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Financial Planning > College Planning

Low Investor Confidence: An Opportunity for Independent Advisors

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Bob Veres posted a  typically interesting piece April 1on  FP Daily (I think he was serious…) about a poll he conducted asking advisors about their current concerns. Predictably, their worries included “another market meltdown,” “FINRA regulation,” and “Political Irresponsibility.” But at the top of the list was a bit of a surprise, at least to me: “Eroding confidence in the fairness of the investment system…”

Don’t get me wrong: I’m not at all surprised at waning investor confidence in our financial system. That happens virtually every time we have a drop in the markets significant enough to drive some Fortune 500 companies out of business. As the worst economic collapse since 1929, the 2007 Subprime Meltdown more than qualifies. What I am surprised about is that independent advisors are concerned about it. Historically, it’s exactly times like that drive investors in droves to independents, continuing the long-term erosion of Wall Street’s dominance of the retail market.

In fact, it was a collapse not all that different from our most recent one that spawned the creation of the financial planning profession.  In the late 1960s, the “Nifty Fifty” largest U.S. companies were all the rage on Wall Street and with retail investors, who were lining up to invest in a new-fangled vehicle called a “mutual fund,” which enabled them to own all 50 stocks at once. (I know, mutual funds had been in existence since the 1920s, but apparently it was a whole different world back then.)

This over-exuberance predictably (in hindsight), led to the market collapse of ’69—and to a 1971 meeting in the Chicago O’Hare Hilton of a group of mutual fund salesmen who were looking for a way to overcome the prevailing loss of confidence, along with a better way to protect their clients from the ups and downs of the markets. They determined that “better way” was comprehensive financial planning, and the organization they launched that day became the College for Financial Planning, and eventually, both the CFP Board and the FPA as well.

Looking back from our vantage point of today’s planning profession, it’s hard to get a feel for just how radical an idea this was. Yes, they still intended to sell mutual funds (and insurance, and later tax shelters), yet for the first time on a broad scale, those sales would be based on what was good for the client, rather than for the “advisor” or the firm they worked for. It was one of those moments when the world shifted: as financial advisors began to move from the financial services industry’s side of the table over to the clients’ side.

Over the years, I’ve often told audiences that I believe a financial planner/financial advisor/RIA’s job is to protect their clients from the financial services industry. It’s a bit of hyperbole, but I still believe the underlying sentiment is true. Sure, there are many “enlightened” financial services companies that realize doing right by their customers is good business. But there are also powerful financial incentives to put a firm’s interests ahead of the clients’. And as we all know, some companies don’t do a very good job of resisting this temptation.

The point is that today the stakes are too high and the learning curve too steep for financial consumers to go it alone. Consequently, it is both the legacy and the job of financial planners to represent their clients’ interests in the increasingly complex financial world. To do that, planners need to maintain a high degree of “independence” from the financial services industry. We can debate about just what that independence should look like, but as far as I can tell, as a result of their “eroding confidence in the financial system,” retail investors are increasingly recognizing their need for “independent” financial advice.

Rather than a cause for concern, today offers the best opportunity for independent advisors in over 40 years. Why do you think all those brokers are “breaking away” from?


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