Why We Need a Financial Advisory Profession

If you do a little research, you’ll find that there is a surprising agreement about professional standards from accountants and nurses to civil engineers. In general, professions require their members to attain an institutionalized education, learn a formal body of knowledge, get a license, adhere to professional ethics (which include working for the benefit of their clients, etc., and not in their own self-interest) and working together to regulate each other to meet these standards. 

It doesn’t take much imagination to see why today’s investing public needs professional financial advisors. Historically, only wealthy people had finances so complex that they needed help to sort them out. It’s no coincidence that the experts they turned to—bankers, lawyers and accountants—are all professionals guided by professional standards. In our modern financial world, practically everyone can benefit greatly from advice about how to invest for retirement, send their kids to college, buy a home and finance their medical costs. Most of them need a professional: that is, a professional who has vowed to use their expert knowledge to their clients’ benefit, not their own.

Which brings us to PPott’s comment about NAPFA being exclusionary and not representing “the profession.” As described above, professions are by their very nature “exclusionary.” They are only for folks who meet their (hopefully) high standards, and not for folks who can’t or won’t. Unfortunately, many folks who call themselves financial advisors or financial planners today don’t meet the criteria for being a “professional,” starting with putting the interest of their clients first. That’s first all the time; not part of the time. For a professional there are only two kinds of people: those who are their clients/patients, and those who aren’t: not sometimes a client, but at other times, not. Finally, professionals represent only their clients, without a loyalty conflict. 

By focusing on “the process” as PPott suggests, a group becomes a trade organization, rather than profession, open to anyone who uses a particular process. A case in point: the CFP Board, which by attempting to exclude as few “advisors” as possible has focused on the use of the “six-step process” and come up with standards that, at least by my reading, fall far short of the above description of a profession.

At the other end of the spectrum, NAPFA’s standards, which include independence, a fiduciary duty and fees paid directly by the clients, appear pretty darn professional. Which makes it all the more ironic that the designation which NAPFA has decided not to accept—the AICPA’s Personal Financial Planning designation, or PFP— is the only such designation in retail financial advice which is, if anything, more professional than NAPFA’s own.