The Demographics that Predict Success in the Australian Certified Financial Planner (CFP®) Certification Program

There are many different types of professions: for example, auto mechanics, project managers, software experts, medical professionals, chefs. However, the common denominator across these professions is certification—an indication that each profession has specific skill sets considered important in that field. Acknowledgement of these skills takes the form of accreditation or documentation indicating that the professional has the skills or qualifications that satisfy the minimum standards or qualifications required in their specified field. This certification is usually issued by an organisation with recognised expertise in the field able to guarantee that the professional has met the required education or qualification. The Professional Standards Council (PSC) aims to protect consumers by improving professional standards and is in keeping with the FPA’s Certification Program’s goals and objectives (PSC, 2017). The PSC defines a profession as:

a disciplined group of individuals who adhere to ethical standards. This group positions itself as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level, and is recognised by the public as such. A profession is also prepared to apply this knowledge and exercise these skills in the interest of others. Professionals are governed by codes of ethics, and profess commitment to competence, integrity and morality, altruism, and the promotion of the public good within their expert domain. Professionals are accountable to those served and to society.

Furthermore, in a rapidly changing world where knowledge and technology are increasing exponentially, education and skills will change according to the needs of a profession and, as a consequence, professional certification attesting to the expertise of the individual will also change within each profession.

Certification, in most career fields, involves an application process that takes many factors into consideration, including training, experience, references and other factors. Some certification further requires background checks. What is common is the requirement to meet a certain standard to apply for certification in the first instance, with an ongoing expectation, once certification has been attained, of continual learning, skill and professional development. Professionals with a specific qualification indicate a mark of high competence and quality of knowledge in their specific area. For example, a Certified Practising Accountant (CPA) is a professional accreditation that ensures a depth and breadth of quality knowledge in finance and accounting. The CPA accreditation is widely regarded by employers and is an internationally recognised qualification. To receive a CPA accreditation in Australia, an individual must complete a degree or a postgraduate award recognised by CPA Australia and then complete the CPA Program, which comprises four compulsory subjects, two electives and a practical component that provides the relevant skills, including three years of professional experience in finance, accounting or business. In addition, CPAs must undertake continuing professional development (CPD) each year to maintain their skills and knowledge and keep abreast of changes and emerging technologies within their industry. Furthermore, they must comply to a strict code of conduct (CPA Australia, 2015).

The Australian legal profession similarly demands certain eligibility requirements for admission as an Australian lawyer. In NSW, the Legal Profession Admission Board issues a compliance certificate to an individual who has attained the academic qualifications and satisfactorily completed the practical legal training requirements specified by the Legal Profession Uniform Admission Rules 2015 (NSW), and who is deemed a fit and proper person to be admitted to the Australian legal profession. Upon gaining admission as an Australian lawyer in New South Wales or another Australian jurisdiction, a person is then eligible to apply to the Law Society of NSW for a practising certificate to practise as a solicitor, or the NSW Bar Association to practise as a Barrister. Other states and territories follow similar certification pathways (Law Society NSW, 2015).

The financial services industry, in comparison to more traditional professions, is relatively new and many countries, including Australia, have had difficulties achieving professionalism within the industry. Many of these difficulties are the result of poor financial advice—a by-product of low levels of education and limited regulation within the financial services industry.

Adding to the confusion of clients seeking reliable and useful advice is the number of different designations around the globe. The Financial Planners Standards Council of Canada (FPSCC) is a not-for-profit standards-setting and certification body. By contrast, the ‘Personal Finance Planner’ (PFP) (www.fpsc.ca) was created for bankers, but is not particularly relevant as independent financial advisors or planners. The Professional Financial Planning Course (PFPC) is not a standalone designation, and the courses provided have now been discontinued. By contrast, the Certified Financial Planner (CFP), and the Registered Financial Planner (RFP), are both internationally recognised and regulated by the Financial Planning Standards Board (FPSB) which adheres to strict regulations and ethical standards designed to protect consumers. The CFP and RFP both require a minimum level of work experience, as well as continued education and testing to maintain their designation.

In the US there are again numerous designations accredited by the National Commission for Certifying Agency, including: Accredited Retirement Plan Consultant (ARPC), Certified Financial Planner (CFP), Certified Medicaid Planner (CMP), Certified Retirement Counsellor (CRC), Certified Retirement Financial Advisor (CRFA), and Certified Senior Advisor (CSA). In the US, financial planners entering the industry come from many different educational and professional backgrounds. However, many are investment advisers preferring to provide or recommend a narrow range of products, at times offering products that aren’t securities. These investment advisers are not financial planners able to assess all aspects of their clients’ financial lives and develop detailed strategies or financial plans to advance their clients’ financial goals (US Securities and Exchange Commission, 2015). Bigel (2000) suggests the abundance of these “so-called” advisers, and a clear lack of regulations, may be behind a series of transgressions by investment advisers and regulators.

It has also been suggested in research undertaken in the United Kingdom that the regulatory environment is a contributing factor that inhibits the growth of professionalism in the financial planning industry (Gaskell and Ashton, 2008). Research undertaken by Gaskell and Ashton highlights a continued dissatisfaction with financial services sales by consumers and the need for change. There is support to reduce market inefficiencies, for “financial advising” to be limited to the sale of financial products, and to substantially reassess the regulation of financial service professionals. However, like the Australian scenario, a lack of training, education and examination has negatively impacted on attempts to raise the level of professionalism in the industry (Gaskell and Ashton, 2008).

In Australia, regulations are in flux. Currently under Australian corporations law, any business or person that provides advice about financial products must be an Australian Financial Services (AFS) licence holder, a director or employee of an AFS licence holder, or an authorised representative of an AFS licence holder (ASIC, 2016). All individuals who provide financial product advice to retail clients must meet the minimum training standards as set out by the Australian Securities and Investments Commission’s (ASIC) regulatory guide (RG) 146 (ASIC, 2012). As the industry moves to attain professionalism, the Australian Competition & Consumer Commission (ACCC) has adopted the definition supported by Professions Australia: Knowledge and Skill requirements, and adapted from ASIC RG146 including the following tiers of knowledge and skills.

Generic Knowledge

Only required for Tier 1 advisers.

ASIC does not require advisers on Tier 2 products to meet the generic knowledge requirements.

Specialist Knowledge area(s)—TIER 1 PRODUCTS:

Securities

Derivatives

Managed investments

Superannuation

Self-managed superannuation funds (SMSF)

Foreign exchange

Margin lending facilities

Specialist Knowledge area(s)—TIER 2 PRODUCTS:

Deposit products and non-cash payment products

General Insurance

Skills

Only required if the adviser is giving personal advice. An adviser giving general advice does not need to undertake skills (ASIC, 2012).

In Australia and most developed nations, the financial services industry strives to achieve a level of professionalism in the face of a litany of transgressions. In a rush to encourage advisers, organisations offer incentives to their brokers and agents to earn a professional designation (Phipps, 1999). In addition, while other firms seek to encourage women to enter the industry through affirmative action initiatives (CFP Board Women’s Initiative, 2014). However, a persistent lack of clear regulation and inadequate adviser education are undermining these otherwise worthy initiatives and remain of concern throughout the industry.

In Australia, the FPA has taken initial steps to improve the industry standards. The FPA suggests raising the educational bar will ensure better advisers and, in turn, improve the quality of financial advice. From 1 July 2013, the FPA required new members to be qualified with an approved degree.

The Certified Financial Planner® designation is purported to be the ‘gold standard’ for financial planners. At present, however, there is no objective evidence to support this claim. This research project appears the first to provide an insight into the link between educational background and success in the CFP® Certification Program. In addition, this research project explores whether any correlation exists between demographic factors on entry and results in the CFP® Certification Program.

A salient piece of research in relation to key indicators of success in the CFP® Certification examination was undertaken by Grange, et al. (2003), where 4,829 candidates of the CFP Certification exam were surveyed with a 52 per cent response rate. The survey concentrated on the key attributes of:

overall grade point average

This study, based on similar studies undertaken for the CPA certification in the United States, indicated a nexus between pre-existing educational qualifications and success in the certification (Whitten and Brahmasrene, 2002). The results indicated that: “educational achievement and performance, and taking the CFP® Certification Examination soon after graduation from the registered program are positively associated with success in the exam” (Grange, et al. 2003).

A follow-up study was conducted by the same researchers in Cutler, et al. (2005) who then reanalysed the survey data from the original three examination intakes, those being November 1999, March and July 2000. They also incorporated new survey data from the following three examination intakes—March, July and November 2001. In addition, statistical data analysis methods were utilised in the follow-up. Three univariate models were applied: cross-tabulation compared with chi-square test for independence, one-way ANOVA for mean scores within categories, and the Kruskal-Wallis test that allowed for analysis of raw scores without a normal distribution (Cutler, et al. 2003, p. 59). Two multivariate models were also applied, including a general linear model for exam scores, and a multiple logistic regression model for pass/fail outcomes (Cutler, et al. 2003, p. 59). This newer study identified five variables that predicted success in the examination, namely: retaking the test (decrease), participation in a registered program of study (increase), identification of financial planning as the primary industry of your occupation (increase), standardised test scores from prior studies (increase), and CPA membership (increase) (Cutler, et al. 2005, p. 70).

No similar study in relation to CFP® Certification examination performance has been, to date, undertaken in Australia. Our methodology in this study differs substantially from the US study with no survey instrument being used, data instead being obtained from enrolment forms and FPA records.

The full CFP® Certification Program is split across five units and covers three core components of Education, Examination and Experience. Each unit is designed to advance the participants’ existing knowledge and expertise, and ensure they meet the standards of excellence required to achieve the designation.

The program is delivered by distance learning over 12-week semesters and is structured in a way that provides flexibility and freedom in a self-paced delivery mode. The annual program intake includes two semesters and a summer semester. Typically, the program takes 2–3 years to complete.

The first CFP® Certification Program in Australia commenced in the spring semester of 1999. The original program consisted of four units, with a certification examination added to the CFP® Certification Program in 2003. The program as it currently exists is depicted in Figure 1.

Figure 1.

The program emphasises the competencies, knowledge and capabilities required to be demonstrated by a financial planning professional. The FPA states:

The successful completion of the program demonstrates that you have met technical competency and exceptionally high standards across the 4Es set by the international Financial Planning Standards Board – Ethics, Education, Experience and Examination.

Based on the literature review, three hypotheses have been identified as requiring further investigation:

H₀—There is no identifiable variable which impacts on success in the CFP® Certification Exam.

In order to identify the most appropriate variables for investigation, we sought out the pre-existing data available from student application forms for entry into the CFP® Certification Program. These forms were chosen because the data points would be consistent across the entire period and various cohorts, as well as being accessible to the researchers. In this study the CFP® Certification Program application forms (see Appendix 1) and result records were examined for the period 2006-2014 to determine if any correlation could be identified between the demographics chosen and performance in the CFP® Certification Program (course work) and the CFP® Certification exam. This period was chosen because it eliminated participants in the transition period from 1999-2003 which did not provide consistent information for analysis. The name and other identifying information for each candidate were removed from the data to ensure candidate confidentiality.

Data access was provided to the researchers by the FPA in Australia by allowing access to its computer files of enrolment and results. All analyses were carried out in the SPSS v22 statistical software package. This software was selected to be the tool used for statistical analysis because of its ease of use and availability to both academics and practitioners, allowing our results to be readily interpreted by a variety of audiences (Arrkelin, 2014). Brief descriptions of all the variables included in the analyses are given in Table 1.

This research is limited to the analysis of 109 randomly selected data sets as being representative of the entire population. The use of this sample size was chosen as the full population data sets were not available at the time of data collection due to the partial corruption of some student records. The remaining data had a degree of corruption which made the data unusable initially. It is intended to collect further data from the remaining population at a future time.

The CFP® Certification Program application form identified several demographic variables which included gender, age, geographic location, pre-existing educational qualifications and employment role.

The analysis began with a cross-tabulation of each examination result from the sample examinees against each demographic variable. Next, the cross-tabulations were analysed on the basis of the variables in pairs, including results in each course unit, as well as the exam scores at the Pass, Credit, Distinction and High Distinction levels. This permitted the examination of the correlations between the chosen variables and the resulting performance in the CFP® Certification examination.

Table 1 below provides a brief description of gender and age data.

The results of the analysis of the gender of the sample size indicate 76 of the candidates were male which represents 69.7 per cent. Thirty-three of the candidates were female, which represents 30.3 per cent.

Additionally, when analysing the age categories, it is interesting to note that over half the candidates are under 40, with only 18 per cent above the age of 50. Given that educational programs in financial planning only began in the 1990s it is reasonable to assume that the group under 40 has had greater opportunity to study the subject matter in a formal way than their older counterparts who tended to learn more on-the-job. Due to relatively recent changes in societal values—with increasing emphasis being placed on tertiary qualifications, adviser education and legislative compliance—it is reasonable to deduce that the under 40s group is more likely to undertake professional certifications.

Table 2 below represents a summary of the results of the tested hypotheses.