More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Well, gosh, T. Knotts, I’m glad you asked. Mr. or Ms. Knotts was kind enough to post the following question to my Nov. 15 blog in which I suggested that, considering the history and current state of those who provide comprehensive, independent financial advice to individuals, we should consider a new name for ‘financial planner’ and the profession of ‘financial planning’ itself.
OK...I'll bite....Other than Financial Planner, what do YOU think would be a better, more descriptive title? I think there are ‘problems’ with all the other choices (wealth manager, financial coach, investment advisor, life planner, etc...).
I agree that there certainly are “problems” with other possible monikers for folks who provide financial advice, but as in most real-world situations, we’d probably do well to focus on finding one with the fewest negatives and the most positives. To give us a basis for comparison, let’s start by reviewing what the ‘problems’ are with the current title of ‘financial planner’ title.
First, as I mentioned in my last blog, while a growing number of financial advisors appear to be delivering what can be generally described as comprehensive advice, a shrinking number of advisors seem to be handing out actual financial plans—certainly not the massive tomes we used to see back in the 1980s. That’s mostly because most clients don’t want them or even read them, and when it comes right down to it, the overall financial plans don’t usually vary very much from client to client.
What’s more, a financial plan sounds like something most of us know we should have, but it sounds way too much like a ‘budget’ to get people very excited about receiving or paying for one. I’m guessing that most of us could benefit from some counseling by a registered dietitian (rather than slapping together our eating guidelines out of tips from Redbook, Cosmo, or Men’s Health). But I’ll bet we could count the number of people reading this who see a diet pro on the fingers of one hand—because ‘diet’ sounds like ‘budget.’
The bigger problem with ‘financial planning’ is that while it might be what makes comprehensive advisors different, it’s still a small part of what they do for clients, and way more often than not, not what they get paid for.
Twenty years ago, I wrote a column pointing out that “the dirty little secret of
The data to support my skepticism is remarkably clear. Back in 2006, the annual Moss Adams study of advisory firms revealed distinct differences in the success of advisory firms depending on what they called themselves: Financial Planners, Investment Advisors, Investment Managers, or Wealth Managers.
Moss Adams did not screen the respondees to determine whether their firms did, in fact, meet any definitions for these descriptions; they simply asked how firm owners described their firms in the marketplace, and then compared the total results of each group. What they found was striking: the firms calling themselves ‘financial planners’ averaged substantially more clients and substantially lower total AUM, AUM per client, total revenues, operating income and income per owner than the other three firm descriptions.
Which brings us back to T. Knotts’ question: What name would be better than ‘financial planner?’
I think the market data clearly shows that any of the above-mentioned names would be better. I’d also throw in financial advisor, registered investment advisor and even ‘retirement planner’ (at least it’s something people need and want). For some years now, my personal favorite has been ‘independent financial advisor,’ because true independence from outside conflicts is something the public both wants and understands.
But whatever name professional financial advisors choose, the key will be getting regulations that restrict the use of that name to only those advisors who truly meet high professional standards.
Feel free to make your own suggestions on what we should call this profession.