I recently had an email exchange with a reader, who prefers to remain anonymous, who commented on my May 28 blog, The Process of Financial Planning: Time to Go to the Next Level? It was a wide-ranging discussion about the financial planning profession and the regulation of financial advice. Here are the highlights I hope you find it as interesting as I did.
Advisor X: “It is interesting that you say that the focus on financial planning is too narrow, while I feel that some in the industry have expanded the realm to areas best left to those in other fields. Perhaps the idea of [providing] advice lends one to think that they are indeed quasi-psychologists and can give advice on a plethora of issues that the client faces: career choices, divorce issues, and emotional and legal problems, in addition to financial advice.”
Me: I agree with you that in some ways “financial planning” has become too broad: moving into areas which were not the intention of the Investment Advisers Act, but, of course, neither was financial planning itself. Still, planning has its limits. At present, I’m concerned about the limitation of financial planning to a “process” which can be used by anyone in any channel of financial services without regard to conflicts with clients’ interests or any comprehensive duty of client care.
Advisor X: “I can’t help but notice how you said that the organizations are being pressured to place the client fiduciary standards into their respective codes, as opposed to legislative bodies doing it. Can the industry really do it or do we need Capitol Hill?”
Me: Seems as if all concerned—advisors, brokerage firms, trade organizations, regulators and Congress are feeling the pressure of increased consumer awareness/demand for a much more broad fiduciary standard. In my view, the “best” solution would be legislative, such as simply removing the “broker exemption” from the ’40 Act.
Advisor X: “Are the advocates of the uniform fiduciary standard sincere or merely playing politics? Do you think that in areas where the standard has been broadened, such as retirement plans, are people really better off or do they simply have a different remedy?”
Me: These days, there is little doubt that many folks engaged on every side of most debates are simply promoting their own agendas. Still, in today’s America where virtually everything seems to be for sale, it seems to me the need is greater than ever for professionals who place the interests of their clients above all else.