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Financial Planning > Tax Planning

The Process of Financial Planning: Time to Go to the Next Level?

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In response to my last blog (ThinkAdvisor, May 21: Reality Bites: Busting the Myth of Financial Planning), financial planner John Buerger posted the following thoughtful comment: “You’re correct—to a degree—but you’re still missing the biggest step: In order for humans (not just clients) to have the greatest success with their money, they need to make the best decisions possible [in all areas of financial planning]. It is best if all those decisions are made strategically and intentionally rather than based on the emotional stimuli of the moment. [This is where] a professional can assist a client and add real value.” 

First, let me say that John has hit upon an epitaph that I can live with: “He was right, to a degree.” Almost as important, he is exactly right to say that financial advisors add “real value” when they take clients’ short-term emotions out of their financial decisions. As I’ve written before, in my view, the two most important services professional advisors provide is to keep their clients from making “dumb” decisions (e.g. not carrying insurance, or selling investments because the market is down, etc.); and to help clients avoid over-paying for financial “products” and services.  

Then, John goes on to raise the issue that all advisors wrestle with when attempting to help their clients: “Also critical (which gets completely missed) is that no financial professional can make decisions for the client. They can offer suggestions, but their role is usually more as a teacher, guide and coach. That is a pretty narrow definition of “adviser” (as someone who gives advice) as opposed to the common adaptation—someone who tells the client what to do.” 

I’m not sure who actually claims that advisors “tell their clients what to do,” other than plaintiff attorneys and disgruntled clients: most advisors whom I’ve run into over the years are painfully aware that their clients have the final call—and that they don’t always make the right one. In fact, sooner or later, every advisor has to decide what to do with clients who don’t want to listen to their advice. 

For instance, James Wilson, former NAPFA chair and financial planner in Columbia, S.C., once told me that he doesn’t take clients who are under 50: “because they haven’t had enough bad experiences to be ready to take advice.” I also I remember back in the early 1980s, when the top marginal income tax rate was 80%, most financial planners’ clients wanted tax shelters, rather than financial planning. This created a dilemma for planners: should they simply turn those clients away, or work with them, in the hopes that eventually, they’d come around to the benefits of taking a broader approach to their finances? 

Thankfully, the issues are different in today’s financial world, but the question is the same: while advisors don’t “make decisions” for their clients, they do exert considerable influence over the decisions their clients make. Not only do advisors typically have considerably more knowledge about, and experience with markets, products and the financial services industry: clients often rely on that expertise behind advisors’ recommendations. As John Buerger says: “A fiduciary duty is critical as would be professional standards and practices.” 

It’s probably unfair to say (as I did in my last blog) that the original creators of the College for Financial Planning and its CFP designation “made a mistake” by focusing too narrowly on the “financial planning process,” rather than on a more broad “profession” with standards for behavior as well as process. 

After all, those folks were themselves salespeople and not advisors: and their intent was to create a more “client-oriented” sales process. And financial planning did indeed represent a major step forward. In fact, financial planning has proved to be so persuasive that many clients have stopped making their own decisions, and rely heavily on their financial planner.

Maybe it’s time to take the next major step, and create a true profession: one that would require financial planners to eliminate major financial conflicts of interest, and to act in each client’s best interests in all phases of their relationship.


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