Choosing a financial advisor is difficult, and as a result it's helpful to provide the public with guidance about how to select one. Unfortunately, though, in recent years recommendations to the public from many organizations have increasingly focused on whether the advisor is a fiduciary, without any acknowledgement of whether the advisor has the training, education, and experience to provide effective financial advice. Consequently, the public increasingly runs the risk of being poorly served by a well-intentioned advisor whose advice is totally incompetent. Ultimately, protecting the public will require setting forth a standard that meets fiduciary and competency requirements. And as it standards right now, the clearest choice for a professional minimum standard appears to be the CFP certification. While the CFP marks - as with any standard - don't unequivocally mean someone will get the best and most optimal advice because the advisor has the CFP, that's not the point; in the end, the purpose of such a standard is not to define a best practice, but instead the minimum acceptable standard to ensure the fundamental protection of the public.Read More...
As the world moves inexorably forward into the digital age, technology increasingly takes on a role in both augmenting and competing against traditional businesses. The world of financial services is no exception; in recent years, technology has taken leaps and bounds to augment and enhance what financial planners do, but now a new breed of technology firms threatens to challenge advisors as well. The rise of the so-called "robo advisor" - online startup firms that aiming to replace traditional advisors, as TurboTax did to tax preparers - has begun.
But so far, it's unclear whether the current breed of robo advisors will really make a dent in what real advisors do; in fact, the scope of most robo advisors is so narrowly focused on delivering passive, strategic, low-cost index portfolios, that arguably their greatest competition is not from comprehensive financial planners but instead from do-it-yourselfer alternatives like Vanguard and Charles Schwab!
The real test for the robo advisors, though, is the one they have not yet faced - will clients really be willing to stay the course through turbulent markets and change their behavior for the better because a computer told them to do so?Read More...
In the ongoing effort to differentiate, many financial planners are engaging in a "race to the top" to assert themselves as delivering the best quality advice subject to the highest standards. At the same time, the financial planning membership organizations are similarly competing to attract more quality members by implying their existing members are of the highest quality due to the organization's high Standard of Care.
Yet the reality is that most of the major financial planning organizations now have an almost identical standard of care... and as a result, the real differentiation is not what the standard of care is, but whether the members really adhere to it, even though most associations have no feasible way to monitor the activity of their members. Which raises the question - what's the point of even claiming a standard of care as a differentiator, if the organizations can't enforce those standards to deliver on the promise anyway?Read More...
As the baby boomers move inexorably closer to the point where they begin to retire en masse out of the workforce, so too does financial planning move closer to the point where the majority of experienced practitioners and firm owners will begin to exit the business. Industry guru Mark Tibergien estimates that as many as 2/3rds of all financial advisors may look to exit in the next 10 years, requiring more than 200,000 new planners to enter the industry just to keep the total number of practitioners even. Yet the reality is that so far, the industry appears to be woefully behind. As a result of this prospective workforce distortion, financial planning will potentially undergo significant changes in the coming years, and not necessarily for the good. In a "seller's market" for talent, large firms that can compete with both training and resources, and that have the profit margins to absorb higher compensation costs, will survive and grow; on the other hand, smaller firms may find themselves in a plight of being "stuck" small, unable to attract or even afford the young talent necessary to grow. And in the process, the greatest loser may be the majority of the American public, who simply will not be served when a dearth of planners inevitably causes the few practitioners that remain to be attracted to the most lucrative high net worth clients.Read More...
Between FINRA, the SEC, 50 state investment advisor regulators, and 50 state insurance departments, the world of financial advising is highly regulated, albeit in a very piecemeal manner. As a result of this fractured regulatory dynamic, the reality is that it can often be remarkably difficult for a prospective client to really check out information about an advisor, potentially requiring contact to as many as 102 different regulatory agencies just to determine if the advisor has a clean conduct record.
A new company called BrightScope is seeking to change that dynamic. By collecting publicly available data on advisors from the various regulatory agencies and aggregating it together on a single site that is easily accessible by consumers, BrightScope is helping consumers understand the conduct history of their advisors, in a manner better than the problematic FINRA BrokerCheck system.
And in the long run, BrightScope hopes to expand this even further beyond conduct alone by establishing standards and metrics for everything from advisor experience to education and credentials to investment recommendation performance results. But in the end, will BrightScope really be able to clean up the financial services industry - reaching enough consumers to make itself relevant and turn its service into a viable business model - or is this just another short-term fad that will fizzle away?Read More...
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?Read More...
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.
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.
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?Read More...
Over the past few years, the Department of Labor has been working to bring transparency of fees and pricing to qualified plans, culminating in new regulations going into effect this year that will require new disclosures of direct and indirect compensation of service providers to the plan and the plan participants. While generally targeted at the segment of qualified plan consultants and advisors who regularly work with qualified plans, the reality is that any financial planner who has even just one qualified plan may be subject to the new rules - a fact that many are unaware of.
Yet with the new 408(b)(2) rules set to go into effect in just 2.5 months, financial planners who provide any consulting, investment advisory, or other services have very little time to get up to speed on drafting and preparing the appropriate disclosures, or deciding whether to just walk away from their qualified plan clients. The decision may vary from firm to firm, but inaction is no excuse - especially since if the disclosures aren't provided in a proper and timely manner, the plan fiduciary will actually be required by the Department of Labor to fire the advisor!Read More...
