From the February 2007 issue of Wealth Manager Web • Subscribe!

Watch Your Speed

My wife got a new car for Christmas. Planners often remind clients that there is a difference between a "need" and a "want." This car satisfied all of Kelly's automotive needs, took care of many of her wants, and helped me express my appreciation for all that she does for our family. She loves the car. My kids love it, too, though they lost their enthusiasm for the new car smell once Kelly informed them that there would be a ban of indefinite duration on consumption of food and beverages inside the car. Still, as happy as we are with the car, the buying experience was horrible.

In fact for me, the process re-emphasized how wide a chasm there can be between some sales cultures and a professional culture. "Sales" has never been a dirty word to me. After all, everything I have ever bought was sold to me. However, I have taken issue with some sales methodologies. The sales process at this dealership was so manipulative, the entire experience quickly became adversarial and so distasteful to me, I felt like I needed a shower afterwards.

The prior two vehicles Kelly had were purchased in downright enjoyable environments. The salespeople received a commission for these sales, and we were happy for them. The word "professional" is not often used to describe car salespeople, but the behavior of the salespeople in our prior two experiences leans much closer to that word than some of the words I would use to describe this last guy. I leave the words to your imagination as it would be inappropriate to print them in such an esteemed publication.

The differences in our car buying experiences are the result of differing standards of behavior expected by the dealerships. At this last dealership, the culture dictated squeezing customers to the limits of their patience and their wallets. At dealerships where professionalism was expected to result in a pleasant experience for the customers, there was a striking lack of shenanigans. I couldn't help but think of the financial planning profession and the implications of varying standards.

A few years ago, I bought a new car for myself and quickly got a speeding ticket. The new car was a lot smoother than the car I'd been driving for more than a decade, and I lost track of my speed. That excuse didn't hold water with Kelly. Somehow I failed to disclose the ticket at the time I received it. She figured out what happened when our mailbox filled with offers to attend traffic school. I think my lack of disclosure added to her skepticism about the cause of my infraction.

Pineapple Avenue is a residential street where children ride their bikes on sidewalks that are a few short feet from the road. The speed limit was 30 miles an hour and I was going, uh, faster than that. At its essence, good regulation is not really more complicated than what we observe from my speeding incident. In my case, there was an appropriate rule coupled with sensible enforcement. I was fined, and I deserved it. I have no one to blame but myself.

Thinking about rules and enforcement, brings to mind the recent debates over the so-called "broker/dealer rule" and the CFP Board's proposed changes to its Code of Ethics. Both touch on issues created by applying different standards to the same activities. During the last few years, I have had the privilege of talking with lots of planners from all over the country, and I thought I'd share some of the arguments presented to me.

"We are already heavily regulated so more regulation isn't needed." This one came up often with respect to the broker/dealer rule. One odd thing about that is the broker/dealer rule is actually an exemption from advisor regulations, not an addition of new rules. Parties taking advantage of the exemption actually evade several requirements, such as the mandate to disclose education, qualifications, experience, disciplinary history and conflicts of interest. Instead, there is only the need to offer an uninformative statement affirming that conflicts may exist.

The bigger problem with this argument is that it emphasizes quantity over quality. There do indeed seem to be a lot of rules associated with financial services, but the existence of these rules should not impede the public's need for assurance that someone who markets himself as an "advisor" is actually regulated as an advisor. Just because there are a lot of laws governing the use of an automobile, that doesn't mean the speed limit on Pineapple should be anything other than 30 mph. The limit on that road should be dictated by the conditions there.

The second argument goes like this: "Our people have been serving clients well for generations; therefore there is no need for a fiduciary standard." This assertion may also come from an individual who, while arguing against a fiduciary standard, will state, "Don't get me wrong. I always put my client's interest first."

One of the problems with this argument is the fact that being required to do what you already do as a matter of course is simply not a burden in any way. In fact, I know thousands of planners who would say, "Set the limit at 30 mph. I don't drive faster than that through residential neighborhoods anyway." The core of the financial planning profession is composed of practitioners with just such a point of view. Some operate as fiduciaries quite explicitly, others only in spirit. Regardless of the legal requirements that may apply, professional planners are not at all afraid of the liability that comes with the responsibility of advising the public and have instituted prudent procedures to make sure they meet their obligations.

That said, I understand some of the fear behind the arguments quoted above. As an employer, I am always concerned about how employees expose the firm to liability. As an individual, I worry about "speed traps." I was only going 34 mph in a 30 mph zone on a road notorious for being a speed trap. In short, I had plenty of warning, and I knew better. Yet I slipped up by being lax just long enough for the radar gun to record my errant ways. No planner wants to get dinged for failing to dot an "i" or cross a "t." Nonetheless, no matter how innocent we believe our mistakes to be, it is still our responsibility to do the necessary dotting and crossing.

The major problem with dual standards is not how the good guys are treated; it's how we deal with those who don't keep their promises. Every practicing financial planner reading this article has something in common with several thousand other financial services personnel--identical licensing. It doesn't matter where you work, what designations you may have, or how you are paid, a lot of people are set up tin exactly the same way you are. News Flash: The public can't tell the difference between those who will be held accountable for putting their client's interest first and those who merely imply in their marketing materials that they will put their client's interest first. Heck, one of these faux planners may even work for your firm, maybe even in the office next to yours.

If you are a law-abiding citizen and a safe driver, it may be easy to say none of this matters to you. You'll still drive at a safe speed through a residential neighborhood, even if the posted limit is high. That may be true, but without appropriate standards and sensible enforcement, there is no way to deal with the yahoo who wants to fly through the same streets.

The chief cause of auto sales' poor reputation is the mismatch between the luxury and class extolled in the advertising and the utter lack of class displayed by some salespeople. Despite the strong demand for financial planning, our profession is still young and vulnerable to exposing too much of the public to a similar mismatch. If planners can continue to band together and insist on a unified high standard of behavior, financial planning may one day be perceived as a true profession by the public.

Dan Moisand, CFP, is a principal of Spraker , Fitzgerald, Tamayo & Moisand, LLC, in Melbourne, Fla. and Chair of the Financial Planning Association. Editor's Note: Mr. Moisand's opinions are his own and are not to be construed as the Financial Planning Association's position.

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.

Most Recent Videos

Video Library ››