The recent market volatility and uncertainty about the economy have put a spotlight on the need for objective financial advice. With so much public attention being paid to economic issues, it has been exciting to see the number of media outlets across the country that have turned to CFP® professionals for opinions and advice on improving financial security even in turbulent times. The current economy is creating challenges for everyone, but it also provides rich opportunities to get the word out about the value of financial planning and CFP® certification.

If you happened to catch CFP Board’s recent media advisory addressing market volatility, or if you’ve visited CFP Board’s Web site recently, you may have noticed something different. CFP Board has adopted a new mission statement:

The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning.

All of us involved with CFP Board understand that promoting the value of financial planning and CFP® certification isn’t something CFP Board does alone. Rather, it’s something we do alongside the more than 57,000 CFP® professionals and the thousands of others across the country who support the CFP® certification program. We appreciate your work to benefit your clients and communities and know that work contributes to the value and increased recognition of CFP® certification as the standard of excellence for financial planning.

David G. Strege, CFP®
2008 Chair, Board of Directors
CFP Board

A couple of summers ago, some friends of mine and our kids decided to walk to the ruin of a medieval town not far from the house where we were staying in southern France. I knew the area well, and had even visited the ruin before, so I offered to lead the way. I brushed off a suggestion from my wife to discuss the route before we left. I was sure it would be a leisurely trek. All we had to do was follow a path I knew along the mountain until we reached a lavender field, and then it was — literally — all downhill from there. So off we went.

Very quickly the pleasant wooded path I remembered turned into torturous terrain, tangled with dense and thorny undergrowth. Instead of strolling jauntily along the mountain, we had to hack our way through thickets and climb rock-strewn embankments. We finally made it to the lavender field, but the only ruins in sight were our bruised knees and battered shins. My certainty that I knew where I was going was also in tatters. We asked a local farmer for help, and he pointed us in the right direction — which, of course, was nowhere near the spot where I had just led our exhausted and increasingly surly little group. Overconfidence in my own navigational abilities (and in the accuracy of my memory) had led me astray.

Overconfidence — the tendency to consistently over-rate our own abilities or knowledge — can lead us all astray, especially when it comes to investing. I veered so far from the beaten path because the fact that I had visited the ruins before convinced me that I could easily find them again. That’s not so different from an investor who, after a string of successes, thinks he’s found an infallible way to pick winners. But, as we all know, past performance is no guarantee of future results, and study after study shows that people who think they can beat the market are kidding themselves. In fact, Gary Belsky and Thomas Gilovich, authors of Why Smart People Make Big Money Mistakes, go so far as to write: “Any individual who is not professionally occupied in the financial services industry (and even most of those who are) and who in any way attempts to actively manage an investment portfolio is probably suffering from overconfidence.”

We are all prone to overconfidence because we all desperately want to believe that we’re in control of our environment. Being in control means being able to anticipate what might happen next, and that makes us feel safe — even if that sense of control is a complete illusion. In one experiment, university students were given the chance to win money by throwing dice. One group was allowed to throw the dice themselves, while the other group had someone else throw the dice for them. The group that threw the dice themselves was much more confident of winning, even though their chances of success were identical to those of the group that could only watch the dice being thrown for them. The illusion of control leads to overconfidence.

Of course, a little overconfidence is good for you. Few new businesses would be started, few long-term problems would be tackled, and few of us would even bother getting out of bed in the morning if we didn’t think we had a decent shot at beating the odds once in a while. Misplaced overconfidence, on the other hand, can be hazardous to your wealth.

A string of financial gains activates an area of the brain called the subgenual congulate. This region helps regulate sleep and is hyperactive in people experiencing the manic phase of bipolar disorder, Jason Zweig explains in Your Money and Your Brain. “With your subgenual congulate inflamed by a financial hot streak,” Zweig writes, “it’s hard not to turn euphoric, restless, and carefree about risk.” And it’s not long before a little market correction brings you back down to earth. Surveys repeatedly show that the portfolios of those who trade the most — presumably because they are euphorically confident in their abilities to pick winners — under-perform the holdings of those who trade the least; Zweig cites one study in which frequent traders under-performed by 7.1 percentage points.

Robin Hogarth, a professor in the Faculty of Economic and Business Sciences at Pompeu Fabra University in Barcelona, carried out a study in 2003 on the effect of feedback on confidence in decisions. Over a period of several days, a group of students and executives randomly received four or five SMS messages a day on their mobile telephones. Each time they received a message, they completed a questionnaire about their decision-making activities. “Overall, confidence that the ‘right’ decision was taken was high,” Hogarth concluded. “The data show that both students and executives are typically confident in their decisions [the categories of ‘very confident’ and ‘confident’ were checked in almost 70% of cases] even though … they neither receive nor expect to receive feedback on many of their decisions. In addition, there is no direct relation between the level of confidence expressed in decisions and feedback (actual or expected).”

Sound familiar? We all know people (the aggressively self-confident boss, the tipsy day-trader at the dinner party) who are absolutely and incontrovertibly convinced that they are right — regardless of any and all evidence to the contrary. The subgenual congulate seems to generate a version of the endowment effect that applies to our points of view as well as our possessions: We overvalue our opinions simply because they belong to us. And a kind of built-in confirmation bias prompts us to discount, or completely ignore, anything that contradicts our preferences. “The mere fact of making judgments and decisions without receiving direct disconfirming evidence may be sufficient to both create and sustain feelings of confidence,” Hogarth writes. When we’re right, it’s because of our own brilliance; when we’re wrong, it’s because of circumstances beyond our control.

Hogarth suggests that increasing the level of feedback is a possible cure for investor overconfidence. In addition to tracking the performance of the stocks you own, he recommends also tracking the stocks you have sold and the stocks you wanted to buy but didn’t. That way you’ll have three reality checks to help rein in overconfidence: You’ll not only see how well your portfolio is performing, but you’ll also see whether your decisions to dump or decline other investments were really so brilliant after all. As for me, these days I always ask directions before visiting any ruins — or taking any random walks down Wall St.

- James Geary

When Kathleen Bowen, CFP® moved from New York City to Denver in 1999, she desperately needed a break. She had just been through a divorce and, after 16 years in the financial planning business, wanted some down time for herself. Inspired by the example of her mother, whom Bowen describes as “a wonderful cook and a great entertainer,” she enrolled in Denver’s Cook Street School of Fine Cooking for an intensive four-month course in classic French and Italian cuisine.

Bowen graduated in 2000, ended her culinary sabbatical and went back to work at her financial planning practice, Mind’s Eye Resource Management. She continued to indulge her passion for fine wine and great food, but never thought of mixing it with financial planning — until a few years later, when she received requests from the American Culinary Federation (ACF) for advice on retirement and insurance questions.

Bowen did some research, conducted a focus group with the help of the ACF, and quickly realized that the food and hospitality industry represented an enormous underserved demographic. “Hospitality is an unforgiving industry that requires tremendous commitment and hard physical labor, generally for lower wages and benefits,” she says. “It also is filled with risk factors, due to chefs’ and owners’ lack of knowledge in the areas of investment, insurance, and small business planning. I realized this was a place where I could make a difference.” Bowen has been awarded a CFP Board grant to help her make that difference by bringing the basics of financial planning to the food and hospitality industry.

The food and hospitality sector is the second largest segment of the economy, Bowen says, but servers, owners, and chefs often find themselves living from pay check to pay check, without the benefits workers in many other industries take for granted. Only 40% of restaurant and food service businesses, for example, offer 401(k) plans to employees, according to Bowen. To help restaurant and food service workers incorporate financial planning into their personal and professional lives, Bowen will use her CFP Board grant to present a series of workshops at upcoming American Culinary Federation conferences.

“Access to information is the biggest challenge,” Bowen says. “People feel paralyzed and overwhelmed. They don’t know where to start. They need to learn the basics, like how to pay themselves first and how to save. There is a second level of people who may have a 401(k) but don’t understand mutual funds. Everybody in the food chain needs help.”

To address all levels of financial planning need, Bowen’s workshops will cover everything from investment, retirement and estate planning to how to make the most of employer-sponsored benefits. She has even launched The Investing Chef, a division of Mind’s Eye Resource Management specifically devoted to the culinary industry.

Bowen thinks some of the challenges faced by the food and hospitality industry are due to the perception of restaurant jobs as transient. “Being a waiter is a career in places like France and the U.K.,” she says, “but in the U.S. it’s seen as a patch to something better, which is partly why restaurants face such high turnover rates.”

Bowen is optimistic, though, that perceptions are beginning to change, thanks to the popularity brought to fine dining by people like Martha Stewart and television channels like the Food Network. And, of course, Bowen intends to keep her focus on the bread-and-butter issues of financial planning — so the chefs can focus on their soufflés.

Read more about projects receiving funding through CFP Board’s 2007 Financial Planning Grants program.

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CFP Board’s revised Standards of Professional Conduct, which becomes effective July 1, 2008, introduces new duty of care standards for CFP® professionals. Rule 1.4 of the new Rules of Conduct requires that a CFP® professional “shall at all times place the interest of the client ahead of his or her own.” That same rule requires CFP® professionals who provide financial planning services or material elements of the financial planning process to do so with the “duty of care of a fiduciary,” defined as “one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.” Acting in a client’s best interest requires a CFP® professional to understand the individual client’s goals, needs and current financial situation, to make recommendations based on the best available options, and to exercise professional judgment in determining the best of those options.

Understanding a client’s goals and objectives is the foundation of the practice of financial planning and a key factor in determining the client’s interest. Practice Standard 200-1 of CFP Board’s Financial Planning Practice Standards establishes the level of professional practice CFP® professionals are expected to follow when determining a client’s personal and financial goals, needs and priorities:

The financial planning practitioner and the client shall mutually define the client’s personal and financial needs and priorities that are relevant to the scope of the engagement before any recommendation is made and/or implemented.

After the CFP® professional and client have mutually defined the factors that establish the client’s interest, the CFP® professional may, as part of the financial planning process, provide recommendations that include strategies, services and/or products. With the ever-increasing range of choices available in the financial services industry, there can be nearly infinite options when one brings together an individual’s situation and goals. CFP Board does not expect a CFP® professional to undertake the impossible task of reviewing all possible options in the search for the best. Rather, CFP Board expects any financial planning services provided to be the best services and recommendations available, given the CFP® professional’s reasonable professional judgment and any limitations placed on the CFP® professional by business or regulatory requirements. A CFP® professional may work in a setting where business or regulatory requirements limit the services or investments that can be made available to clients. In such situations, the CFP® professional providing financial planning services would be expected to disclose the limitations to the client – including any contractual or agency relationships that have potential to affect the client (see Rule 2.2) and any terms under which proprietary products may be offered (see Rule 1.2) – and then offer recommendations that he or she reasonably believes to be the best for that client’s situation.

What one CFP® professional determines is best for a client will include some subjective considerations of the client’s goals, values, attitudes and experience. Another CFP® professional may in a similar situation make a different determination. CFP Board’s ethical standards have always emphasized the importance of professional judgment, and the importance of a CFP® professional’s professional judgment is highlighted in CFP Board’s definition of “fiduciary”: “One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.” CFP Board expects CFP® professionals to provide only financial planning recommendations that they reasonably believe to be the best options available to their clients.

CFP Board does not advocate any particular business or compensation structures. The updated Standards are compensation-neutral and require CFP® professionals with all types of practices and business structures to at all times place the interest of the client ahead of their own, regardless of whether they provide financial planning or material elements of the financial planning process.

Questions about the revised Standards may be sent to CFP Board at standards@CFPBoard.org.

About the Revised Standards of Professional Conduct:
On May 31, 2007, CFP Board’s Board of Directors announced the adoption of a revised version of CFP Board’s Standards of Professional Conduct, which sets forth the ethical standards for CERTIFIED FINANCIAL PLANNER™ professionals. The revised Standards become effective July 1, 2008 and apply to the more than 57,000 financial planners in the U.S. who are authorized by CFP Board to use the CFP® certification marks. CFP Board encourages CFP® professionals to begin applying the revised Standards to their daily practice well in advance of the July 1, 2008 effective date.

CFP Board Adopts Revised Mission Statement

A revised mission statement focusing on CFP Board’s responsibility to the public was adopted at the January 2008 meeting of CFP Board’s Board of Directors:

The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning.

Credentialing: Provide the most rigorous financial planning credentialing process that is valid, reliable, and legally defensible.

Education: Establish and enforce educational standards for enhancing the knowledge, skills, and abilities of current and potential CFP® certificants.

Enforcement: Protect the public’s interest through rigorous, ongoing enforcement of CFP Board’s Standards of Professional Conduct.

Communication: Build the CFP® certification brand as the recognized standard of excellence in personal financial planning; promote its understanding and acceptance among the public and all other stakeholders.

Advocacy: Influence policy to benefit the public and increase access for all to competent and ethical financial planning.

Sustainability: Strengthen CFP Board’s capacity to achieve its mission and serve all stakeholders in a timely, accurate and professional manner.

President Bush Names CFP Board Representative to Advisory Council on Financial Literacy

On January 22, 2008, Theodore Daniels, President and CEO of the Society for Financial Education and Professional Development and member of CFP Board's Board of Directors, was appointed by President George W. Bush to the President's Advisory Council on Financial Literacy, a newly-created committee charged with prescribing recommendations on better educating the public on matters related to their finances and their future. President Bush announced an executive order to establish the Council within the U.S. Department of Treasury “to help keep America competitive and assist the American people in understanding and addressing financial matters.”

Charles Schwab, chairman and CEO of Charles Schwab & Company, Inc. was appointed as Chair of the 19-member panel, which also includes Mary Schapiro of FINRA, Robert Duvall of the National Council on Economic Education and Ted Beck of the National Endowment for Financial Education. The Council will advise President Bush and the Treasury Department on goals for improving financial education efforts to youth in school and adults in the workplace; promote effective access to financial services; establish sound measures of national financial literacy; conduct research on the extent of financial knowledge among individuals; and strengthen and coordinate public and private sector financial education programs.

For more on the President’s Advisory Council on Financial Literacy, visit the Web site of the United States Department of the Treasury.

CFP Board Announces Partnership with Bankrate.com

CFP Board is pleased to announce a new partnership with Bankrate.com that offers an exciting new benefit for CFP® professionals. Bankrate.com will offer the public the ability to search for CERTIFIED FINANCIAL PLANNER™ professionals through the Retirement section of their site. These listings are anticipated to be available in March 2008 and will be made up exclusively of CFP® certificants who have indicated to CFP Board that they currently practice financial planning.

Bankrate.com is the Internet’s leading source of personal finance information — ranging from lending and savings rates to the latest retirement strategies, news and advice. Their audience is affluent and highly educated; their average income nationwide is $94,518, and they are almost twice as likely to have portfolios of $500,000+ as the national average. The searchable database on Bankrate.com has clear benefits for the public and CFP® professionals: it will allow the public that uses Bankrate.com to find financial planners who have met CFP Board’s standards of competence and ethics, and it will help connect you with affluent individuals in your area who are interested in working with a financial planner.

In coming weeks, CFP® professionals will receive an e-mail with instructions for verifying whether their current record with CFP Board contains the information necessary to be included on the Bankrate.com listings. The e-mail will also provide instructions for opting out of this service.

CFP Board continues to look for new ways to provide added value to those who hold CFP® certification and the public that seeks competent and ethical financial planning services. If you have any questions about CFP Board’s partnership with Bankrate.com, please contact us at 800-487-1497 or mail@CFPBoard.org.

2008 Financial Planning Grants Program

Information about CFP Board’s 2008 Financial Planning Grants program is now online. The program continues CFP Board’s efforts to provide grant funding to innovative and sustainable programs that promote an understanding of the benefits of financial planning and provide underserved populations with access to competent and ethical financial planning. If you are aware of or have thought about starting such a program, we invite you to apply for a grant from CFP Board. The application deadline is April 30, 2008. Read more about CFP Board’s 2008 Financial Planning Grants Program.