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Regulation and Compliance > State Regulation

Out of Focus

By Bob Clark, Bob Clark

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A couple of hundred years ago when I was an editor at Worth, like many consumer magazines we conducted a fair number of focus groups. You didn’t have to sit behind the one-way mirror more than a few times before you realized their power–and their limitations. A group of potential readers is a great forum to get feedback about how you’ve done: “Here’s the cover of our October issue, how do you feel about it? Does it make you want to pick up the magazine and read it?” For a magazine editor, that’s priceless feedback.

However, the value of such groups falls off very quickly once you move from asking opinions about existing material–covers, headlines, pictures, articles–and into the hypothetical, where group members have to use their imaginations. Without something concrete to look at, people find it very hard to predict their feelings and behavior. For example, if you ask focus group members if they would read an article on tax planning, you’re likely to get a pretty low favorable response. But if you ask if they’d read an article about how to cut their taxes in half, legally, you’re likely to get virtually unanimous approval.

Asking people open-ended questions about what they want is even less helpful. Sure they can give you specifics about what they need–more tips on how to save for retirement, for instance–but when it comes to getting folks to tell you what products or services would fill those needs, forget about it. For one thing, people in a focus group haven’t spent much time thinking about the problem. What’s more, if these people were good at coming up with great ideas they’d be conducting focus groups, not participating in them.

Imagine a focus group conducted by the U.S. Postal Service 30 years ago: they’d probably have gotten requests to provide cheaper stamps, faster delivery, better customer service. But what do you think the odds would have been that even one person would have said: “You know, I’d like a device that sits on my desk, or better fits in my pocket, that lets me write letters or notes and then send them instantly to anyone, anywhere in the world!” Focus groups are for gauging reactions–and anyone who’s looking to them for creative thinking is doomed to disappointment.

It’s this kind of disappointment that I felt as I read the “Recommendations on Future Regulation of the Financial Planning Profession” which were submitted by the FPA Board of Directors to its members in June.

Written by an impressive Regulation Task Force comprising 14 planning luminaries, the “Recommendations” contain plenty of remarkably good thinking, both by the Task Force and by the FPA itself. Unfortunately, the one thing they forgot is any actual recommendations. Instead, after a powerful argument about why and how the FPA needs to get involved in planning regulation and a thorough analysis of its various options for doing so, the Task Force “recommends” that the Board: “1) encourage member feedback; and 2) assuming consensus on goals and objectives, to embark on a specific strategy and tactics for achieving its objectives.” In other words, the Task force “recommends” that “…through a combination of surveys and meetings with Chapter leadership Resource Council, chapter leaders, and various other leaders of the profession…” the FPA Board conduct some focus groups to tell them what to do.

The Task Force’s best work comes in the sections where it’s building a case for the FPA having a regulation strategy in the first place. Their compelling argument is essentially two-fold. First, with the SEC currently studying advisor regulation and an October 2004 report by the General Accounting Office which suggests reconsidering the financial regulatory structure, it’s pretty clear that we’re going to get some kind of reregulation that will affect financial planners, probably in a big way. “The Task Force believes that there is a steady and growing recognition by Washington policymakers and industry insiders that status quo regulation of the financial services industry simply no longer makes sense.” As the leading organization in the planning world, it seems the FPA should do what it can to see that the interests of financial planners, and more importantly the financial public whom they serve, are well served in any new regs.

Hard to argue with that. Yet an even more persuasive, and dare I say important, position is found in their second point. Based on its own findings, the Task Force points out that “financial planning is not widely recognized as a profession…” and that “…there is little evidence that the widespread public confusion of financial planning is abating. Consumers continue to question the intrinsic value of financial planning…”

To remedy this troubling situation, the Task Force suggests that the goal of the FPA should be the establishment of a true profession. “Many of the older, successful financial planning firms have developed practices with all of the characteristics of an established profession…What they lack is formal recognition as an established profession,” which would result in “greater credibility in the eyes of the public.” Well, hallelujah! Finally, someone has admitted that financial planning is currently not a profession, that it needs to be a profession, and that the FPA are just the folks to make it happen.

Okay, but How can we Do It?

Sadly, the Task Force doesn’t get around to telling us just how the FPA should go about making this happen. It does give us a thoughtful, detailed analysis of the four options the FPA has for doing so–the status quo, state licensing, a PRO (that’s a professional regulatory organization), and consumer litigation–although there are really only two. The status quo obviously isn’t working, or we wouldn’t be having this discussion. For instance, the CFP Board of Standards’ toothless lack of ability (of which it frequently reminds us) to subpoena, bar, or otherwise sanction someone for violations of the CFP Code–other than taking away their use of the CFP marks–doesn’t effectively protect the public: “The Task Force believes relying on current regulation of financial planners… …will not eventually lead to widespread public acceptance of financial planning as a profession until those who violate the standards or are otherwise unqualified are barred from the business.” Plus, it doesn’t look like Washington is going to offer that option anyway. Consumer litigation, such as the FPA’s suit against the SEC, is too sporadic and costly to be anything but an adjunct to a more comprehensive strategy.

That leaves state licensing, as virtually every other profession has, or a professional regulatory organization overseen by a government agency (the SEC?) or Congress. The Task Force leaves both of them on the table as viable alternatives, while noting their drawbacks: state licensing, for instance, is cumbersome and a burden to professionals who practice in multiple states. A national PRO avoids that problem, but as defined by the Task Force to represent the public, seems to me to have the fatal flaw of the current CFP Board. That is, lacking oversight by its constituent professionals it’s inclined to jump the track at the oddest moments. Perhaps a better alternative would be a hybrid self-regulatory organization with professional standards.

Therein lies the problem. At the Task Force’s suggestion, the FPA Board is asking its membership if it should have a regulation strategy. But without an actual recommendation, that’s like asking a focus group’s members if they want stories about taxes: we can all come up with some half-baked alternative, undoubtedly less researched and thought out than what the Task Force would recommend. Better to be presented with something concrete: “The FPA believes it needs a regulation strategy, and here’s what we propose….” Then the members can say “Yes,” we support this, or “No,” this is nuts. The Task Force could then go back to the drawing board, or perhaps there will be a groundswell for a clear alternative. In any case, only then will the FPA get meaningful feedback. It’s not as if the FPA Board has been bashful about taking a leadership role (the SEC lawsuit and casting off the B/Ds into the FSI come to mind). Now seems like the time for such leadership again: in the form of a regulation strategy that financial planners can react to. I’m confident their reaction will be meaningful.

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].

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