP. They have met continuing education requirements [so] they’ve had to sign up to the highest CPD obligations in the country for a professional financial planner. It’s not only about getting into the CFP but how you maintain that,” he said. 

The critics of the continuing grandfathered CFP status claim that while what Sanders said with respect to the continuing professional development obligations is true, fulfilling those CPD obligations is not particularly onerous. 

Nothing much has changed with respect to the FPA’s approach to its grandfathered CFPs except, of course, that their numbers are declining as the beneficiaries of the old regime grow older and exit the industry. 

In reality, those who sanctioned the grandfathering arrangements always knew that they would cease to be an issue over time. Nonetheless the industry’s determined progression towards higher educational requirements to underpin a genuine profession gives an edge to the arguments of the critics.