More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
One of the drawbacks to the “blog,” as it emerges as a form of journalism is that it’s almost too short to say anything of real substance: It is essentially the Internet version of the sound bite. But its advantage is that, as many mothers have advised their daughters about men: “There’ll always be another one coming along soon.” For a writer, this offers a virtually unprecedented opportunity to think about what we’ve written, and when the inevitable “Gosh, I really wish I’d mentioned that!” hit’s us, to be able to do something about it.
That’s a long lead in to say that as I was thinking about my last blog about the FPA and a profession of financial advice and realized that there’s another aspect to that issue which warrants further discussion. The conversations leading up to, during, and following the passage of the Dodd-Frank Act have significantly advanced the debate over the future of a financial advisory profession. Positions have been staked out, lines have been drawn and some casualties have been taken. One of those in the walking wounded category has been the financial planning community: a fact that shouldn’t be overlooked as the FPA—with or without the CFP Board—meanders its way toward creating a profession.
Specifically, I’m referring to the Financial Planning Coalition’s ill-fated attempt to establish a national financial planning regulator, and the consequent placing of the Coalition and all things financial planning in the penalty box for the duration of the reregulation debate. In addition to its name (boring), the problem with financial planning is that it’s (still?) too marginal to the way that most retail financial advice is delivered to be considered more than a fringe element. And it didn’t help that (at the Board’s insistence) a “financial planner” was to be defined as “anyone delivering any two of the six-step FP process.” Under that definition virtually every stockbroker, insurance agent, investment advisor, accountant and lawyer in the country would have been deemed a “financial planner.”
Now before I get a flood of emails telling me what I don’t understand about financial planning, let me state for the record that I “get it.” I get that it’s about comprehensive advice, looking at a client’s entire financial picture before taking any specific action, and that it’s truly the most client-centered way to deliver advice. And I get that, back in the ‘70s and early ‘80s, when the profession’s pioneers were casting around for a way to describe their revolutionary comprehensive approach to financial advice, they settled on the term “financial planner.”
With that said, and with all due respect, I’m simply wondering if perhaps they might have done better. Suppose right now, we were starting from scratch to
create a profession that provides objective financial advice to retail clients. Remember, we’re in a world that didn’t exist 40 years ago: The vast majority of advisors’ revenues now come from fees on investment AUM; the vast majority of advisors who see themselves as professionals work for or own their own independent firms; virtually all of these advisors have, and accept, a fiduciary duty to their clients; and while most don’t do formal financial plans, they all base their advice on each client’s finances as a whole. My question is this: Today, would we really name the profession of advisors described above “Financial Planning?”