A reader who goes by the alias PPott wrote one of his typically insightful comments to my Dec. 5 blog “NAPFA’s CFP-Only Stand” about that organization’s recent decision to stop accepting full members who aren’t Certified Financial Planners. PPott’s cogent point (my emphasis added):
“NAPFA should be about the process and not the profession. I am relatively certain that it could be said that the press and other uninformed persons hold NAPFA in higher esteem than most of the ‘profession.’ NAPFA is a non-inclusionary organization and always has been. It represents one model—the RIA—even if not registered—so why do you think that they should represent the ‘profession?’”
Well, PPott, I’m glad you asked. To my “uninformed” mind, your question gets right to the heart not only of NAPFA’s recent decision, but of the continuing debate over the Dodd-Frank reregulation of brokers and RIAs, and of my ongoing issue with the CFP Board: The nature of—and the need for—a financial advisory profession. This may be putting the burrito cart before the donkey, but let’s start with why people in general, and retail investors in specific, need professionals.
At the risk of oversimplifying the issue, we basically need professionals because some people have attained rare expert knowledge and skills in areas that are so vital to our lives that it gives them a troubling advantage over the rest of us. How much could a brain surgeon charge you to remove a loved-one’s brain tumor? Or a lawyer to defend you in a capital case? Or a priest, minister, rabbi, or lama to help you get into heaven or attain enlightenment?
The simple answer is: a lot. In each of these cases, it’s clear that the business standard of “caveat emptor” which assumes an equality between the parties in a transaction would not result in a fair outcome.
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The solution, of course, is that in the interest of fairness, for the good of society as a whole, and of the clients/patients/parishioners individually, most people with such expert knowledge agree to use it in people’s best interests rather than to their disadvantage. To sort out exactly what this means in each area of expertise, they form professional societies, which determine the standards by which their particular profession can provide the greatest benefit to their clients, patients, etc.