NAPFA has long been at the front vanguard of the profession, carving a path to advance financial planning forward. And for the most part, it has been incredibly successful. It put fiduciary in the center of the debate, and organizations from the CFP Board to the FPA have adopted fiduciary into their own Codes of Ethics and Practice Standards. It put comprehensive in the center of the debate, and now the CFP Board’s public awareness campaign is anchored around the comprehensive nature of financial planning to pull together all of life’s intricacies. It put fee-only at the center of the debate, and now methods of compensation, conflicts of advice, and objectivity of advice are being evaluated by Congress and government agencies to determine future regulation of the profession. It put the importance of competence at the center of the debate, and now the public media openly acknowledges the value of having the CFP certification as a cornerstone of financial planning knowledge. With so many victories in its core missions, NAPFA had to some extent begun to render itself less relevant, as its successes brought all parts of financial planning closer to its own ideals and diminished its own differentiation. And so at NAPFA National 2011, the organization announced a new branding effort and vision for 2020 – once again, throwing down the gauntlet for leadership of the profession.
Being a good financial planner is not just about having the knowledge and information to direct clients on how to best achieve their goals and financial success.
Ultimately, most would agree that the true measure of success is to look at how effective the planner is in actually helping clients achieve those goals; in other words, does the client actually have an improved path to success because of the planner's involvement. In turn, this means that the planner's true success hinges not only upon having the right advice, but also depends upon the client actually implementing that advice, and the planner's ability help those clients make the required changes!
There's just one problem: it turns out that telling people what to do is actually a terrible way to get them to do it!Read More...
If there's one piece of investment advice that's almost universally agreed upon by financial planners, it's this one: don't bail out of stocks after a bear market. In fact, the entire foundation of wealth accumulation in the financial planning world is predicated on a healthy exposure to stocks for the long run, especially during the accumulation phase.
The planning world has attached itself to this stocks-for-the-long-run focus over the past two decades with its shift to an assets-under-management (AUM) business model, where revenues and value for the firm are tied to the markets in a similar manner to the client's wealth and (future) income.
Yet in recent years - and especially since the 2008-2009 bear market - some planning firms have been starting to shift away from the AUM model, opting instead for more stable income business models like retainers. Yet this raises the question: if clients are supposed to stick with stocks for the long run and stay the course through temporary market downturns, are planners being hypocritical by not doing the same thing with their AUM business model?Read More...
It has long been a criticism of financial planning that it is focused to far up the wealth scale. Financial planning firms at best only start serving the "mass affluent" (typically defined as $100,000 to $1 million in investment assets), and the elite independent firms often have minimums of one or several million dollars. The only exception is typically the younger high income earner, who may not have sufficient assets yet, but earns a few hundred thousand dollars a year, is accumulating assets quickly, and may need significant income tax planning support in the meantime. Yet the statistics show that the average American doesn't even have $100,000 in investment assets, and nearly half of Americans don't pay income taxes at all.
The response from planners is that it's just too difficult to serve clients at those lower wealth and income levels; the business model "doesn't work" and isn't viable/profitable. Yet perhaps the real reason is not that the business model is impossible to design, but simply because it's so hard to get a sufficient volume of clients, due to the sad reality that the value of financial planning hasn't been clearly defined to the public at large, and as a result it's very expensive to "sell" clients on financial planning when there's no real demand from them to "buy" it in the first place.Read More...
Home ownership has long been viewed as a foundation of building wealth. For many Americans, the equity in their home is the single greatest asset on their balance sheet, often dwarfing the amount of investment assets they hold in savings and retirement accounts. But does that really mean that home ownership is the best long-term investment around, and a step that everyone should take if they wish to build financial success in the future? Not necessarily. Because in reality, the real reason home ownership is the average American's greatest asset is not because of appreciation in the value of housing; it's simply because of leverage. Read More...
It is a hallmark of an occupation seeking to be recognized as a profession that its services must be rendered ethically. In turn, this means that part of the path to becoming a profession includes developing a Code of Ethics, and defining appropriate rules of conduct that apply the ethics to the particular situations faced by those delivering professional services. And the profession's code of ethics and rules of conduct are ultimately only effective if they are taught to those who deliver professional services - so they can in fact act within the guidance of the prescribed code - and if disciplinary actions are taken to enforce the code against those who violate it.
Notwithstanding the importance of having a Code of Ethics, the rules of conduct that accompany it, and the need to teach professionals delivering services about the code and associated rules so they can act accordingly, the latest rules change from the CFP Board may be going a little too far, though. Because starting in October, the ONLY content that will be eligible for satisfy the Ethics CE requirement for CFP certificants will be teaching the CFP Board's own Rules of Conduct and Practice Standards. The other 99.9% of Ethics knowledge that has been developed over the past two millenia? Don't even bother applying.Read More...
It's a general principle of economics that price is related to demand. The more you charge, the fewer will buy (or are interested in, or can afford) your services; the less you charge, the more buyers you can attract. The key, of course, is to price low enough to attract buyers, but high enough that your business is still viable and profitable.
Yet in the case of professional services, comparisons on price alone are often difficult, and other factors weigh into the decision; as a result, it's difficult to easily judge who really has the lowest cost relative to the value they provide. From the business' perspective, it is similarly difficult to judge where you should really set your price in order to keep your business viable and profitable, while not dissuading clients due to cost.
Accordingly, a recent study on fee-based advisors suggests that many may not have the equation quite right, and may in fact be leaving significant money on the table.Read More...
With the Federal Funds rate as close to "zero" as it can feasibly get, it would seem that interest rates have only one directly to go: up. And given the mathematics of bond investing - as interest rates rise, bond prices fall - many advisors and their clients have decided that the only prudent course is to wait for rates to rise before investing into the bond markets. Yet the truth - as a recent white paper points out - is that there is a cost to waiting, in the form of earning lower returns while waiting for interest rates to rise. Which means to say the least, if you're engaging in a strategy of waiting on bonds for interest rates to rise... you better be right about when and how much they actually do increase!
For most financial planners, the focus of college planning advice is accumulation based. After all, it seems that almost by definition, "planning" for college means acting in advance by saving up money ahead of time so that the costs can be funded when the child is ready to matriculate. If you just pay as you go when the tuition bills show up, you may be funding college, but that doesn't really constitute "planning" does it? Yet the reality is that many actions can be taken in the final high school years leading up to college beyond just long-term accumulation planning; however, most planners seem to skip these client conversations about so-called "late stage college funding planning" opportunities, despite the potential for a high impact on the actual client costs to fund college. For the most part, it seems this is by no means willful negligence, but simply a lack of awareness about the strategies that really do exist. We've just never had much opportunity for training about how to do this effectively. Until now.
Almost by definition for many, the essence of financial planning is that it's comprehensive. Financial planners don't just look at a particular problem or product; they account for everything holistically to arrive at a recommendation and solution that fits in with the big picture. In other words, they don't just plan for a slice of the pie; they plan for the whole pie. Yet it seems that for many planners, the "whole pie" is the client's balance sheet; we plan for all the different assets (and liabilities?) that the client has, not just a particular account. What about the OTHER pie, though? Not the asset one; the INCOME pie.Read More...