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Financial planners seek some regulation before it seeks them

Almost every profession that offers advice about money has to face some sort of regulation, registration, or both. Accountants, stockbrokers, insurance agents, and investment advisers at least have to put their name on file with a state or federal agency. All except financial planners.

That may change soon. Too many reports of planners who peddle bad investments, who rely too much on computers without meeting individual needs, and who simply don't know how to give an overall financial plan have not helped this fairly new profession build its reputation.

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``There have been a lot of complaints about financial planners who don't know what they're talking about,'' says Maria Crawford Scott, editor of the Journal of the American Association of Individual Investors. ``There's no way of judging whether a financial planner is good or not.''

``We're starting to see some horror stories about financial planners in the press,'' notes Thomas McFarland, a planner in Burlington, Mass. ``Now everybody's saying they're a financial planner. Financial planning has gotten to be a buzzword.''

Several states would like to help consumers find a way past the buzzwords. The California Legislature is considering a bill that would license all planners and set up standards for their operation. Regulations are also being considered in Arizona, Maine, Maryland, Minnesota, New York, and Oregon.

To try to head off these efforts or to establish some guidelines before others do it for them, financial planning organizations have started looking into the idea of regulating themselves. Failing that, they want a say in decisions that outside regulators and legislators make. Because of the nebulous image financial planning has in many people's minds, leaders of the profession say the sooner a regulatory system is in place, the better.

``A lot of people out there who call themselves financial planners don't know anything about financial planning,'' concedes Hubert Harris, executive director of the International Association for Financial Planning (IAFP), an Atlanta group whose members include financial planners as well as accountants, insurance agents, brokers, and others involved in the planning process.

``Many people and companies are using financial planning as a come-on to promote sales of products,'' he adds. ``If we waited until this became a crisis, the image of financial planning would have been soiled in the public's mind.''

To avert that problem, the IAPF has proposed a self-regulator organization that would operate under the Investment Advisers Act. The organization would operate under the watchful eye of the Securities and Exchange Commission.

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Many financial planners are already operating under the rules of the Investment Advisers Act. Although they don't always have to, these people have listed themselves with the SEC as registered investment advisers.

While the IAFP is pursuing its self-regulatory concept, another group, the Institute of Certified Financial Planners (ICFP) in Denver has formed its own self-regulatory body, called the Board of Standards and Practices for Certified Financial Planners.

This mouthful will, according to the ICFP, be responsible for establishing educational and testing standards for financial planners who hold the CFP (certified financial planner) designation and will promote a code of ethics and professional standards.

The only way anyone can get a CFP designation, however, is to complete the educational program offered by the College for Financial Planning, and many competent financial planners have gained their training elsewhere, so the board's powers are necessarily limited.

``The ICFP is closely aligned with the college,'' Mr. McFarland points out. ``There has been some fighting over turf'' between the ICFP and the ``broader-based'' IAFP, he adds.

One of the problems of the current system of regulating financial advisers is the difference between state and federal authority. States generally watch over insurance agents and accountants, while federal agencies keep tabs on stockbrokers and investment advisers.

``The whole question of whether planners have state regulation, as with insurance, or federal regulation, as with brokers, needs to be addressed,'' notes David Bruhin, a spokesman for the American College in Bryn Mawr, Pa. The college offers courses leading to its own financial planning designation. Perhaps not surprisingly, officials at the American College have termed the proposal by their Colorado competitors ``disruptive.''

While the participants in this still-mild dispute dicker over who has the best regulatory idea, people who would like to try a financial planner may wonder what to do.

Mr. Harris says there are several things a financial plan should include. First, he says, a planner should be able to analyze a client's net worth, present and expected future income, tax situation, levels of acceptable risk, and retirement goals and needs, and to help with estate planning.

``These are the kinds of things a planner should be able to look at,'' he says.

Then, remember that a shelf full of rules and regulations won't stop a planner from giving bad, ill-timed, or biased advice. However, if the planners are registered investment advisers, they are at least answerable to state and federal regulatory officials who can, if need be, seize their records and hit them with civil penalties.

If your local Yellow Pages is already full of people who say they do financial planning, there is a way to shorten the list considerably.

The IAFP has a Registry of Financial Planning Professionals. These people are full-service financial planners who must have a minimum of three years' experience and take an examination. They also have to be interviewed by other planners.

You can get a list of registry-listed planners in your area by writing the International Association for Financial Planning, 5775 Peachtree Dunwoody Road, NE, Suite 120-C, Atlanta, Ga. 30342.

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