What does a CFP® professional learn? Part 1

​​The Childfree Wealth Podcast, hosted by Bri Conn and Dr. Jay Zigmont, CFP®, is a financial and lifestyle podcast that explores the unique perspectives and concerns of childfree individuals and couples. In this episode, Bri & Dr. Jay discuss the first course in the CERTIFIED FINANCIAL PLANNING™ series of courses.

While Bri is currently an Investment Advisor Representative, she’s decided to work towards earning the CFP® designation. This process is made up of the “4 E’s”, including education, exam, experience, & ethics. The education component requires one to hold a Bachelor degree & complete specific financial planning coursework from a CFP® Board Registered Program. This episode covers the first course, Introduction to Financial Planning.

Resources:

• The CFP® Certification Process

The Childfree Wealth Podcast, hosted by Bri Conn and Dr. Jay Zigmont, CFP®, is a financial and lifestyle podcast that explores the unique perspectives and concerns of childfree individuals and couples.

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Transcript

Dr. Jay

Hello Childfree Wealth Listeners. So we are going to be bringing you behind the scenes what it takes to become a CFP®, a CERTIFIED FINANCIAL PLANNER™. All of our Childfree Wealth Specialists are either CERTIFIED FINANCIAL PLANNERS™ or becoming a CFP®. And technically the professional term is trademarked and all that. And if I get it wrong, well, whatever I said the right way the first time.

But it's an interesting process. You have to have a bachelor's degree, then you have to do six additional courses on the CFP® education and Bri’s in the middle of going through it. And what I thought we would do is each time she finishes one of the courses, we will review the course. I’m going to quiz her because why not?

I can have fun with it. But also we're going to talk about how things are different for childfree folks. And I gave Bri a task to see if she finds a mention of being childfree in anything. How are you doing Bri?

Bri

I'm doing good. A nervous for your quiz here. I don't know.

Dr. Jay

Hey, you know, you signed up for so. So the first model is actually introduction of financial planning. Let's go with spoiler first. Did you see anything in there about being childfree?

Bri

No, but I did see planning for college and for kids.

Dr. Jay

Yeah. We're going to keep checking this. And by the way, yes, I'm harping on a point because I want the CFP® education to change and include childfree folks, but nothing. Got it. The introductory stuff really starts out about the basics of the economy and money and all that. What jumped out at you?

Bri

This felt like the series 65 exam.

Dr. Jay

What does that mean?

Bri

The series 65 exam is a test you have to take in order to become an investment advisor representative, which is what I currently have. And it allows you to legally give investing advice. That is one test. You get a big old book to read about different laws and the like, how the laws came to be and why they exist, what they manage.

And then basic concepts of money, time, value of money. Like what is money worth now? And what was it worth back like 20 years ago and what will be worth in the future. So just very like beginner finance things though it just felt like I was retaking the the quizzes in order to even go and take that test and practice.

Dr. Jay

Yeah. And probably about half in the first course I just looking at the list. It's like the board of CFP® Board's Code of ethics and the procedural rules and financial regulations and blah, blah, blah. Now I shouldn’t say blah blah blah, but I am because like, it's all the stupid laws that you have to memorize. I say stupid because a lot of them don't apply in different areas and different structures.

But you need to know. Like, you know, there's a quiz on like if you have an ethics violation and how long you have to respond to this and you have to like memorize silly facts.

Bri

And it's like very little details to like some things are you have so many calendar days to respond, other things or you have so many business days to respond. So like very small details that unless you knew about it, you'd probably never ask us about. But we have to know.

Dr. Jay

For listeners purposes, we're going to ignore all of that and pretend it doesn't exist because it would bore the living daylights out of it. So we're going to run through some different topics and we're going to tell what the book says versus what we say and see what it is. Now, the challenge Bri has is I'm training her to become a Childfree Wealth Specialist.

She's going to start taking client clients and we're going through the way we do things at Childfree Wealth. She has to learn that for the test at the same time and unfortunately they don't match. I'm just going to say it. So we'll get there. Now, the one other part of this that we're not going to talk about, but is a lot of it here, is you spend a whole lot of time with a calculator.

Now, by the way, for those who don't remember what a calculator is, that's a one of the little buttons Bri’s got hers. She's holding it up. It's in reverse polish notation. Don't ask why it's a financial calculator. You have to use it for the test. You're not allowed to use software. Since I became a CFP®, I have no clue where my calculator is.

But you're required to do it all by hand just because. Why not? Let's dove in here. There's a whole section here on buying versus leasing, which, if you figure out.

Bri

You did a lot of calculations in order to determine whether buying is a better option or whether leasing is a better option. But it was pretty much using your calculator for most of it and talking about the pros and cons of buying and leasing and whether buying is a better choice for people or whether leasing is a better choice for people.

And there was a little bit about like when it comes to homes like renting versus buying there, but most of us talking about cars and buying versus leasing a car, which we say don't let friends lease cars. And I 100% agree with that. But the book was like, oh, well, this is how you figure out if leasing car is a better idea.

Dr. Jay

Yeah. In case you're wondering, it is a pretty extensive math equation to figure out leasing versus buying. The bottom line is the interest rate you're paying for leasing is huge and that's why we don't have people lease. It is kind of like if we do the math on this, we come up with this answer anyway. Is that what you found in the section?

Bri

Yeah, it was basically to give you story problems like you had, you know, in middle school and high school and they'll give you a bunch of things that matter and they ask you, what are the things that don't matter in there? And then you have to figure out what matters and what doesn't. And you have to go through and calculate and then determine what the answer is from there.

Dr. Jay

I will tell you from a part of the reason why we talk about it, we're not leasing. We're also not doing that. You know, it's a philosophical thing. The metaphor wise. There are some times where leasing might make sense, but it comes very hard to show people the math of it. And what happens is when you go to actually buy a car, they just show you $299 a month or you have to pay $40,000.

They don't do the actual math in front of you. The reason why the car dealerships are doing that is because that's where they make money. The renting versus buying a home is an interesting one because none of the equations talk about your life.

Bri

It's all very here's the answer based on this very fact orientated, but it's never like, Well, are you going to even stay there for a while or are you going to leave and go somewhere else? It is 100% math and 0% life.

Dr. Jay

And it assumes buying a house is the right option. This is one of those things that childfree changes. We look at as buying a house is an option, not a requirement. And really what they're saying is, if the math means you should buy a house, but they're not saying, well, but then if you move, like to actually do the math on rent vs. buy, you need to know how long you'd be in the house.

You also need to know how much the house can appreciate and how much rents are going to go up by all those numbers. Then, you know, how do you really know how long you're going to be in that house? Everything goes and that's obviously you want the average in U.S. households like seven years or less as they spend in a house is going down.

You know, I don't know. But we did all math. Alright. Next up, another section. They have a seven step financial planning process. There's a seven step financial planning process. That is the standard CFP® way of doing things. And I'll be honest, I don't follow it. I'm just going to say, but give us the seven steps so people get an idea what the standard process is.

Bri

First one is you want to understand the client's personal and financial circumstances. Number two, identify and select goals. Number three, analyze client's current course of action and potential alternative courses of action. Number four, develop the financial plan recommendations. Number five, present those recommendations. And number six, implement them. And the seven one seventh one is monitoring the progress and updating as necessary.

Dr. Jay

What's your reaction to those seven?

Bri

They are a good idea, but I don't think planning is a one time thing and you want to be taking into account because even as we're going through the planning process, people change what they want in their goals. Getting goals and understanding where people are is necessary in order to plan. But it's not like present the one plan and that's it.

Because, you know, I have people were like, well, can you show us a couple of different plans? Like, we think this, but we think that we just want to know what it looks like. Life doesn't match just one plan.

Dr. Jay

Oh, it's like two of the matches. One play for childfree folks. So here's the thing. This is one of those systematic biases. The seven step process works great for parents because if you actually look at two parents financial plans, the only thing that changes are the numbers. So there's certain goals. I have X amount of kids, I save Y amount for their college. I retire at this age I up. It's a math equation.

There is a standard life plan you are going to follow. There's actually a section where to come back to you on life cycle planning on this, there is a standard plan you must follow. This is the start of life script. The seven step process follows that your goals questions are Well, do you wanna retire at 65 or 60?

Do you want to pay for the child’s college? You want to pay for? Now I'm simplifying. So for the people that hate mail, please feel free. But that is what's going on. The thing is with childfree folks. We do all seven steps, but it's an iterative process. We work on one or two things at a time. I got people like, Hey, I started the year they wanted to do a new job.

Then we'll do this cool. And then they're like, yeah, so I’m unhappy in my life. Now I'm not doing the job. I'm moving somewhere else and I'm like all within one year. So if I follow the 7 step process that's in like every year, your plan, that plan is useless the day it hits the desk. And by the way, the plan is like 110 pages that you put on your shelf and do nothing with.

Bri

It's not like it's not intuitive and doesn't change your life. They'll check up on it every once in a while, but it doesn't encourage continual planning.

Dr. Jay

I don't know. I mean, it's a it's a snapshot. Okay. It's what you going on? And here's some recommendations. The problem with the plan also is it's really numbers focus, not behavioral. The reality is if I'm working with a client and I work on making an improvement, I'm leaving the monthly for a reason. Work out 1 to 2 things.

We make improvements that change their plan. Now we make another improvement, and another improvement. It’s constantly evolving. We call ongoing financial planning. Interestingly enough, we're actually not doing it the way the CFP® book tells us to do it, but our clients like it and it works. Now we are required as financial planners, we must cover all several steps. It's actually part of Bri’s education.

She's in an apprenticeship program. Has to do 4,000 hours. Has to cover all seven steps. Now, that does not mean they all have to be like your map. Now I don't know somebody from the like the CFP® Board might tell me I'm doing things wrong and blah blah blah while we're allowed to adapt it. But it's one of those that like it's I just love is an example of the systematic biases.

Do you see where I'm trying to operate?

Bri

Yeah. It feels very like cut and dry when it's laid out with the seven steps, just like, here you go, do this, you're good, and then check back or something changes. But I mean, I could tell you right now that like me today versus me three months ago, I don't have the same plans. I would decide I want to do some other things and change things to give me one plan.

It wouldn't be helpful for me today.

Dr. Jay

By the way, when I talked to the people that do the standard planning process and I explained my process, it makes no sense to them. They're like, how in the world do you do this? I'm like, We just build it with our client, you know? We build it while we're flying, essentially, because that matches their life.

Bri

I don't think I could follow just the seven steps in order perfectly. That doesn't make any sense to me. Like, yes, it makes sense, but I don't know. The people who wrote this when they wrote it, did they think about life and how life happens because it doesn't feel like it.

Dr. Jay

Well, hold on. So let's go there. So one of the sections in here is life cycle planning. The life cycle planning, every single life cycle in there has kids and a certain structure. So it's an assumption that goes with it. These are the built in biases. True. So when you say, hey, did they do they understand life? They do. On a standard life script.

Bri

Yeah. And it's all like, okay, you have the family formation and family development and family maturity and all those things, but that doesn't necessarily apply. Family can be two people, it can be a couple.

Dr. Jay

Or it can be a solo. When they say family, they literally mean with kids. I don't have to agree with that, but that's just that's their terminology. It is built in there. So the life cycle planning and the financial planning process go hand in hand. And it's got that pronatalist bias. By the way, if you ever wonder why you've talked to a financial planner and you feel like you’re not understood and you're childfree, this is why literally the stuff they're being taught this is in course one introduction.

This is the foundation.

Bri

Yeah, I think least the clients I have so far pretty much everybody has said, you know, I went to a financial planner and they just didn't get that I don't want kids.

Dr. Jay

And what happens through your life and what happens to your finances? Because it's hard coded in there.

Bri

It is. That's how it is. And that's how it is in CFP® coursework, too.

Dr. Jay

And this life cycle, I call it the standard life script called life plan, whatever it is, if you deviate away from it at all. The other pieces of this stuff all. But that's what you see on the planning process. So we're reviewed by the SEC, that's who we were registered with and they look at your website like exact words.

And on our website he says we have a unique financial planning process. And they said, describe that to me because like you've got to be able to back that up. And I explain our ongoing process and how we do it and why it's different. They say, okay, like it is different, it is unique because everybody else does it the same way, but unique by definitions.

Alright. So we have lifecycle and financial planning. Those go together and they're both produced by us. Let's go back to some of the rest. So there's a whole section on personal and business financial statements. Now, I actually like this section because it helped me like, Oh, I should have an income statement about me, but it becomes like a scorecard.

So what you get out of personal and business financial statements.

Bri

It talked a lot about having your own like balance sheet for your house or income statement for your household and that's great. And maybe that works if you're really into the numbers, but it's easy to get too caught up in that and live and die by this balance sheet or buy this income statement as a person. And it's okay for those things to vary and be a bit different, but it's essentially talking about running your household as a business, which to a point I agree with because, you know, I like to say all successful businesses have budgets, households should too.

It's okay for things to go wrong sometimes and change doesn't have to follow exactly what you wrote out.

Dr. Jay

Yeah, I have essentially I call the scorecard like what's my net worth for the year? How did it go? That's really what I'm looking at. Is it going in the right direction? My net worth, everything else below that, I don't really care. But according to the document, I think I'm doing that wrong and so is like itemize everything. What percentage goes in this? Whereby like you see on my balance sheet. What's my savings rate and my percentage?

Like you say we looked at your goals. Yeah, that's a good rate. I mean it. But this is like a scorecard trying to get it perfect. Keep in mind, they just changed the CFP® education to include about 10% on behaviors. That's nothing, but most of it's all numbers. Alright. Next up, we have emergency fund planning. What's it say there?

Bri

It wants you to get an emergency fund in place in order to protect yourself and that stuff. I agree with like I can't deny that you need to have an emergency fund in place that way you are taken care of.

Dr. Jay

By it fills up a kajillion words to tell you should emergency fund like okay sure. Yep I agree like a 3 to 6 months of expenses. Next up, credit and debt management. I love this chapter because I don't agree with any of it.

Bri

It literally has in there. It says good debt, bad debt. And I was like, I know that you don't like that.

Dr. Jay

Well, what do you think, Bri? You just read the chapter. I mean.

Bri

So in this they talked about cars being planned that and home mortgages being planned that. And then also like, well, my equity loans are different, things like that. I don't necessarily agree with having a car loan. I think it's an easy way to purchase a more car than you necessarily need. And I will freely say that while still having a car loan, because I think that is exactly what happened when my wife went to buy the car that is now our car and she knows this.

I told her this. So it's not like I'm throwing her under the bus. It's just we've discussed this, but those things happen. You just have to address them and take care of them. Mortgages. I'm okay with mortgages because putting out hundreds of thousands of dollars for a house is not realistic for a lot of people, especially when they're starting out by having like student loans or credit cards I definitely won't agree with.

Student loans, I think there are good ways to get a lot of college covered. I do think that tuition is a problem, too, and I think that part of it is because of how easily companies will give out student loans. So it contributes to the fact that what does a university really have if they know people can get loans to cover it? That's another tangent.

Dr. Jay

We have a second section on education planning too. I think the credit and debt management. What I don't like about this section is the debt management component. And what I'm really saying is there's no option for just not having debt like that. That's like not in the picture like and you get so much more freedom when you're debt free, I have no debt whatsoever.

What do we get to do with our money? Whatever we want. Like literally that is the deal. And that's hard. Well, it's a societal thing, debt. Things. I just wish there was more of a nuance of like it's possible. No, debt. I will freely admit if you come to me as a client and you're like, hey, how do I, you know, get a $50 million loan and leverage this and three times this?

And I'm like, no, no, no, that's not my area. There's somebody better in debt management. And I just admit it. I'm like, I'm just not the right planner for you. And that's okay. It's a bit of bias. Yeah, we have built into our no-baby steps, get rid of debt. So it's pretty obvious, but it's okay. We need to understand it.

I think there are times where we get into this credit and debt management and it just gets so mathy that we forget the behaviors that come with debt, which is the buying more car than I have to or what credit cards allow us to do. I think that's what's missing. That makes sense.

Bri

Yeah, I didn't talk about that at all in here. It's just very like math, math, math, and it misses the whole life and psychology of it in The Psychology of Money, Morgan Housel actually talked about how debt has become more prominent since World War II as access to it has gone up. And you people take on more debt to keep up with the Joneses and it never mentions anything like people taking on too much debt here other than make sure you don't go over the debt ratio that you're supposed to have. Anything below, that's fine.

Dr. Jay

Well, yeah, we had debt to income ratios, so on the mortgage, you could actually end up buying a house that's way above what you can afford. You know, my back of the napkin math, I try to keep people below one third of their take home, but they're talking about out of your gross, which, by the way, that's before taxes for everything.

That's ridiculous. Because, like, if I'm in California where, you know, eight, 9% tax versus being Tennessee with zero, those are two different equations. But the debt to income ratio is still based off the gross. That's three issues, but we get all nerdy on that. Next up, we have education plans, a whole section on this. Now, there are childfree folks going back to school, but what you get out of it.

Bri

How to use my calculator really well to plan for how much it costs.

Dr. Jay

Can you explain that?

Bri

Okay, so this calculator has like a variety of different buttons on it and it's not a typical calculator. It looks weird if you're watching, you can see it. Calculator is you essentially have five different things you can input and then type in. It’ll tell you what the future value is like. Let's say I want to figure out, I know that college costs. It’s $100,000 today and I want to figure out what it's going to cost in 18 years when I have a child that's ready to go to college so you can figure out how to calculate what that $100,000 today is in 18 years.

Dr. Jay

So I did this. I actually believe it. I still have a couple of clients that have kids. It's very few. But I had somebody asked me the question, okay, I'm going to pay for private school about 25 grand a year. And then I got to pay for college for a kid that is for this time. And I was like, oh, this is a CFP® exam question.

These are exactly the exam questions are like in this. So I broke out my excel sheet because that's how I do it now. And I'm going do this calculation if you want know the enhanced or the answer was $1,000,000 is what it would cost for somebody is for now being for 18 years private school plus college, million dollars in education.

That's what this whole chapter, by the way, is all about in the CFP® is doing that math equation because then I work backwards to how much money I need and 529 is that where I put it. All that. But it's a series of equations not going to help us budget your free folks for the like. I'm going back to school next month.

I'm like, okay, well the tuition is whatever's on the website. Like it's how do we calculate what is it going to cost in the future where we go with it and all that. Anything else you picked up in education, planning?

Bri

If you want to go to school in like 5 to 10 years, let me know. I'm happy to do the math for you.

Dr. Jay

Oh, we’ll quiz Bri. What will they bring to the math equations? And we'll make her do it on her calculator by hand. I'm going to do in the software in about 30 seconds.

Bri

Okay. I actually really like using this calculator now that I've used it. I like physical calculators more than software. I'm like, sometimes.

Dr. Jay

Yeah. Again, way nerdy. I do excel in 20 seconds. There's another one in here on... I have this kind of weird, but there's a bunch of like hodgepodge in this section of if get to the end of it but monetary settlements and special circumstances the like what are the things come up? What jumped out at you there?

Bri

This is like if you were to get the lottery, should you take the lump sum payment or should you take payment over time? Or if there's some lawsuit you're getting money for like all of it now or money over time and you just see a bunch of calculations using calculator again to determine what the best option is.

Dr. Jay

By the way, this is where like they have to fill up stuff with test questions. I swear this whole section, I don't know, it's great content, but I use very little and I like and I feel bad saying that to me because she's over here studying it. But I'm like this in real life, you're not doing much of hard coded calculations.

Yeah, I say I did my MBA. They made us do a manual Monte Carlo simulation in Excel and I'm like, Why? I have software that does this? And they're like, yes, but you need to know how to do it. And I'm like, no, I don't. The system does it, but it just is what it is.

Alright. So the first course is introduction to financial planning. What's the three things you took away that you could actually use in real life?

Bri

With some of like the different calculations, even though, like the education planning might not necessarily be for education, it is nice to be able to use those in calculations and figure out like how much somebody would need to save for a down payment or different things like that in the future. Just having that knowledge to quickly do those numbers, make sure you know your code of ethics.

That was very hard on there. And then I did like the monetary settlements and special circumstances part that talked about like lottery winnings because it also can be applied to like windfalls such as inheritance. And sometimes we deal with that with clients. So it kind of gave a, a good walkthrough of like how to not only figure out what they're getting, but also how to help, explain to them their options of what they can do with it.

Dr. Jay

Yeah. And by the way, I think I forget the exact that was like 10% of the questions are on like the code of ethics and the laws and the, you know. So you're right. What's your next course?

Bri

My next course is insurance planning and risk management.

Dr. Jay

It's often, by the way, when you're doing your CFP® education, there's some of these days like it is tough because it's not because of the guidance stuff, but it's just like boring stuff. But insurance actually has some really good discussions there, especially around how things change for childfree folks and how they fit in. So be ready.

You're like memorizing an h o for policy. Is this an ho3 policy? Is this for homeowners like you had memorized about stuff? I had somebody online say, Well, CFP®s only do one course of insurance, so should they really should be providing insurance? I'm like, yeah, it's one course, but it's part of the experience, part of what we do.

You'll be able to offer insurance planning as part of your financial planning, which is huge. We'll have to see how you like it. It's one of those topics. I actually enjoy some of the insurance stuff because it's assigned risk. We're passing it off, but hopefully it's more interesting than just the introduction of, you know, what do you think?

Bri

I hope so, because I think we can dive a bit deeper. When I was going through this one day, Dr. Jay, I was like, man, I'm tired of it just skipping around from one thing to another because it didn't feel like there was very much order to the first section, just felt like it was all over the place.

So it'll be nice to have an order.

Dr. Jay

Yeah, the introduction is always the stuff that you just need to know, but like, it's just like a hodgepodge of, like, just random stuff. But once again, no mention of childfree in their studies. If we see it anywhere else, we'll keep on the watch. Next up, we'll come back. We'll talk about insurance. We're going to dive into each of these.

The intent is for you to see what a CFP® goes through, see what the changes are. If it's not mentioned here. And you can always skip that episode, but you know, hey, we'll bring it out.