March is professional sports month at the Moisand household. During this month, our corner of the world is visited by professional athletes we do not normally get a chance to see. It's only a three-hour jaunt down to the Miami area where we can watch the world's best tennis players compete at Key Biscayne. We can hop over to Arnold Palmer's Bay Hill club to see Tiger Woods and the PGA tour. My kids and I can ride our bikes over to the beautiful facility right here in Melbourne, Fla., to watch the Washington Nationals go through their Spring training paces. . We watched all three sports this year and had a blast.
Attending with a seven-year-old boy and nine-year-old girl makes being a spectator all the more fun. Like my wife and I, Joshua and Megan were instantly in awe of just how good top professionals really are. We were struck by the incredible athleticism exhibited by tennis players over the two to three hours of a typical match. After huffing and puffing my way up the stairs to the grandstands, I was particularly impressed with the players' stamina.
That's not to say all of these visits were the picture of relaxation. At each of these events, my kids wanted me to explain the rules. At first you think it will be pretty easy. Three strikes and you're out. How hard is that? It is not hard until there is a passed ball on a third strike. Then you find yourself delving into the world of exceptions. Soon, you are challenged by the most aggravating question in the seven year-old arsenal --"why?" Why do they have to re-tee a golf ball after hitting it into the lake? The guy on the other hole dropped it near where it went in the water. He didn't have to re-tee. How come the first two points in tennis are worth 15 but the third is only worth ten? And if she scored a point, why do they say 15 anyway? Why not just say one? Why isn't "love" the score you want to get?
At each event I did my best to hold up to the grilling, because you only get so far with, "I don't know;" "Because that's just the way it is," and "Ask your mother."
As annoying as it might be, I don't begrudge a newcomer to professional sports--especially children--for asking. Everyone around them seemed to know what the rules were. The consistency of the rules is precisely what makes it possible for people who don't even speak the same language to conduct a fair competition. Everyone knows what is expected of them, thanks to the establishment of a consistent set of rules.
You need not look far to find people in financial services shaking their heads about the rules that apply to their chosen line of work. There seem to be too many rules that don't make sense, and people are wondering what exactly is expected of them. With so many people who work in the financial services arena confused or unhappy with the regulatory scheme, you can be sure the public at large is almost completely lost.
There is a lot of chatter about reform of securities regulations. Some of this is good. The world looks a lot different than it did in 1934 and 1940 when the brokerage and adviser bills were enacted into law. Reforming securities regulations, however, isn't going to make things better for the average American. It may make running a financial services firm or an exchange easier, but it won't change the simple fact that while all financial planners are regulated, no one really regulates financial planning.
As a raging free-market kind of a guy, I'm generally not a fan of regulation. Yet with respect to financial planning, I believe a separate regulatory regimen is necessary. Under the current state of affairs, it is far too common for people to get into situations that are technically "legal," but not in their best interests.
Almost every planner I know can recite a number of cases in which another advisor put a client into something in a way that complied with regulations but-- viewed from a financial planning perspective--was simply wrong. I think every town has an annuity junkie--the advisor who thinks everyone should have their life savings in annuities and equates client service to finding yet another annuity to effect a 1035 exchange. Don't misunderstand my point: Annuities can be a fabulous choice when used in a proper manner, but they aren't the answer to everyone's financial needs every time.
Financial services regulations, with the exception of solvency requirements for banks, begin and end with implementation, or in plain English, usually the sale of a product. Each subset of planning, be it brokerage, investment advice, insurance or something else, has its own set of rules and regulations. Certainly, implementation needs to be handled appropriately, but to begin at that point blithely ignores the critical initial steps of the planning process. This is precisely why the annuity junkies and other faux advisors can go about their business as "financial planners." All they need is to be registered as an investment advisor agent or registered investment advisor, and they can use the title of financial planner. From there it is simply a matter of filling out applications and handing out prospectuses. The laws of the land are such that regulators view planning as simply one of several products to pull off the shelf. Just keep the implementation at arms length from sale of the "plan," and you need not worry about being held accountable as a planner.
Now before any readers with an NASD license start drafting hate mail, I'd like to point out that it is no different for the "pure fee-only planner." Take for example the financial planner who does only the planning and farms out all the implementation. The planner would usually need to be a registered investment advisor with the SEC. However, if he has little or no assets under management, he state registration may suffice.. What will the state look at? Most likely the state will look to verify that this guy is providing some kind of deliverable for the fees charged, that proper records are kept and that he is keeping his books properly. The state is there to examine the investment advisory service, not the practice of financial planning. Of course, this is also true for the planner who directly manages assets and is regulated by the SEC.
By now you might be wondering about the CFP Board of Standards and how the marks might fit in here. The Code of Ethics and Practice Standards absolutely represent a filter for determining the acceptability of planning services. Unfortunately, there are a couple of problems with offering the marks as the solution to the regulatory gaps. First, the only people subject to the totality of the CFP Board's rules are CFP licensees, those who voluntarily went to the trouble of earning the marks. Second, the CFP Board's powers are limited to restricting the use of the marks. It cannot fine anyone, order funds returned to injured parties, or stop anyone from practicing. Other high-quality designations in the financial planning field have similar limitations.
Losing your CFP credential is no small matter these days. As the marks grow in awareness and prestige among the media and the public, the right to use the marks becomes more significant. Here too, however, regulators are serving to undermine the value of the marks. Last December, the SEC released an interpretation letter stating that a registered representative who used the marks on his cards and marketing materials would not be deemed to be holding out as a financial planner unless he actually did financial planning. An obvious question comes to mind: if those holding the marks aren't holding themselves out as planners, why do they need to put the marks on their materials? Since CFP certificants are exempt from applicable state exams, registering is not difficult. Some say the rep should be able to show he has achieved this recognition of his education. To me, it makes little sense and provides greater potential for misrepresentation to allow reps to tout an education they won't put to use for the client. Besides, the planning community clearly views the marks as something more meaningful than a mere professional course. The obvious answer to the question is marketing. In effect, the SEC has sanctioned the use of the CFP marks as a marketing hook. The SEC's motto could be: "Tell the world you are qualified; just don't deliver."
The SEC's letter also offered a horrendous definition of what constitutes "financial planning." The letter highlights the planning-as-product mentality because it declared, in effect, that only comprehensive planning is real planning. If one were to focus on only one aspect of a comprehensive plan--like retirement planning--that would not be considered financial planning. This interpretation rejects the idea that planning is a process and, more importantly, a professional discipline. When a patient goes into the emergency room with a broken arm, isn't the treating physician practicing medicine? The SEC would argue "no," because a complete physical was not conducted.
I have long believed that arriving at a better regulatory structure could take decades. Given the growing sentiment that our regulations are antiquated, there just might be a window of opportunity to make meaningful changes sooner rather than later. While the public deserves meaningful standards and sensible enforcement applied to financial planning, I wonder if the planning community has the necessary resolve to make this happen. What do you think?
Dan Moisand, CFP, is a principal of Spraker, Fitzgerald, Tamayo & Moisand, LLC, in Melbourne, Fla., president of the Financial Planning Association, and a two-time winner of the Journal of Financial Planning's national "Call for Papers Competition." He has been listed as one of the country's best advisors in several magazines.
Editor's Note: Mr. Moisand's opinions are his own and are not to be construed as the Financial Planning Association's position.