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

In Search of Meaning

Chaos. I have been a witness to chaos, my friends. I have heard the squealing, and I have seen the destruction. It may not have been on a par with a coup d'?tat, but it was nonetheless traumatic to me. You would think nine 11-year-old girls assembled to watch the premiere of High School Musical 2 would be merely an event to look back upon years from now with fondness. In time, I may feel that way, but at this point--despite how cute the event was--I simply have a headache.

There's a fair chance that many of you saw the show on the Disney channel. Millions of people did. In fact, 17-times as many people tuned in to watch as tuned in to watch the Presidential debate held at the same time--17-times!

I conducted an admittedly less than scientific study here at my office building, and the overwhelming consensus was you were more likely to get something of value from watching the made for TV movie than watching the so-called debates: "All show, no substance," "They don't say anything, anyway," and "All they do is complain and blame the other people," were all comments I received regarding the Presidential debate.

Now this is neither an indictment of a candidate nor any party, but it may serve as a warning to those of us who practice financial planning in America. If we don't provide value and substance, the public may quickly tune us out, too.

The title "financial planner" holds little meaning for the public today. In most jurisdictions, the only requirement for using the title is that the person be either a registered investment adviser (RIA) or an investment advisor representative (IAR). Becoming either is not terribly difficult, but doing so at least imposes decent written disclosure requirements and a fiduciary duty to act in the clients' best interests. That's a good start for anyone in the advice business.

Sadly, what becoming an RIA or IAR does not require is much financial planning experience. Thus the public ends up with little idea of how one might go about performing financial planning services. There are plenty of rules governing how the financial planner would provide investment advice, but we all know financial planning is often a bit broader in scope than portfolio management.

Of course, consumers have the option of looking for more than simply the title financial planner; they can seek the services of a "Certified Financial Planner." Earning the right to use these marks is a rather involved process requiring significant education, an examination, experience, continuing education and adherence to ethical standards. A CFP licensee must follow a set of Practice Standards that outlines expectations for the way the licensee delivers financial planning. This is an excellent scenario--but still insufficient where the public is concerned.

The fact is that merely looking for a CFP certificant will not do the trick. One quirky deficiency is that not all CFP certificants practice financial planning. At a certain level, this is perfectly acceptable. For instance, I think it is wonderful that many of the people instructing a whole new generation of financial planners in various academic settings hold the CFP marks. On another level it adds to consumer confusion when John Planner, CFP, works at ABC Financial as a "financial advisor," but Mr. Planner does not provide planning or does so only sporadically.

A second deficiency the public faces in relying exclusively on the CFP marks is that the CFP board is limited in the type of discipline it can employ. Not all planners are CFP licensees. The CFP Board can only limit one's ability to use the marks. Thanks to growing prominence with regulators, the media, and the public at large, losing the right to use the marks has become a substantial penalty. However, the CFP Board cannot fine an errant CFP, order restitution to an aggrieved client, or prohibit someone from practicing--even after violating the CFP Board's Code of Ethics.

At first blush this may seem like a criticism of the CFP Board, but that is not my intent. I am an enthusiastic supporter of the CFP marks and the work the CFP Board has done over the last two decades. Among the regulatory set, no other body has made such impressive strides in bringing value and meaning to terms like "financial planning" and "financial planner." I have no doubt the CFP Board will be a significant, positive contributor to the continued evolution of the financial planning profession.

Thank goodness--because the public needs a lot of help. At least a CFP certificant has proven something to someone regarding their competence. At least the CFP certificant has some standards of practice to which they are expected to adhere, and a Code of Ethics that requires them to put the interests of their clients first.

But what has a "wealth manager" proven? Where can a member of the public find an accessible set of standards relating to the process your "financial advisor" uses? What is the difference between a "financial consultant," a "wealth advisor," a "financial advisor," a "wealth manager" or a "financial planner?" In our current regulatory environment, the answer may lie anywhere between nothing and everything, and regulators offer the public little help in figuring out what's what.

The regulators have even added to the public's confusion. While the SEC has been quite clear--at least as far back as IA-1092 in1987--that holding out as a financial planner requires registration as an investment advisor and reiterated its stance in the various versions of the now defeated broker/dealer exemption (aka Rule 202), neither the SEC nor SIFMA, the securities and bond industries' lobbying arm, have proposed definitions that are any clearer. For example, in its final release of Rule 202, the SEC said that brokers should be able to call themselves "financial advisors" because the services provided were so broad. This was particularly strange given that 202 exempted brokers from the fiduciary duties and disclosure requirements of the Investment Adviser Act of 1940 because the advice was so limited as to qualify as "incidental." Put another way, the SEC, protector of the public, basically said you can call yourself an advisor but we won't hold you to advisor standards because you don't give much in the way of real advice. Huh?

Also, in an interpretation letter, SEC staff more or less defined financial planning as "comprehensive" only. A narrower focus or "modular" plan would not trigger registration. Certainly, "comprehensiveness" is one of the characteristics of a financial plan, but to say that unless the advisor-client engagement is comprehensive, it isn't planning--or even advice--is plain silly. My son injured his chin a few years ago. Despite the limited scope of the engagement, I assure you everyone there believed the doctor was practicing medicine.

Much of today's discussion on the regulatory front centers on the RAND study on regulatory systems, commissioned by the SEC in 2006. No one seems willing to do much of anything until the folks at RAND tell us what we already know. Because our regulators have allowed the lines between advice and sales to blur, the public has no clue as to what is going on, and we have a confusing and less than effective regulatory structure for the delivery of personal financial advice.

My concern is that instead of empowering the public with a meaningful, uniform set of standards and disclosure for all advice-givers, new rules will simply say everyone is a "fiduciary," but offer a slew of exceptions.

Sadly, while a number of firms seem to be looking for every way they can to avoid fiduciary duty, many of their employees already conduct themselves as if they were fiduciaries. Firms looking to escape fiduciary duty are putting these reps in an awkward position. Many of them have already left for more supportive, even independent environments--and taken their clients with them. I keep thinking that the less supportive firms will start supporting their planner reps instead of hampering their ability to serve their clients as they are capable of doing.

As my High School Musical headache lingers, part of me waxes nostalgic for the days of quiet, make-believe tea parties, but alas, that is in the past and we must move on to the next phase of life here at the Moisand house. Professionally, too, we may be in for some tumultuous times with respect to financial planning regulation. Hopefully, like puberty, the tumult will pass, and we will all be able to contribute positively to society. We can certainly improve upon what we have now.

Dan Moisand, CFP, is a principal of Spraker, Fitzgerald, Tamayo & Moisand LLC in Melbourne, Fla., Chairman 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.

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