In my January Blog, I mentioned that we have more than 900 people whom have passed the CFP certification exam, but there are one third of them whom didn’t renew their qualifications in 2011.
A third of the constituent members are from insurance companies, another third are from banks and the remaining are from stock securities, independent financial planning firms…etc. After they passed the CFP certification exam, they expected to perform the career of being an independent financial planner and receive advisor fees from clients by providing them professional consultation.Unfortunately, most of these planners stay at the same jobs because many professions such as insurance salesmen or bankers are doing financial planning, whether they hold the official title or not.
The reason it is hard to be an independent financial planner is due to the regulation that restricts the development of financial planners. The financial planning profession is not well-recognized, partly because we lack regulation that is tailor-made for financial planning.
There is no Legal Status for the Financial Planning Profession or the CFP Certification
There is no legal status for the financial planning profession or the CFP Certification today in Taiwan. The independent financial advisor must register the company name as a financial advising, asset management or financial consultant firm. But since financial planning is not well-known to the public, people will think the company is doing the business of usury or mortgage loans.
We have regulation here to specify that you need some kind of certification to do specific things. For example, it’s illegal for you to share your comments relating to the stock market in the newspaper or on any social media channel. You can only do this after complying with the regulation, meaning you have earned the certificate of Certified Securities Investment Analyst (CSIA). The CSIA Certificate has its legal status in stock investment, but CFP Certification has not reached this point.
Since the 2008 Lehman Brothers Collapse, Taiwan has had over 50,000 people lose a lot of money, mostly due to improper sales of structure notes by banks. And still, we have a long-standing situation where some brokers are utilizing a set of exaggerated words to sell “Whole Life Insurance” policy with a cash deposit. I saw an article that told the story of a client who paid one million US dollars in three years, and she had no idea that she was paying the life policy premium. The only thing she had been told was that she was depositing money into a savings account.
We have many consumer disputes caused by “mis-selling” in each sector of financial services.
There is a need for an independent financial advisor who can offer professional services, remain objective and suggest better solutions for clients instead of just selling them products. We need to extend the sphere of influence to more clients and let them take advantage of financial planning. But, due to the lack of legal recognition for the CFP Certification, it is hard for an independent financial advisor to provide a complete solution for their clients. Financial planning overlaps many segments of financial services such as insurance, investments, and banking. Because of this, we need a more flexible way to treat the financial planning profession.
Financial Planners are Forced to Provide Limited Solutions for Clients
There is a separate regulation for each financial industry. This regulates the quality of service that clients receive, but at the same time it causes disadvantages for financial planners. In the banking industry, there is the financial holding company that covers the subsidiary companies such as insurance policies or security investments. This allows financial consultant of a bank to provide the insurance policy, mutual fund, mortgage..etc. They may sell a variety of products that meet the regulatory compliance because the subsidiary companies are all under the same financial holding company.
As for the salesman in insurance companies or broker channels, they are limited by the regulation: they can only provide clients with insurance products such as life policies for saving and protection, Unit Link policies for investment, or Property and Casualty Insurance policies. They are not allowed to sell mutual funds, stock or other products.
Financial Planners Should Be a One Stop Shop
Independent financial planners have it the worst though. They are not in a bank or insurance company. They face the same bottleneck as insurance agents. They need a wide range of tools to fulfill their client’s goals, but are limited to insurance policies only. Even for the purpose of a client’s investment, the only tool that can be used is the Unit Link policy (Variable Universal Life and Variable Annuity). After the planner finishes a financial plan for their client, the client trusts this planner and would prefer a ‘one stop shop’ where product solutions are chosen to accomplish their goals. Unfortunately, planners can’t use mutual funds, stock or bonds as tools for asset management. Regulation limits planners from selling these products. And on top of that, planners can’t legally receive any commission or asset management fee from an investment trust company.
The Expectation of Regulation for Financial Advisers
In my opinion, an independent financial adviser profession is a symbol of social progress. Once you have this profession in your territory, it means that the government respects that people have a right to choose financial services. Independent financial advisers will become the voice of the clients: “No more product sales, give me what I really need.” It can’t be denied that our financial services (banks, insurance and investment companies) are centralized in several local consortiums – it is some kind of monopolization. The public doesn’t have too many choices when it comes to financial services, and the choices they do have are almost all product sales. But, we can see hope in our neighboring territories: Singapore passed the Financial Adviser Act in 2002. They now have the legal status for a financial planning profession making it easier for Independent Financial Advisers to develop.
We expect to pass a similar regulation in Taiwan that will help the financial planning profession in several areas.
1. Legal status
We need legal status for the financial planning profession and the CFP certification mark. The regulation should setup a standard for wealth management and financial planning enforcing that a CFP Certification is necessary to engage in either of these professions. Due to the fact that financial planners usually handle the client’s asset management, requirements on ethics and professionalism are necessary and the CFP Certification will fully support these requirements.
The authorities should understand that the financial planning profession is a new and totally different profession. It’s not the same as an insurance broker or a financial consultant of a bank. Therefore, only a tailor-made regulation for the financial planning profession will meet the requirements of an independent financial planning adviser. Because financial planning overlaps several areas, the legal status should offer flexibility to planners, allowing them to choose from a variety of products and/or investment tools. Also, the planning adviser should be able to receive payment from the above-mentioned channels.
2. Tax deduction
In our regulation, practitioner’s such as lawyers or accountants receive a tax deduction. For example, a lawyer has a yearly income of US $40,000. 30% of his income will be deducted, and his income tax will be calculated based on the amount, US $28,000.
The nature of business of an independent financial planner is the same as a lawyer or an accountant. They have to pay all of the startup costs such as training and travelling. Even when they are working for a financial planning firm, they are on a contract basis, not an employment basis. For these reasons, they deserve to receive a tax deduction for income tax.
We should expect to have an environment that is fair to the public. Clients should make decisions based on their real needs and not based on pressure from salespeople. We experienced the financial turmoil of 2008. We watched as the public struggled during that time. Some people even lost their entire retirement funds that they depended on for the rest of their lives. In my opinion, a well-developed financial planning profession can help the public in making the right financial choices. We have a long, long way to go, but CFP certificants need to push to first, get the Financial Adviser Act passed and second, get regulation created for the financial planning profession.
