In the ongoing debate about the fiduciary standard, it continues to be difficult explaining to the public just what fiduciary is and means, and how there's a difference between brokers who sell products and fiduciaries who give advice. A recent video by Hightower Advisors tries to illustrate the point by comparing butchers who sell meat to dieticians who give advice about what to eat; you wouldn't expect your butcher to give objective dietary advice, and by analogy you shouldn't expect your broker to give you objective financial advice, either. If you want advice about what to eat, you go to a dietician, and by analogy when you want financial advice, you go to a fiduciary. Yet while the video does a good job drawing the distinction between brokers and fiduciaries, it perhaps unwittingly implies that recent regulatory and advocacy efforts may be misguided. It would be nonsensical to pass a law requiring all butchers to become trained dieticians to give advice about eating under a uniform dietary advice standard, when at the end of the day their job is simply to be a butcher and sell meat; extending the analogy, does that mean it is equally absurd to expect a uniform fiduciary standard for brokers? Is a better alternative just to require butchers to call themselves butchers, and brokers to call themselves brokers, and let neither give advice or hold themselves out as an advisor in the first place?Read More...
Notwithstanding some of the successes of the Financial Planning Coalition in pushing forward the fiduciary battle in Washington, requiring all advisors to act in the best interests of their clients is still an uphill fight.
Nonetheless, the fiduciary movement seems to be gaining momentum, from coming regulations from the Department of Labor to reforms in 401(k) plans to the scrutiny of regulators in the aftermath of debacles from Stanford to Madoff. But what happens if the fiduciary fight is won over the next few years? Does that mean the public is now protected? Perhaps not.
After all, it doesn't really help to ensure that advisors act in the interest of their clients, if there's no assurance that advisors have the actual knowledge, skills, and expertise to craft appropriate recommendations and deliver the right solutions to clients in the first place. In other words, protecting the public is not just about fiduciary. To restore the public's trust in advisors, the fight must be about competence, too.Read More...
Over the past two decades, the world has begun its transition into the information/digital age. However, the progression has been uneven, and the world of computers are still far more integrated in some industries and professions than others. The pace of change is accelerating, though, and in the coming decade, it will be time for financial planning to enter the digital age, driven in large part by major demographic shifts, as more and more of Generation Y become the newest clients and newest staff members in firms that will increasingly be led not by baby boomers operating their traditional model, but by the more technology-inclined Generation X. And in this future world, where people are connected by so many means, geography itself is less and less relevant; employees can work for employers, and clients can engage planners, even if they are a thousand miles apart, when it's a digital, virtual world. As the importance of geography declines with the transition to the digital age, three key aspects of financial planning - practice management, marketing and business development, and the actual delivery of financial planning services - will be dramatically altered.
On January 18, the CFP Board issued proposed changes to its process for addressing bankruptcies of CFP professionals and candidates for certification. Under the current rules, CFP certificants and candidates who experience a single bankruptcy are subject to a hearing by the Disciplinary and Ethics Commission, which may result in disciplinary action including a private letter of censure, suspension, or revocation of the marks. Under the proposed rules, the disciplinary process would be eliminated, and replaced with a disclosure process that would require CFP certificants who experience a single bankruptcy to have such bankruptcy publicly disclosed on the CFP Board's website for a period of 10 years, but no longer otherwise be subject to discipline or restrictions regarding the CFP marks. The comment period for the proposed changes ends on Friday, February 17th, and in today's blog post I share my own comment letter feedback to the rule.Read More...
Last month witnessed the national conference for the Personal Financial Planning section of the AICPA – a world of CPA financial planners that have lived a relatively separate existence from “the rest” of the financial planning world. They have their own membership association (the Personal Financial Planning {PFP} section of the AICPA) with its own member benefits, their own professional designation (the Personal Financial Specialist {PFS}), and as just noted, their own national financial planning conference.
Yet CPA financial planners are a rising force in financial planning… and at some point in the next few years, will have to make a decision about whether or how they will engage with “the rest” of the financial planning world.
Financial planning has long struggled with the criticism that it serves only a limited subset of the relatively affluent, and has failed to develop business models that deliver financial planning to the wide swath of "average" Americans with more limited income and resources. Yet at the same time, the reality is that our education as financial planners does not really effectively prepare us for the kinds of "financial counseling" knowledge and skills required to serve those with less income and fewer assets. Which raises the question: is that simply because financial planning hasn't grown far enough, or is the reality that the financial planning body of knowledge is separate and distinct from the kind of "counseling" knowledge needed to help people through the basics of navigating our financial system, from credit cards to credit reports to checking accounts to the use of public agencies? Or perhaps stated more broadly, is financial planning for the mass affluent and wealthy a different discipline than financial counseling for those of more limited means?Read More...
In recent years, the financial planning profession has been focused on the development of a fiduciary standard for financial advice, to protect the public from the harm done by those who claim to act in their clients’ best interests but actually make recommendations to benefit themselves. However, the reality is that the recent challenges of fiduciary have extended beyond just the delivery of financial advice; since the financial crisis of 2008, the issue has also extended to the duty that Wall Street investment banks owed to those they sold securities to (even when the company “knew” the investments were dogs at best, or at worst actually bet again their customers for profit). Other fiduciary concerns that preceded the financial crisis have also been highlighted in recent years, such as the obligation of investment managers to vote the proxies for stocks they hold in the interests of shareholders. The good news in all of this is that the public backlash against a wide range of damages the financial system and corporations have inflicted upon the public is raising the focus on fiduciary simultaneously across multiple channels. The bad news is that the fact the fiduciary is so wide in scope appears to be making it extremely difficult to implement with practical regulation.Read More...
As the difficult economic environment continues, bankruptcy filings in the United States continue to occur at an elevated rate. And it appears that financial planners are having their share of bankruptcies as well... requiring the CFP Board via their disciplinary process to adjudicate whether a CFP certificant should receive a public letter of admonition, or has his/her marks suspended or revoked.
With a rising number of financial planner bankruptcies putting pressure on their disciplinary resources, the CFP Board has proposed a change to how it treats such bankruptcy situations.
The upshot: a bankruptcy by a financial planner will no longer bar him/her from getting or keeping the CFP marks. However, going forward, any bankruptcy by a financial planner will be publicly disclosed for the following 10 years on the CFP Board's website.Read More...
While financial planning has been increasingly engaged in public policy discussions through the Financial Planning Coalition, those interactions have still been largely "selfish" - i.e., pertaining to the regulation of financial planning and financial planners - and have not been regarding broader public policy issues, such as the general fiscal health of the country. On the one hand, it can be difficult for membership associations to take part in difficult public policy conversations when the common bond of membership is professional, and not political; in other words, there are both Republicans and Democrats amongst financial planners, and even if we all agree on the nature of the problem, we may strongly disagree about the appropriate solution, and advocating one path over another can alienate members. Nonetheless, it still seems to me that we could play a more active role, especially in today's environment, by utilizing the unique perspective of financial planning to help make major issues relevant at the personal level. Read More...
In the ongoing debate for the fiduciary standard, supporters of fiduciary have suggested that everyone in financial services should be subject to the standard, while those opposing have responded that consumers deserve a choice between fiduciary and suitability; in essence, they simply suggest that we should let consumers choose whatever method of financial services they prefer, and may be the best model win.
But to me, the choice presented is a false one: the real choice is not between fiduciary advice and suitable advice, the difference is between fiduciary advice from an advisor and suitable product sales from a broker. In other words, the real choice we should present to consumers is between advice and product sales, and the real goal of the planning profession should be to focus on who is and is not qualified to deliver advice, and really call themselves an advisor in the first place!Read More...
