We all recognize that there are a number of areas in life where the purported answer we receive depends almost entirely upon the person to whom the question is asked. If you ask a Chevy salesman for a car recommendation, it isn’t likely that you will be pitched a Ford.
After a political debate, the various support teams race into the breach in order to “spin” the event in their favor. Each respective “good guy” is deemed to have done better than expected while the “bad guy” is said to have been disappointing. Of course my candidate won.
When The New York Times asks someone already on record attacking what she sees as Duke University’s poisonous athletic entitlement culture to review a new book on the Duke lacrosse case that tries to make that very case, it is hardly surprising that she finds it “a masterwork of reporting and a devastating critique of a university that has lost its way.” When all you have is a hammer, everything looks like a nail.
But if you ask a real professional for professional advice, you rightly expect a different sort of answer, one that doesn’t differ based upon whom you ask. If you were to visit 10 doctors for a broken leg, you wouldn’t (and shouldn’t) expect their treatment protocols to vary very much. You rightly expect advice that is real and true, advice we can rightly describe as “unbiased.”
That’s why it’s so disappointing that so many financial services clients routinely get nailed when they seek financial advice from an industry that badly wants to be seen as professional. We do not have even a rough outline of what our best practices should be in a wide variety of common situations.
If you were to ask 10 financial advisors (broadly defined) for help in any number of given situations, their advice and recommendations would almost surely differ wildly. As my friend Bob Powell of MarketWatch recently told me, a prospective financial services client seeking clarity is far more likely to find confusion, conflict and contradiction.
To be fair, that variance is partly because there are relatively few clearly right answers in our industry, because two people who on the surface appear to have similar situations can have drastically different objectives, goals and risk profiles, and because there are multiple ways of implementing even agreed-upon solutions. Excellent physicians can disagree profoundly on treatment options for patients with medical conditions far more complicated than a broken leg.
But that variance also exists because the barriers to entry in our industry are so low. Despite many extremely professional practitioners, it’s hard to call an industry a profession when licensing can be achieved in a very short time via only a quick cram course and a licensing exam.
The investing and financial planning knowledge needed in order to obtain licensing is shockingly low. Just think, some guy who washes dishes can become a fully licensed “professional” and can take charge of assets it took a client a lifetime to acquire in just a few short weeks with no comprehensive training and no apprenticeship required.
The fragmented nature of our industry makes things even worse. A good financial plan needs to consider at least investment, insurance, tax, estate and financing matters and options, but many would-be planners have experience in only one or two of those areas. It’s almost impossible truly to be an expert in all of these areas, of course, but the level of knowledge cross-over is far lower than is commonly assumed. Every advisor needs to know at least enough to recognize a potential need or problem in an area outside his or her core competencies, but many do not.
Lots of excellent investment managers are ignorant of the financial planning or tax consequences of their investment choices, for example, to the detriment of their clients’ interests.