The CFP Board to Include the Psychology of Financial Planning in Its Certification Exam

The aim of expanding the training to include more people skills is to help advisers align more closely with their clients’ goals.

Beginning next March, the examination for the Certified Financial Planner (CFP) Board of Standards designation will include questions on the psychology of financial planning.

The change was made because the CFP Board updates its Principal Knowledge Topics every five years to “ensure the CFP certification requirements reflect current practices—i.e., what CFP professionals actually do,” says John Loper, the board’s managing director, professional practice (education, examination and experience). The update, the last one being in 2015, was the result of “a major research project,” Loper tells PLANADVISER. “We survey CFP professionals with different experience across the country to learn how important each of the principal knowledge topics are. Those results showed us that we needed to update our certification to give the psychology of financial planning—which was already part of principal knowledge topics under general principles—greater importance. If we were static, we would not be reflecting current CFP practices.”

To prepare those financial advisers who are currently studying for the CFP designation, Loper says, this past March, the CFP Board “announced the full principal topics across the domain to everyone,” including this change. “Registered programs need to know because they provide the education to CFP candidates,” Loper says.

The CFP designation can be obtained through a four-year Bachelor of Arts (BA) degree, which is the route most CFPs take, or as a certificate, which typically takes 18 months to two years of study, Loper says.

The Value of the ‘Psychology of Financial Planning’

As many retirement plan advisers and general financial planning practitioners may already know, the work that a financial adviser does with a client is very personal and needs to address the person’s financial goals.

The CFP’s psychology of financial planning curriculum addresses “client and planner attitudes, as well as behavioral finance,” Loper says. For instance, “Clients who are socially conscious may not want their investments to be in tobacco or companies that are not environmentally conscious,” Loper says. Understanding these types of clients’ financial priorities and goals is important to a financial planner, he says. “There could be sources of money conflict arising from a divorce or crisis events with severe consequences.” Further, it’s important for CFPs to know how to “work with clients when there is a severe correction in the market,” Loper continues.

Advisers need to know how to address client worries during such events, he says. “One of the most obvious skills an adviser needs is effective communication. If you’re a poor communicator, you will have trouble giving advice to your clients. Many of our volunteers have shared with us that it’s exciting” to have the CFP designation updated to include more modules on the psychology of financial planning, Loper says. “These are critical skills, not ‘nice-to-have’ skills,” he says, adding that the CFP Board expects reaction to the new CFP requirements to be “very positive.”

“This should especially help new planners communicate better with their clients,” Loper says. For those who already have the CFP designation, they’ll have the option to take the psychology of financial planning classes in the 30 hours of continuing education (CE) they must undergo every two years, he says. “They can choose from any principal knowledge topic—but two credits must be associated with ethics.”

EY Personal Finance has long addressed the need for financial planners to understand the value of the psychology of financial planning, says Dan Eck, managing director of the firm.

“This is part of the conversations we have every day in our financial planning life,” Eck says.

In preparation for that work, EY Personal Finance puts its financial planners through a “softer-training boot camp,” Eck says. The update to the CFP Board of Standard’s certification “is exactly what we’re talking about—helping our planners build trust [and] empathy and learning the reasons behind a person’s stated goals and philosophy toward money. There is a lot behind saying you want to retire. You need to consider the spouse, or the significant other, and the motivation behind any goal. That’s a key part of the financial process. Learning about some of these motivations is easy and obvious, but whatever the motivation might be, learning about and understanding them is a critical part of financial planning.”

Examples of Psychology of Financial Planning in Use

When Eck first studied for the CFP in the late 1990s, one of his instructors asked the class what a financial planner should advise a client to do if approaching retirement with a mortgage. The instructor asked if it would be better for the client to pay off the mortgage before retiring.

“None of us came up with the right answer, which is [another] question: ‘What does the client want to do? Is their life goal to be debt free in retirement?’”

Another example of the psychology of financial planning in play is helping retirees decide on a budget, as many have difficulty spending and enjoying the money they worked so hard to save for three or four decades, Eck says.

Then there is the critical question of what to say to clients when the market fluctuates dramatically. It is important for planners to be prepare to “talk panicked investors off the ledge by helping them understand and focus on the long-term,” he says.

Eck even encountered people on the cusp of suicide during COVID-19 due to unforeseen financial difficulties the pandemic wrought.

EY Personal Finance planners coach workers who call “each and every day with the issues that come with the stress of finances.”

For example, when an EY Personal Finance planner first encounters a new caller asking about retirement, the planner “devotes the first hour to asking them about their picture of retirement. It has nothing to do with finances—but how they and their family are planning to live. It goes well beyond the numbers,” Eck says.

He notes that retirement planning advisers could well employ the psychology of financial planning in their one-on-one encounters with retirement plan participants. As he puts it, “The psychology of financial planning drives how and why we crunch the numbers.”