CFP – Certified Financial Planner – adding value by strategic advice

Will the role of a CFP – certified financial planner becomes obsolete due to technological developments? We are referring to self-service portfolio construction tools, whereby DIY investors are able to build portfolios without much human intervention.

Some of these innovative products and service models claim their effectiveness through cost reduction, in addition to simplicity of use, heedlessly implying that cost reduction alone can lead to superior outcomes for investors in the absence of any CFP – certified financial planner. This inadvertently undermine the role of holistic planning and strategies towards broader wealth creation.

Investment outperformance, while being a worthwhile endeavor for any investor, should not be considered a self-sufficing goal by itself. Creating enough wealth and assets that provide the required level of income to sustain living expenses for when the ability to earn a linear income becomes extinct, should absolutely be a financial objective that every investor strives for.

Therefore, in line with money optimization concept  which should be advocated by any CFP, investment performance should not be treated outside the context of, and in isolation, from wealth creation objectives. This is where the business and product models being advocated by the self-service proponents of DIY portfolio construction tools, are deficient.

Don’t get me wrong, as a certified CFP, I am personally all for anything that reduces investment costs. It is absolutely true that excessive and unnecessary platform & product fees can erode returns. However, the notion that fees are the overwhelming driver of investment performance (and therefore total wealth creation) will depend on whether the CFP is adding enough value through strategies that enhance returns and go beyond fund/product selection.

Strategies such as asset allocation, increasing exposure to quality assets, rebalancing, buying during market downturn, debt recycling and staying the course, are areas where certified CFP can add significant value. For those CFP who chose to be just a ‘transaction agent’ even though they can advise more comprehensively, product selection becomes paramount and it makes it increasingly difficult for them to justify the active management fees, and unquestionably, the fees in the context of value creation.

The concept that investors can create wealth through product selection alone, without strategic input and counsel of a competent & independent CFP, is utter nonsense, as not only does it largely ignore strategy adoption, but it also fails to account for some of the biggest determinants of successful investing – discipline and behavioral aspects, and counter-balancing the common biases that exist in most investors’ mind. And for this I quote Azizi Ali.

certified financial planner role

What is the point of investment performance (either by reduced cost or outperforming a benchmark) if the client does not meet his/her financial goals? Clearly, the DIY tools only provide  unilateral view by relating investment performance to product selection only. This one dimensional approach neglect the broader strategic value provided by CFP.


By the way of investment outcome through application of custom tailored advice and behavior modification around dissuasion from common psychological biases.

A CFP could keep you accountable

Let us examine the tradition of making New Year resolutions. Many resolutions remain unfulfilled simply because intentions which are not written down together with follow-up action seldom become reality. Regrettably, the habit of making wishes without follow-up can also extend to the way we manage our financial affairs. Ideally we would start saving for retirement as soon as we start work, review our insurance policies periodically and update our wills.
In reality, we attend to the urgent while neglecting the future.

From my observation over the years, the typical practice towards personal finance is to take action on a piecemeal basis as and when prodded by a sales agent, a news article, a tragedy suffered by someone close or a personal crisis.
There is seldom a written plan to ensure that all financial decisions lead towards the desired goal. Sometimes, there is not even a clear goal. Predictably, the chance for success is not high. The effects of poor financial planning is usually not apparent until many years down the road while any corrective action taken may be a costly.

We need not despair over these shortcomings, however. You are not alone, and I am not immune to it too. Based on how our brains function, we find it easier to be reactive and intuitive rather than deliberate and reasoned.

To complicate things, we are left with the challenge of wading through all that to find information of value and relevance to ourselves. How do we overcome the shortcomings of our mental function and the information overload?

A CFP could alert you on your blindly following the herd approach in investing

Even before we consider putting our money down, let us pause to look at the biggest impediment to successful investing – the space between our ears. Imagine our ancestors in the grasslands of Africa hunting for their next meal. As they circle around a gazelle while trying to avoid detection, they hear a rustle on in the grass just beyond. Everyone freezes, including the gazelle. Is the rustling the sound of another gazelle joining in to graze or a lion also preying on the same gazelle?

Depending on the circumstances, this situation could turn out very well or very badly for the humans. Depending on the accuracy of their perception, they could retreat or proceed and either get lunch or become a lion’s lunch.

Let’s come back to the present day. You have just placed an order for RM25,000 for a stock based on a hot tip from your stock broker. By late afternoon, the stock price has fallen 5%. Just before the close of trading, the KLSE was requested to suspend the stock pending an announcement tomorrow. One rumour circulating since last week talks about the company winning a sizable project worth RM2 billion in China. A new rumour surfaced just this afternoon that the management has been misreporting their financial results for the past two years and the Securities Commission has finally caught up with them. Do you call your broker to cut your losses, hold on or take on more stock?

The world has changed with regards to technology, economics and finance. However, our brains have not evolved as
quickly as human history. Fundamentally, we are still the same hunters in Africa trying to cope in a modern environment with in-built mental blind spots. The act of investing goes beyond numbers to what goes on in our heads when we regularly fool ourselves even without realizing it.

Let’s get back to the dilemma you are facing about your stock position. One way to make a decision is to get the facts. You could call your stockbroker for information, download the company’s annual report and study it, call your friends who are fund managers with inside knowledge of this stock. However, a more common and easier way is to make a shortcut by finding out what others are doing. In other words, you follow the herd. This method works well when looking for the most popular restaurant to patronize but may be disastrous when investing.

The outcome to following the herd is that you will buy stocks when everyone is buying (buying high) and sell stocks
when everyone is selling (selling low). If you buy high and sell low enough times, there is a very good chance of losing all your capital.

A CFP could alert you on your recency bias in investing

Let’s continue with another scenario with your stocks. Let’s assume you held on to your stocks following the reassurances of your stock broker. The following day, the negative rumour was dispelled while the positive rumour was confirmed.

You might have congratulated yourself on your decision. You are rewarded with high dividends over the next two years, endearing this stock to you. At the end of two years, the company does not have any new significant projects in hand and the price hovers around the price you bought.

certified financial planner recency bias

Would you sell the stock and move on? Again, your decision should follow from thorough research. However, it is quite likely you continue holding it because of your attachment to it. You actually value the stock more highly as a result of ownership.

This is the endowment effect. I have met clients who continue to hold some stocks when there is very little evidence
of the potential of those stocks.

A CFP could alert you on your confirmation bias in investing

Imagine that you had a conversation with someone you respect who speaks enthusiastically of the huge potential of a particular industry. Being an alert investor, you ask your broker about stocks related to this industry listed in the KLSE. You are given a list of five stocks to consider but you decide on just one based on the information you have
gathered. You invest RM50,000 in this stock.

After a year, your stock actually lost 25% in value. You come across reports that your stock which represents this particular industry actually faces many hurdles due to new competition, change in regulations and factors unique to our local situation.

What would you do? The rational response would be to revise your analysis with new information; instead many investors look for information supporting their original analysis. This is the effect of confirmation bias.

Once we make up our mind, we find ways to defend our decision. In this situation, we may want to ask ourselves,

“Do I want to be right or make money?”

A CFP could alert you on your overconfidence in investing

Given you had five stocks to choose from, it would seem natural to pick the best or preferred one. It feels like choosing flavours when you order ice cream: vanilla, chocolate, strawberry, coffee and pistachio. However, the confidence in your decision of flavours (short term) is very different from the confidence of investment outcome in the future (long term). We tend to be overconfident over outcomes we may not have control over. Since you had budgeted to invest RM50,000, it does not cost more to invest in more than one stock.

We could have hedged our bet by investing in more than one stock either in the same or different industry since
we could not be absolutely certain that our one stock pick will turn out well.

Another aspect to our confidence about the future is related to the way we look back at the past. Think of a past event either in our life or in the news. As we review the event, we could see how the event happened. We could identify the causes or triggers which set off the event. We could even come up with an explanation of why it happened.
We actually think that what is clear in hindsight is equally clear in foresight. This is the effect of hindsight bias. The fact of the matter is that the future is very hard to predict.

A CFP could alert you on mental blindspots in investing

Let’s get back to the beginning of the story of the five stocks of a promising industry. If you had known what you now know, what would you have done differently?
The answer I suppose depends on whether the outcome was positive or negative. Anyway, that was a trick question if you have not realized already.
We have yet to answer the question of what to do with the 25% loss.

CFP investing

Would you wait for the price to come back?

Would you buy more since it is now cheaper with the hope of breaking even?

It is our human trait to want to avoid loss. Even the word ‘loss’ can trigger negative emotions in us. We could actually tell ourselves we have not suffered a loss as long as we keep the account open without selling the money losing stock. What would you do? All I will say is that the reluctance to accept a loss is like a man clinging on to a sinking ship.


So there you go, the talk about returns on a particular investment is largely irrelevant if a client still does not achieve his/her objective despite reduced fees on a fund. I will only consider myself a successful CFP if…

  • A client achieves his financial goals through my advice or
  • I can help him reduce the gap between their current situation and their financial destination, as opposed to simply saving him on investment costs (which I would do anyway without being asked).
  • I can help a client reduce his investing mistakes due to emotion and behavioral bias

Investors picking product or portfolio without the incorporation of strategic advice, is really no different to selecting ingredients without a recipe.

Also read: CFP Financial Advisor in Malaysia – Definitive Guide

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