Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Financial Planning > Behavioral Finance

Two Steps Back?

Your article was successfully shared with the contacts you provided.

I have to admit that I don’t go to too many sessions at industry conferences these days. The nuts and bolts planning presentations rarely have anything new, and what is new is almost always readily available elsewhere, should, God forbid, I ever have occasion to need it. The keynotes all seem to have become motivational speakers, who strangely take on a certain sameness after you’ve heard enough of them, a point I reached long ago.

But the sessions I stopped attending first–so long ago I can’t remember when–were the intro speeches by various chairs and presidents of whatever organization is putting on a particular conference. Maybe I’m just an ungrateful guest, but I’d much rather sleep, work out, or have breakfast with someone interesting, than suffer through some empty patter about all the “great” (read same old) things their organization is doing and how bright the future is for them and for us.

Admittedly, this approach does have its drawbacks–like being left out of the conversation when the conference buzz is about some silly thing someone said, or more troubling, when one of the association top dogs actually says something important. The latest breakdown in my session-avoidance strategy occurred at the FPA San Diego 2005 convention last October, when not one but two FPA chiefs–then President Jim Barnash and President-elect Dan Moisand–made presentations that I’m sorry I missed. Fortunately, their remarks were deemed important enough to be posted on the FPA Web site where I was able to read them at my leisure, at least partly vindicating my systematic absenteeism.

Both Barnash and Moisand consistently made the same point (no, that’s not the only amazing part), which to my old ears sounded like such a throwback to the bad old days that it warrants some further exploration: That to succeed, the FPA must include all financial planners, regardless of whom they work for, how they’re compensated, or what designation they have.

Perhaps other dinosaurs out there will hear vestiges of the IAFP’s open forum concept from the early 1980s, which for the rest of its 20-year lifespan rendered it a trade organization rather than a professional one. Yet the two chiefs also made enough points in support of professionalism as to make one suspect that the FPA isn’t yet over its merger schizophrenia.

In addition to the obligatory we-are-the-world happy talk (said Barnash, for instance, “We believe the FPA exists to help create a world where everyone thrives and prospers”), here are the remarks that I found encouraging:

  • Barnash: “To obtain the benefits of a relationship with a client, one needs to be willing to accept the fiduciary responsibility….To attempt to gain these fruits any other way is simply wrong.” Strong words from an organization that supports a designation–the CFP mark–that doesn’t mention the “F” word in its canons of ethics. I suspect its work leading up to the SEC lawsuit has reminded FPA board members of the SEC’s position that if you hold yourself out to be a financial planner, you have a fiduciary duty to your clients, regardless of the number of financial planners who would like to pretend otherwise.
  • Barnash: “We believe the CFP mark is the cornerstone to competent and ethical financial planning….” This is good, since a profession needs a designation to help people easily distinguish who’s in it, and who isn’t. But then Jim goes on to say, “…[the CFP] is not the only source of professional competence or knowledge in financial planning.” So much for one designation.
  • Barnash: “We believe that people have the right to know what services they are getting and from whom.” Hard to argue with this. Full disclosure is always a good first step, and is even better when expanded to include “from whom,” which I take to mean: who the advisor is, and who they are really working for. This alone would enable financial consumers to make far better decisions than they do now.
  • Moisand: “Financial planners today belong to a distinct profession, and financial planning is a separate discipline….” Actually, Dan was quoting here from a section of the SEC’s commentary on the Merrill Lynch rule. But it’s all good: that the SEC thinks financial planning is a distinct profession, that the FPA thinks financial planning is a profession, and that Moisand thinks this means part of the Ruling is encouraging, even if the FPA is pressing ahead with the suit concerning other parts of the Ruling.
  • Moisand: FPA members put aside their differences in overwhelming support of the suit against the SEC. This is one of the most encouraging parts of their message. Dan told me later that in multiple surveys asking members how they felt about the suit, some 84% of the response was in favor of the suit. That’s with 8,000 to 9,000 responses (an unheard-of response rate of just under 33% of total membership). Even among members who are wirehouse reps, the favorable response was apparently over 50%. That constitutes a lot of folks who aren’t currently fiduciaries saying they’ll gladly assume those responsibilities.
  • Again, according to Moisand, whether or not the FPA prevails in its suit against the SEC, just filing the suit is already a resounding success. It sends the message to consumers and financial journalists alike that financial planners fully understand their relationship to their clients. “In the court of public opinion, we’ve already won.” As a vocal advocate of effective public relations, I couldn’t agree more. The SEC suit is probably the greatest publicity coup in the history of financial advice. Not only does it position financial planners as standup folks who accept their duty to their clients; equally important, it subtly yet clearly reveals that stockbrokers do not have these duties, but want to pretend that they do. I’ll say it again: if financial consumers ever understood their true relationship with brokers, they’d leave in droves.

    Unfortunately, there’s a cloud in this blue sky as well. Moisand went on to voice his optimism that the FPA can find common ground with Wall Street firms, apparently along the lines of accurately describing the advisor and the scope of the engagement. “By working together with the rule’s proponents,” he said, “whether it is the SIA or an individual brokerage firm, I believe an appropriate framework can be found.” Why does my mind’s eye picture President Jack Nicholson plaintively asking the invading aliens in “Mars Attacks,” “Why can’t we all just get along?”

    Are there financial services that stock brokers provide that don’t require a fiduciary duty, but which consumers would see as valuable? Sure: executing trades and providing third-party research. That’s what discount brokers do. But at least in my view, the Wall Street firms justify their higher fees by implying a fiduciary duty that isn’t there. So the odds of their going along with an “accurate description” of what they are really offering seems remote at best.

  • Finally, Moisand again: “We cannot sacrifice quality in pursuit of quantity. It’s far preferable to have 28,000 members who meet high standards than 200,000 who don’t.” That’s a nice statement to hear when some actions by other planning organizations in recent years appear to be aimed more at quantity alone. Yet my concern is that setting meaningful standards will do more than just slow growth–it will reduce membership. There’s no particular set of standards, high or low, that I can think of that would clearly differentiate between FPA members and the other 100,000 or so financial planners out there. So my question to Dan & Co. is: Sure, but are you prepared to have 15,000 members who meet “high” standards?

    In the end, Moisand and Barnash do have it right: Creating a profession is all about high standards. Education, competence, full disclosure, and a fiduciary duty to clients are certainly good ones. That makes it even more puzzling to me that they would want to stop there, ignoring what is at the core of every planner’s training–economics. “However,” said Moisand, “if we regress into debates about style instead of standards, if we worry about where planning is practiced more than how, if we argue about how we are paid, we won’t get very far…”

Calling “where” planning is practiced and “how” planners are paid as “style” makes this sound pretty reasonable. But is it? By saying “where,” the FPA leaders don’t really mean a place, they mean the circumstances–in a brokerage firm, an insurance company, an independent firm, etc. So they really mean “who,” as in who is paying the advisor? “How” equates to the same thing: fees are paid by the clients; commissions are paid by a firm.

What kind of “standards” would financial planners have if it doesn’t matter who pays them? The notion that someone can “put their clients’ interests first” while they are paid by someone else would not, I think, stand Moisand’s test of public opinion. Consider that other professions are very specific about how they get paid. Lawyers have clear guidelines, as did doctors until corporations started buying hospitals. How’s that working out?

With the benefit of long, sometimes painful, experience, we begin to appreciate the importance of determining who is paying whom to do what. Are there advisors who are paid by their bank or insurance company or brokerage firm but put their clients’ interests first anyway? Sure there are. Is it reasonable to bet your financial future that someone will put aside their income, their family’s welfare, and probably their career to protect your interests? That doesn’t seem to be playing the odds to me.

Fee compensation has been a hit with the public and the press for about 15 years now. Why do you think we see TV ads about how fee-compensated brokers are now on the client’s side of the table? Broker/dealers have a different agenda from professional financial planners: witness the FPA politely asking the B/Ds to form their own organization. Trying to build a profession out of financial planners no matter “where” they practice, or “how” they are compensated or what designation they have sounds a lot like the old IAFP’s big tent, along with too little concern for who fits under it.

Bob Clark, a former editor-in-chief of this magazine, sagely surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at [email protected].


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.