CFP Professional Competency Profile

Structure of the Competency ProfileWhat is a “competency”?The ability to perform a particular jobfunction is called a “competency.” However,a competency is not simply a job-relatedtask. It is the integrated application ofknowledge, skills, attitudes and judgmentsrequired to perform key functions of thejob at an expected level.The Competency Profile has been createdto help describe competencies whichdefine expectations for CFP professionals.Competencies are the focal point of CFPprofessionals’ underlying skills andknowledge. In additional to adhering to anethical code in practice, CFP professionals’fulfillment of these competencies will bethe most important determinant of theirclients’ financial planning experiences.CFP professional competencies arecombinations of activities, skills andtechnical knowledge. Activities can becollectively described as the “functional”elements of a competency. These elementsare the drivers of actual tasks performedby CFP professionals as they move throughthe financial planning process.Skills andtechnical knowledge can be collectivelydescribed as the “foundational”elements of a competency. By definingcompetencies in this way, we recognizethe importance of the underlyingelements while acknowledging that a CFPprofessional must combine these elementseffectively in order to apply a particularcompetency in practice.Functional drivers of competenciesThe functional drivers of the competenciesin this Competency Profile consist of twomajor elements. Financial PlanningAreas define the areas of focus in whichthe CFP professional will address differentclient goals and financial issues. FinancialPlanning Functions are broadly defined,general activities common to all FinancialPlanning Areas.Financial Planning AreasThe following six areas, together withFundamental Financial PlanningPractices, comprise the whole of financialplanning: Financial ManagementInvestment PlanningInsurance and Risk ManagementTax PlanningRetirement PlanningEstate Planning and Legal AspectsIn reviewing the Competency Profile, itis important to recognize that a givenelement of competency will appear onlyonce, and that it will be assigned to aparticular area within a particularfunction. Many competencies couldappear under multiple areas but areassigned to the one that is mostrepresentative. For example, a competencythat appears as an element withinCollection in Estate Planning may alsobe relevant to Collection for InvestmentPlanning.Financial planning is integrative in nature.One component cannot be considered inisolation within the practice of financialplanning. With any single Financial PlanningComponent, the CFP professional willlikely draw on elements of competency4CFP PROFESSIONAL COMPETENCY PROFILE

from other areas. It is the CFPprofessional’s responsibility to draw on allelements of competency, as appropriate,in conducting any financial planningengagement.Fundamental Financial Planning Practicesrepresent general competencies that arepervasive across all Financial PlanningAreas. These competencies relate to theintegration and interrelationships amongthe Financial Planning Areas. With everyclient engagement, the FundamentalFinancial Planning Practices are assumedto be essential building blocks to which theCFP professional will add from the otherareas depending on the precise nature ofthe engagement.Financial Planning FunctionsAt the most general level, financialplanning consists of three basic functions:1. CollectionGathers the client’s information.Collection refers to the gathering of bothquantitative and qualitative information,the identification of relevant facts anddocumentation, and the preparation andorganization of information in a way thatallows for appropriate analysis.2. AnalysisAssesses the client’s situation andidentifies and evaluates appropriatestrategies.Analysis competencies encompassidentifying issues and opportunities,performing required calculations,developing projections, and preparingand assessing the resulting information inorder to identify and evaluate appropriatestrategies.3. RecommendationDevelops recommendations to helpoptimize the client’s situation.Recommendation competencies focus onthe development of recommendations, inorder of priority, that help meet the client’spersonal goals, needs and priorities andstrive to optimize the client’s situation.CFP PROFESSIONAL COMPETENCY PROFILE5

Professional SkillsOne key foundational support to thecompetencies is professional skills. Theseskills describe CFP professionals’ abilityto act in a manner that is constructive,collaborative and responsive to the needsof clients and co-workers. The CompetencyProfile identifies the following sets ofskills: Cognitive Abilities and Judgement(including Professional Responsibility,Practice and Cognitive Skills)CommunicationThe Professional Skills defined in theCompetency Profile refer to CFPprofessionals’ ability and commitmentto act professionally with clients andcolleagues and to their responsibility tothe profession of financial planning.Professional skills are inherent in thefulfillment of each and every competency witheach and every client; these professional skillsrepresent fundamental abilities that definethe true professional and form the foundationfor financial planning as a profession. Indemonstrating each element of competency,the CFP professional could be applying anyone or multiple professional skills.The complete list of Professional Skills isincluded in Appendix A.Technical KnowledgeTechnical Knowledge is another key foundational support to the competencies and isessential to the demonstration of competence. Without appropriate levels of technicalknowledge, the competencies cannot be demonstrated.Technical Knowledge describes CFP professionals’ level of understanding of specificfinancial planning topics and the interrelationships among those topics as they applyto client engagements. Knowledge comes from a variety of sources including formaleducation, continuing education, interaction with colleagues, working with clients,professional journals, and the daily business press. To be effective, CFP professionals mustmaintain (and continue to build) their knowledge.The Technical Knowledge in this document is generally exhaustive at a broad level today,but not static. The list will be updated periodically as appropriate.Check www.fpcanada.ca for updates to the Technical Knowledge list as they are released.6CFP PROFESSIONAL COMPETENCY PROFILE

Although the knowledge that is necessaryto execute the competencies may changethroughout the life of the CompetencyProfile, Appendix B provides a guidelineto the knowledge that CFP professionalsmust possess to perform competently.The main categories (or domains) ofTechnical Knowledge are as 0.Retirement, Savings and Income Programs500.Law600.Financial Analysis700.Economic and Regulatory Environment800.Ethics and Standards900.Debt1000.Government Benefit Plans1100.Behavioural FinanceCFP professionals are expected to beknowledgeable on financial mattersto serve their clients effectively. Thesix Financial Planning Areas define abroad range of topics and issues that CFPprofessionals must be able to address,but they are not expected to possessthe highest levels of knowledge on allsubjects. It is important, therefore, todefine the levels of technical knowledgerequired as foundational elements ofcompetency for CFP professionals. Thelevels are defined as follows:Awareness A CFP professional must becognizant that the topic exists and awarethat it could have impact on the client andshould not be ignored in client decisionmaking, but he will not necessarilybe capable of a thorough descriptionof the topic area or any analysis. TheCFP professional will be aware of thelimitations of his knowledge and when heneeds to consult another professional.Understanding A CFP professional musthave a basic knowledge of the topic, itsgeneral ramifications and basic impact onother areas of financial planning, but willnot necessarily be able to make specificclient recommendations. She will beaware of the limitations of her knowledgeand when she needs to consult anotherprofessional.Detailed A CFP professional must have astrong working knowledge of the topicand most of its ramifications in orderto effectively analyze all relevant clientinformation, weigh various options andsynthesize information to make specificclient recommendations. He will be able todraw inferences and explain the keyimpacts of strategies andrecommendations on other client goals.He will be aware of the limitations of hisknowledge and when he needs to consultanother professional.Expert A CFP professional must have indepth knowledge of the topic and allthe ramifications in order to fully analyzethe client’s particular situation, weighall relevant options, including the mostsophisticated strategies and obscuredetails, and synthesize all information tomake specific client recommendations.She will be able to draw inferences andexplain all of the impacts of the strategiesand recommendations on other clientgoals.CFP PROFESSIONAL COMPETENCY PROFILE7

Elements of CompetencyThe ability to integrate all functional drivers and foundational supports of competency allowsCFP professionals to perform the specific job functions expected of them.These functions rely on processes and methods that CFP professionals use to complete theday-to-day requirements of financial planning.The tables on pages 10–32 list the elements of competency associated with each FinancialPlanning Area and the Fundamental Financial Planning Practices. Each table also providesa brief description of the elements of competency and examples of how CFP professionalsmay apply them. The descriptions are not intended to provide full details on the elements ofcompetency. They are not taken to be exhaustive or prescriptive, but rather as guidance onlyfor those seeking greater clarity on the intent of each competency statement.The accompanying diagram is a graphic representation. It illustrates the concept that in allFinancial Planning Areas, elements of competency are the focal point, thesummative result of CFP professionals’ performance of Financial Planning Functions,Professional Skills and demonstration of their Technical Knowledge.8CFP PROFESSIONAL COMPETENCY PROFILE

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Fundamental Financial Planning PracticesCFP professionals must apply fundamental financial planning practices to all six Financial PlanningAreas. These elements relate to the integration and interrelationships among all the areas and arekey to any and all financial planning engagements. For example, for a CFP professional to providemeaningful advice and planning, she must understand all of the client’s goals, interdependencies,overall constraints and/or opportunities in order to develop appropriate financial strategies andprioritize recommendations to optimize the client’s overall situation.1Collection:Gathers the client’s information1.001 Identifies theclient’s objectives, needsand values that havefinancial implicationsThe CFP professional identifies the client’s overall financial goals, in terms thatare specific and measurable, as well as other relevant qualitative considerationsregarding family, business or other matters, and the client’s attitudes towardfinancial planning. For example, the CFP professional may learn about theclient’s general tendencies to be cautious when making decisions, or theimportance of providing for a child with special needs, or concerns about theprotection of business interests.1.002 Identifies thedocumentation requiredThe CFP professional determines the documentation required, includinginformation around assets and liabilities and current and projected income andexpenses, the existence of wills, powers of attorney and other legal agreements.The CFP professional may request any supporting documentationnot already provided, and may provide guidance to the client on obtainingdocuments that may not be immediately available.1.003 Identifies theclient’s legal issuesBased on information previously collected, the CFP professional identifiescurrent and potential legal issues that may affect the client’s financial positionand ability to achieve her financial goals. Legal issues may relate to spousaland child support obligations or entitlements, outdated or invalid wills, a priorCanada Revenue Agency tax audit and any other legal proceeding in which theclient may be involved.1.004 Determines theclient’s level of financialsophisticationThe CFP professional assesses the client’s level of knowledge regarding financialmatters. The CFP professional seeks to understand the client’s familiarity withand expectations of financial planning. For example, the CFP professional mayconsider whether the client has had a financial plan developed previously; the CFPprofessional may also assess current plans in place to achieve the client’s goals.A client who has a well-structured retirement and investment plan and a familytrust set up to benefit the children may be considered to have at least a reasonablelevel of financial sophistication.1.005 Identifies materialchanges in the client’spersonal and financialsituationUsing information previously collected, the CFP professional identifies anysignificant changes in the client’s personal and financial situation that mayimpact the achievement of financial goals. Examples include changes inemployment, marital status or children; new business interests or obligations;sale of assets; inheritances or health issues.1.006 Preparesinformation toThe CFP professional organizes all information collected to allow for analysis. Forexample, he may prepare net worth, cash flow and budget statements, a statementof the market value and adjusted cost base of investment holdings, a breakdown ofrental income and expenses and a summary of insurance coverage.enable analysis10CFP PROFESSIONAL COMPETENCY PROFILE

2Analysis:Assesses the client’s situation and identifies and evaluates appropriate strategies2.001 Analyzes thecollected information toprioritize the financialplanning areasBased on a detailed assessment of the information collected, the CFPprofessional establishes the relative priority of each financial area relativeto the overall plan. For example, the CFP professional may prioritize riskmanagement and estate planning for a client with no insurance or estate planin place and significant protection needs for a young family.2.002 Considersinterrelationships amongfinancial planningareasThe CFP professional identifies and assesses the inter-connections between eachof the financial planning areas. She may consider competing demands on cashflows as well as opportunities to better utilize cash flows to meet multiple financialgoals. For example, a high income client who wants to make retirement planninga priority can maximize RRSP and TFSA contributions (retirement planning)as well as take advantage of the opportunity to split retirement income with hislower income spouse by opening a spousal RRSP, making contributions to thespouse’s TFSA and taking advantage of pension income splitting and CPP splitting(tax planning).2.003 Assessesopportunities andconstraints acrossfinancial planning areasThe CFP professional notes areas of challenge or opportunity where theclient’s current resources and plans may help or hinder the achievement of hisfinancial goals. For example, a client with limited resources may not be ableto commit sufficient savings to retirement and education plans to meet bothfinancial goals. Therefore, the CFP professional may discuss the issue with theclient and help set some priorities.2.004 Considers theimpact of economic,political and regulatoryenvironmentsThe CFP professional assesses the extent to which the client’s financial positionand possible financial strategies may be affected by economic, political andregulatory factors. Examples include inflation, interest rates, the relative strengthof the Canadian dollar, changes in tax legislation and regulatory issues regardinginvestment, pensions, insurance or other areas related to financial planning.The CFP professional considers how these factors may guide or limit the client’sfinancial planning options.2.005 Measures theprogress towardachievement ofobjectivesThe CFP professional assesses the current level of progress towards the client’sfinancial goals by comparing her projected net worth to current net worth andconsidering current savings plans and strategies in place to bridge the gap. Forexample, the CFP professional may consider the value of the client’s currentretirement assets to the value required at retirement and plans in place to growand protect retirement savings over the client’s working years.CFP PROFESSIONAL COMPETENCY PROFILE11

3Recommendation:Develops recommendations to help optimize the client’s situation3.001 Prioritizesrecommendations tooptimize the client’ssituationThe CFP professional establishes the relative priority of each financialplanning recommendation to best address the client’s needs, goals, attitudesand values. For example, the CFP professional may prioritize the purchase oflife and disability insurance and drafting of a will for a client who is recentlymarried with a child on the way. Alternatively, the CFP professional mayprioritize a review of planned expenses and consolidation of debt for a clientwho is jeopardizing her financial future by virtue of excess spending.3.002 Incorporatesrecommendations intoaction stepsThe CFP professional includes all financial recommendations alongside specificaction steps. Action steps may include a timetable for getting started, accountreferences, persons and/or documentation required to assist and dates forcompletion.3.003 Determinesthe appropriate cycleof review for therecommendationsThe CFP professional establishes a schedule for review of financial planningrecommendations considering normal business practices, client preferencesand any unexpected changes in client or external circumstances that mayimpact projections developed and recommendations made.3.004 Determines thenecessity to revise therecommendationsAs part of the review process, the CFP professional evaluates the need to makeadjustments to the recommendations. Triggers for possible adjustments includechanges in the client’s situation such as marriage, job change, shifting prioritiesor attitudes, and changes in external factors including economic conditions or taxlegislation. Examples of areas that may require adjustment include assumptionsfor inflation, interest rates and investment growth, asset allocation based on achanging risk tolerance, life expectancy, estate plans, and the amount and typeof insurance coverage. Material changes will generally necessitate a revision toeither a portion of the recommendations or the recommendations overall.Financial ManagementFinancial management focuses on the client’s current and future financial position. The client’sfinancial position is characterized by his cash flow, budget and net worth, and will include hisinclination to save, spend and borrow. It is important for the CFP professional to consider theintegration of financial management with other financial planning areas, since decisions madein this area will impact, and be impacted by, other key financial planning goals and strategies.For example, to the extent that the client wishes to provide for his children’s education over thenext four years, retire in 10 years and leave a sizeable estate, the budget will need to account forthese various goals.12CFP PROFESSIONAL COMPETENCY PROFILE

1Collection:Gathers the client’s information1.1 Gathers quantit

Financial Management 12 Investment Planning 16 Insurance and Risk Management 20 Tax Planning 24 Retirement Planning 27 . pervasive across all Financial Planning Areas. These competencies relate to the integration and interrelationships among the Financial Planning Areas. With every client engagement, the Fundamental .