The other day, I was reading Knut Rostad’s May 14 press release on the Institute for the Fiduciary Standard’s new initiative to write “Best Practices Standards” for financial advisors and investment advisors (see Melanie Waddell’s May 15 ThinkAdvisor story). There’s also an accompanying white paper on those proposed practices from the Institute about which I’ll write more in future blogs. During that initial read-through, however, I found myself wondering: “Why is this necessary?” Don’t get me wrong: I don’t doubt that fiduciary best practices are necessary. My question is: why don’t they already exist?
Of course, there are those who would argue that these best practices already do exist: At the CFP Board, at NAPFA, or both. Yet while NAPFA certainly comes closer, neither really sets the bar high enough. The Board impotently declares that CFPs “have a fiduciary duty,” and then sidesteps the details, while NAPFA offers more guidelines,
As I ponder this question, it occurs to me that the answer may lie in the history of financial planning itself—which may also explain why few people will pay directly for financial planning (and no, it’s not due to lack of proper education) and why financial planning has been used as a “powerful marketing tool” for decades.
It seems to me there is an underlying reality here that the investing public is communicating, about which many “financial planners” appear to be in denial, The founders of “financial planning” made a mistake: they focused on the wrong thing. Financial planning is just one part of the suite of services needed to help clients reach their goals and meet their financial obligations. The others include: risk management, asset management, financial independence, a fiduciary duty, compensation solely and directly by the clients, and professional standards and practices.