P. Potts posted an interesting comment to my last blog, about the prospect of the CFP Board as the regulator of RIAs. At the risk of sounding like Senator John Kerry, he or she agreed with me, but I don’t agree with him or her—at least not completely.
Potts raises the important question of whether the discipline of an investment advisor is separate and distinct from that of a financial planner. Certainly, if you base your analysis on the current regulatory system, you’d be hard pressed not to come to that conclusion. But I believe that both that view and the current regulatory structure are mistaken, as is the CFP Board for buying into it.
It seems to me that the motivation behind the broker/advisory portion of the Dodd-Frank reregulation (Section 913, for those who are keeping score), is to end consumer confusion caused by the various laws and agencies that oversee “financial advisors.” Our current system separates financial advisors into different camps: brokers, insurance agents, investment advisors, and financial planners. Yet, while each of these were once separate disciplines, today their activities overlap to such as degree as to look very much one profession: financial advisors.
Why the change? Because that’s what financial consumers want. From a consumer’s perspective, personal finance today is a complex and dangerous mess with which they need help. Most consumers with some experience at the hands of the financial services industry realize they need help—competent help from someone on their side of table. Thanks to the financial services marketing machine, many people think that’s what they’re currently getting, when in most cases they aren’t.