Planning Profession

One of the major reasons that advocates recommend the fiduciary standard is the belief that if only everyone were subject to the standard, fewer client abuses would occur, because advisors would fear the repercussions (i.e., legal liability) of inappropriate recommendations that fail to meet the standard. Yet at the same time, the financial services industry has been plagued with scandals, and it's not just Bernie Madoff, Allen Stanford, and numerous commission-based advisor improprieties; in the past three years, there have even been investigations against two former NAPFA presidents for malfeasance. Which raises the question - if even people who have led such a fiduciary-centric organization as NAPFA can still conduct such misdeeds, does fiduciary really provide the necessary consumer protections? Or is the fiduciary standard really only effective for those who weren't likely to violate its principles anyway? Continue reading "Is The Fiduciary Standard ... »

The financial planning world is in a state of change, as the rise of the digital age begins to exert its impact upon the profession. Thus far, trends have included the shift to outsourcing, the rise of web-based software, and a growing number of planners using services like GoToMeeting and Skype to supplement face-to-face meetings with more virtual interactions. As the coming decade wears on, technology will play an increasing role in the financial planning world, driving change in everything from how we deliver services to the client experience. Nonetheless, while technology will continue to augment financial planners, it will never replace them, for one simple reason - real financial planning solutions require clients to implement recommendations and make changes in their lives, and there are few forces for behavior change more effective than the accountability of another human being. Which means, simply put, as long as we are human beings and our brains operate the way that they do, effective financial planning will require another human being at the other end of the relationship, especially in times of stress and when we need an outside perspective. Technology alone may give clients the answers... but the fact that we all don't get the right amount of exercise, eat a perfect diet, and take all the other steps necessary to become optimal human beings, makes it clear that technology delivering information alone will never be the solution. Continue reading "Technology Will Improve ... »

Continuing education content has long been the anchor of the professional association chapter meeting. It creates a common purpose and bond for the community to meet, break bread, and form relationships with colleagues and peers. Yet in recent years, several financial services associations have shifted from making CE the centerpiece of core membership community-building, to the anchor around which multi-disciplinary networking is supposed to occur. Unfortunately, though, the approach is fatally flawed, as affiliated professionals are unlikely to find the content and sponsors relevant, and CE can take up so much of the meeting time there is little left to actually network! As a result, many organizations are at a crossroads – to either really restructure meetings to allow for proper and structured networking opportunities, or to refocus on using the chapter meeting once again to build community around a core membership. 

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Although financial planning seeks to improve the lives of all who need help making better financial decisions, in practice its scope has mostly been limited to those with a relatively high level of affluence, at least compared to the "average" American. Due in large part to a perceived limitation of business models, the profession has struggled to find ways to effectively serve the broad middle market. Where financial planning firms have failed, though, a technology company is finding success, as "start-up" firm LearnVest - a hybrid of technology and financial planning, seeded with enough money to make it one of the larger independent financial planning businesses in the country - leaps forward with a goal of reaching tens of thousands of people or more every year, and potentially hires the dozens of CFP certificants it will take to serve them. Are we catching a glimpse of what the middle market financial planning firm of the future will look like? Will a technology firm employing financial planners set the model that solves the challenge the financial planning profession couldn't? Continue reading "LearnVest - A Glimpse Of ... »

One of the most common ways that financial advisors demonstrate a value proposition to clients is to help clients manage their own behavioral biases and misconceptions; simply put, we help to keep clients from hurting themselves through impulsive, emotionally driven investment decisions. Of course, hopefully most financial planners do more than "just" keep their clients from making bad investment decisions, but it is nonetheless an important starting point. Accordingly, a recent NBER study tried to test this, in what has been characterized as an "advisor sting" study - where the researchers actually went undercover to the offices of advisors, to see what kind of advice would be provided in various scenarios, and unfortunately the results were not terribly favorable to advisors. However, a look under the hood reveals a significant methodological flaw with the NBER study - simply put, they failed to control for whether the people they sought out for advice actually had the training, education, experience, and regulatory standards to even be deemed advisors in the first place, and in fact appear to have sampled extensively from a pool of salespeople with little or no advisory training or focus. As a result, the study might have been better classified as a "salesperson sting" study simply showing that non-advisory salespeople don't give good advice, regardless of the title they put on their business card. Is that really news to anyone, though? Continue reading "How The "Advisor ... »

In order to obtain the CFP certification, prospective financial planners must complete financial planning Education, take the CFP Exam, agree to follow the CFP Code of Ethics, and obtain 3 years of financial planning Experience. These four "E's" form the basis of the path that potential planners must follow in order to become CFP certificants. However, the methods to achieve these requirements - especially for education and experience - have been very flexible, allowing candidates to complete them in a variety of CFP Board-Registered Programs and in a wide range of financial-planning-related jobs. In a new change, though, the CFP Board has declared that one job path will receive preferential treatment: candidates who obtain a position focused exclusively on the delivery of financial planning, working under an experienced CFP professional, can satisfy the experience requirement in only 2 years, instead of 3. As a result of this change, the CFP Board has forever changed the career track that financial planners will now follow as an entry to the financial planning profession, and firms that fail to adapt may lose access to the best job candidates. Continue reading "CFP Board Redefines The ... »

For many years, the battle lines for the fiduciary standard have been drawn. On the one side are those who support the standard, suggesting that commissions and conflicted business models must be eliminated to protect the consumer. On the other hand are those who argue against the standard, suggesting that an option to purchase financial services products compensated by commissions is a choice that consumers can make for themselves and may even represent a less expensive option, especially for the small client. As a result, the battle for the fiduciary standard has been not only about what's best for the consumer, but whether entire business models could be eliminated in the process. In a new turning point, though, a recent letter by many organizations supporting the fiduciary standard have broken new ground in requesting that the SEC move forward with rulemaking by implementing a fiduciary standard that still allows commissions, suggesting that the two are actually compatible and can co-exist. Will this be a new turning point in the advancement of the fiduciary standard - a focus on client-centric fiduciary advice, regardless of compensation model? Continue reading "Coming Soon: A Fiduciary ... »

In the ongoing debate about the fiduciary standard, it continues to be difficult explaining to the public just what fiduciary is and means, and how there's a difference between brokers who sell products and fiduciaries who give advice. A recent video by Hightower Advisors tries to illustrate the point by comparing butchers who sell meat to dieticians who give advice about what to eat; you wouldn't expect your butcher to give objective dietary advice, and by analogy you shouldn't expect your broker to give you objective financial advice, either. If you want advice about what to eat, you go to a dietician, and by analogy when you want financial advice, you go to a fiduciary. Yet while the video does a good job drawing the distinction between brokers and fiduciaries, it perhaps unwittingly implies that recent regulatory and advocacy efforts may be misguided. It would be nonsensical to pass a law requiring all butchers to become trained dieticians to give advice about eating under a uniform dietary advice standard, when at the end of the day their job is simply to be a butcher and sell meat; extending the analogy, does that mean it is equally absurd to expect a uniform fiduciary standard for brokers? Is a better alternative just to require butchers to call themselves butchers, and brokers to call themselves brokers, and let neither give advice or hold themselves out as an advisor in the first place? Continue reading "Butchers, Dieticians, ... »

Notwithstanding some of the successes of the Financial Planning Coalition in pushing forward the fiduciary battle in Washington, requiring all advisors to act in the best interests of their clients is still an uphill fight. Nonetheless, the fiduciary movement seems to be gaining momentum, from coming regulations from the Department of Labor to reforms in 401(k) plans to the scrutiny of regulators in the aftermath of debacles from Stanford to Madoff. But what happens if the fiduciary fight is won over the next few years? Does that mean the public is now protected? Perhaps not. After all, it doesn't really help to ensure that advisors act in the interest of their clients, if there's no assurance that advisors have the actual knowledge, skills, and expertise to craft appropriate recommendations and deliver the right solutions to clients in the first place. In other words, protecting the public is not just about fiduciary. To restore the public's trust in advisors, the fight must be about competence, too. Continue reading "Protecting The Public Is ... »

Over the past two decades, the world has begun its transition into the information/digital age. However, the progression has been uneven, and the world of computers are still far more integrated in some industries and professions than others. The pace of change is accelerating, though, and in the coming decade, it will be time for financial planning to enter the digital age, driven in large part by major demographic shifts, as more and more of Generation Y become the newest clients and newest staff members in firms that will increasingly be led not by baby boomers operating their traditional model, but by the more technology-inclined Generation X. And in this future world, where people are connected by so many means, geography itself is less and less relevant; employees can work for employers, and clients can engage planners, even if they are a thousand miles apart, when it's a digital, virtual world. As the importance of geography declines with the transition to the digital age, three key aspects of financial planning - practice management,  marketing and business development, and the actual delivery of financial planning services - will be dramatically altered.

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On January 18, the CFP Board issued proposed changes to its process for addressing bankruptcies of CFP professionals and candidates for certification. Under the current rules, CFP certificants and candidates who experience a single bankruptcy are subject to a hearing by the Disciplinary and Ethics Commission, which may result in disciplinary action including a private letter of censure, suspension, or revocation of the marks. Under the proposed rules, the disciplinary process would be eliminated, and replaced with a disclosure process that would require CFP certificants who experience a single bankruptcy to have such bankruptcy publicly disclosed on the CFP Board's website for a period of 10 years, but no longer otherwise be subject to discipline or restrictions regarding the CFP marks. The comment period for the proposed changes ends on Friday, February 17th, and in today's blog post I share my own comment letter feedback to the rule. Continue reading "Comment Letter on the CFP ... »

Last month witnessed the national conference for the Personal Financial Planning section of the AICPA – a world of CPA financial planners that have lived a relatively separate existence from “the rest” of the financial planning world. They have their own membership association (the Personal Financial Planning {PFP} section of the AICPA) with its own member benefits, their own professional designation (the Personal Financial Specialist {PFS}), and as just noted, their own national financial planning conference. Yet CPA financial planners are a rising force in financial planning… and at some point in the next few years, will have to make a decision about whether or how they will engage with “the rest” of the financial planning world.

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Financial planning has long struggled with the criticism that it serves only a limited subset of the relatively affluent, and has failed to develop business models that deliver financial planning to the wide swath of "average" Americans with more limited income and resources. Yet at the same time, the reality is that our education as financial planners does not really effectively prepare us for the kinds of "financial counseling" knowledge and skills required to serve those with less income and fewer assets. Which raises the question: is that simply because financial planning hasn't grown far enough, or is the reality that the financial planning body of knowledge is separate and distinct from the kind of "counseling" knowledge needed to help people through the basics of navigating our financial system, from credit cards to credit reports to checking accounts to the use of public agencies? Or perhaps stated more broadly, is financial planning for the mass affluent and wealthy a different discipline than financial counseling for those of more limited means? Continue reading "Are Financial Planning and ... »

In recent years, the financial planning profession has been focused on the development of a fiduciary standard for financial advice, to protect the public from the harm done by those who claim to act in their clients’ best interests but actually make recommendations to benefit themselves. However, the reality is that the recent challenges of fiduciary have extended beyond just the delivery of financial advice; since the financial crisis of 2008, the issue has also extended to the duty that Wall Street investment banks owed to those they sold securities to (even when the company “knew” the investments were dogs at best, or at worst actually bet again their customers for profit). Other fiduciary concerns that preceded the financial crisis have also been highlighted in recent years, such as the obligation of investment managers to vote the proxies for stocks they hold in the interests of shareholders. The good news in all of this is that the public backlash against a wide range of damages the financial system and corporations have inflicted upon the public is raising the focus on fiduciary simultaneously across multiple channels. The bad news is that the fact the fiduciary is so wide in scope appears to be making it extremely difficult to implement with practical regulation. Continue reading "The Many Facets of The ... »

As the difficult economic environment continues, bankruptcy filings in the United States continue to occur at an elevated rate. And it appears that financial planners are having their share of bankruptcies as well... requiring the CFP Board via their disciplinary process to adjudicate whether a CFP certificant should receive a public letter of admonition, or has his/her marks suspended or revoked. With a rising number of financial planner bankruptcies putting pressure on their disciplinary resources, the CFP Board has proposed a change to how it treats such bankruptcy situations. The upshot: a bankruptcy by a financial planner will no longer bar him/her from getting or keeping the CFP marks. However, going forward, any bankruptcy by a financial planner will be publicly disclosed for the following 10 years on the CFP Board's website. Continue reading "CFP Board Relaxes Its ... »