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This is the latest installment of a new, regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
Unwritten rules have as much power as written ones. That is true of padding a big lead in baseball and of whether RIAs need to have the CFP designation.
Consider the case of Fernando Tatis Jr, the talented 22-year-old shortstop for the San Diego Padres. He signed a new 14-year contract for a whopping $340 million over the length of the deal! That is easily one of the largest contracts in all professional sports.
For a slightly less glamorous reason, he also made a newsworthy splash in August of last year – more precisely, on August 17, 2020.
On that night, the Padres were in Arlington playing the Texas Rangers. With one out in the top of the eighth inning, with the Padres leading 10-3, the then 21-year-old, barely old enough to legally drink, stepped to the plate with the bases loaded. First pitch… ball one. Second pitch… ball two. Third pitch… ball three.
Now sitting on a 3-0 count, Tatis swung and blasted a grand slam over the right field wall on the next pitch. It was the dream every little leaguer has of crushing a grand slam as a major league player.
As Tatis rounded the bases and started back to his dugout, he discovered not all of his teammates were cheering him on. Likewise, players in the opposing dugout were none too pleased. Texas Rangers manager Chris Woodward even walked a few feet out of his dugout to make sure his dissatisfaction was known.
If this indignity wasn’t bad enough for the young major leaguer, in the press conference that followed the game, Tatis even apologized for what he had done!
What possible action by Tatis had caused such an uproar?!
He had broken one of baseball’s “unwritten rules.” While leading a team 10-3 late in a game, the baseball gods insist, you do not swing on a 3-0 count! Never mind the fact baseball is a competitive game, and there are plenty of examples of teams making miraculous late-game comebacks.
It doesn’t matter. You do not insult the opposing, perhaps struggling, pitcher by swinging on a 3-0 pitch under those circumstances. You instead stand there and take what will surely be a strike right down the middle of the plate on the next pitch.
As expected, this craziness was debated ad nauseum in the days that followed. Whether people agreed with it or not, these unwritten rules exist in baseball and impact the game.
Per their unwritten nature, they are not noted in the formal baseball rulebook or in player contracts, nor a part of umpire training. It is simply extraneous forces that make the unwritten formal requirements of the game.
So, what must this do with RIAs and CFP certificate holders?
There is no regulatory requirement that advisors with their own RIA must have a CFP. Nor am I aware of any pending, proposed rulemaking that will suggest it.
What I do observe, though, is extraneous industry forces reaching a point where not having a CFP as an RIA is as grave of a violation as Tatis swinging on his 3-0 pitch. It doesn’t take a declaration by the SEC when there are unwritten rules to be followed.
What are these forces I am observing? A few to consider, in no particular order:
- The CFP Board continues to be, naturally, a very vocal proponent of CFP certification. Its advocacy efforts through print, TV and other media message a position that any financial advisor worth their salt should have a CFP. As more of the investing public is exposed to such a message, those investors will come to believe in it.
- As part of my firm, Transition To RIA, I routinely speak with RIAs. A significant number of them tell me that one criterion they have is that every advisor at their firm has at least one professional designation beyond the regulatorily required minimums. They likewise loudly proclaim this when messaging their brand in the marketplace.
- With each passing year, an increasing number of college students are graduating from financial planning undergraduate degree programs. The curriculum satisfies the classroom requirements for CFP certification. These graduates are well on their way to obtaining the CFP as part of their career track in the profession, and they will be presenting those letters loudly.
- There is a growing number of voices in our industry advocating for more “professionalization” of the financial advisor occupation. These voices often advocate for, among other things, the inclusion of professional designations beyond just the regulatorily required minimums. Once again, as more of the investing public hears these voices, more of those same investors will agree with the message.
There is an increasingly loud drumbeat in the marketplace regarding the need (requirement?) that an advisor has a CFP.
You don’t have to agree with any of these prior points. I don’t agree that Tatis should not have swung at a 3-0 pitch.
What I do know, though, is that with both Tatis and with our industry, it doesn’t matter what we individually think if external forces drive behaviors to a certain norm.
Will the SEC formally require RIAs to have a CFP anytime soon? My guess is “no.” Will external forces, though, continue to create an environment in which it essentially becomes a de facto requirement, even if technically unwritten? To that, I’d answer… it’s time to keep the bat on your shoulder and watch a strike sail by.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
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