Nerd's Eye View blog

Is FPA Membership Declining Because Of Its Fiduciary Views, Or In Spite Of Them?

November 23, 2011 04:05 pm 11 Comments CATEGORY: Planning Profession

The membership of the Financial Planning Association has been declining for several years. After a peak of over 28,400 members in late 2002, the organization was largely flat for many years, still hailing at 27,805 members by the end of 2007. But the membership tumbled almost 15% from the end of 2007 through the end of 2009, and it is been largely flat at a base of approximately 23,600 members since then.

The FPA has suggested that its declining membership count is a result of its strong and passionate advocacy positions - in particular, its high Standard of Care and its positions on fiduciary financial planning - which have perhaps alienated some current/former/prospective members, but defends its positions (and their membership-limiting consequences) as being a necessary result of its mission to advance the financial planning profession.

Yet the question arises - if high standards of care and fiduciary financial planning are really at the heart of FPA's membership problem, then why is FPA membership declining even while the number of CFP certificants who are already committed to a comparable standard of care and fiduciary duty continues to rise!?Read More...

Is Financial Planning Already Winning The Fiduciary War – From The Inside Out?

November 21, 2011 04:59 pm 5 Comments CATEGORY: Planning Profession

In recent years, the Financial Planning Coalition - comprised of representatives from the CFP Board, NAPFA, and the FPA - have been advocating together for a fiduciary standard in the delivery of financial services. Success, thus far, has been limited - their efforts for financial planning fiduciary regulation to be integrated into the Dodd-Frank legislation led to some mandated studies that do something to move the conversation forward, but the follow-up fiduciary standard that was to be implemented pursuant to those studies continues to lag. In the meantime, the Dodd-Frank results certainly fell far short of bona fide recognition of financial planning as a standalone profession.

Yet at the same time, the Certified Financial Planner designation continues to expand its base at the grass roots level, even while the total number of participants in financial services remains flat (or declining slightly) over the past decade.

Which raises the question: As an increasing number of financial advisors become CFP certificants voluntarily, is the CFP Board winning the fiduciary fight already, from the inside out?

Weekend Reading for Financial Planners (Nov 19-20)

November 18, 2011 08:41 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - highlights this week include several recent pieces about behavioral finance (both by, and about, research luminary and Nobel prize winner Daniel Kahneman), some interesting glimpses of how social media and the online world is shifting the process of finding a financial advisor and delivering financial advice, and a few investment pieces about the unraveling European (and now especially, Italian) sovereign debt situation and a growing likelihood the ECB will be compelled to "start the presses" to address it. We also look at two pieces highlighting trends in the industry, especially the RIA space. Enjoy the reading!Read More...

Which Is More Important In Your Trust Equation: Credibility, Or Authenticity?

November 14, 2011 12:56 pm 62 Comments CATEGORY: Client Trust & Communication

Trust. It lies at the heart of what we do as financial planners. Without a trusting relationship with clients, we cannot work constructively to advise them and help them to achieve their goals. At a broader level, if the public does not trust financial planners, they will be unwilling to work with us in the first place.

Yet at the same time, there is not necessarily a clear agreement amongst financial planners about what exactly it is that best inculcates that trust relationship. It is about establishing the credibility as an expert to become a trusted advisor for the client? Or the intimacy and authenticity necessary to ensure that the client feels safe and comfortable to share with you in the first place, and be willing to act on your recommendations?

If you had to pick one factor as the primary one leading to trustworthiness, which is more important to you: credibility, or authenticity?Read More...

Weekend Reading for Financial Planners (Nov 12-13)

November 11, 2011 07:43 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - highlights this week include a striking and somewhat controversial article about a financial planner who lost his house via a short sale in the Las Vegas housing bubble, a number of articles about recent initiatives from the FPA and NAPFA, and two investment articles, including a piece by Rob Arnott about starting to buy long-term inflation protection at today's "cheap" prices, and an article by Hussman suggesting a near-100% probability of an imminent recession with a recommendation to reduce risk exposure. Enjoy the reading!Read More...

Investment Decisions, Due Diligence, and Social Proof

November 10, 2011 11:22 am 4 Comments CATEGORY: Investments

In the midst of volatile, ambiguous, and uncertain markets, it’s often difficult to know what to do. In such a high stakes environment, we look for any clues that we can find, to figure out whether what we’re doing is “right” or not. Unfortunately, though, this can lead to trouble, as research shows that the methods and tools our brains use to make decisions are not always rational. For instance, sometimes we look to what others around us are doing, to determine whether our own actions are appropriate or not, rather than doing our own due diligence. In many situations, this form of “social proof” can be an effective means to fit into society. In other situations, though, it can potentially lead to herd behavior. Which raises the question – to what extent are our investment decisions as planners influenced by what other planners are doing, instead of our own due diligence?

Who’s Really At Risk When Avoiding Overvalued Stocks?

November 7, 2011 11:27 am 15 Comments CATEGORY: Investments

A common complaint about the use of tactical asset allocation strategies - which vary exposure to bonds, equities, and other asset classes over time - is that they are "risky" to the client's long-term success. What happens if you reduce exposure to equities and you are wrong, and the market goes up further? Are you gambling your client's long-term success?

Yet at the same time, the principles of market valuation are clear: an overvalued market eventually falls in line, and like a rubber band, the worse it's stretched, the more volatile the snapback tends to be. Which means an overvalued market that goes up just generates an even more inferior return thereafter. However, greedy clients may not always be so patient; there's a risk that the planner may get fired before valuation proves the results right.

Which raises the question: is NOT reducing equity exposure in overvalued markets about managing the CLIENT'S risk, or the PLANNER'S?Read More...

Weekend Reading for Financial Planners (Nov 5-6)

November 4, 2011 05:01 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - highlights this week include a few blockbuster articles, from a new call to the profession to adopt a more scientific and evidence-based approach to advancing financial planning, to an incredible new research report on how to develop staff and grow a firm, to a scary warning about the current regulatory winds buffeting financial advisors. We wrap up with three striking-but-bearish articles on the mortgage markets, the stock markets, and the economic situation in Europe and here in the US. Enjoy the reading!Read More...

Why Are Financial Planners So Afraid Of The Conference Exhibit Hall?

November 2, 2011 02:24 pm 9 Comments CATEGORY: Conferences

Every financial planner delivering advice to clients must, at some point, help the client interact with and implement advice with a financial service or product provider at some point. Depending on the planner's business model, the implementation of the advice may or may not directly command a commission, but even a fee-only planner ultimately recommends financial products and services. After all, you can't investment in an IRA without an IRA custodian, you can't buy mutual funds or ETFs inside the account without interacting with mutual fund and ETF product providers, and you can't buy insurance without an insurance company as part of the transaction. In fact, implementation of the advice IS the 5th step of the financial planning process. Which raises the question: given the reliance of financial planning on implementation using financial services and products, why do so many financial planners try so hard to avoid the conference exhibit hall? Are we shirking our professional due diligence obligations, or is there another issue at hand?

Making The Data Gathering Meeting Into A Client-Centric Positive Experience

October 31, 2011 01:59 pm 9 Comments CATEGORY: Practice Management

From the planner's perspective, the data gathering meeting is a core part of financial planning. As the 6-step financial planning process itself stipulates, you can't begin to analyze a client's situation and formulate recommendations until you have the client's data in the first place. Yet from the client perspective, the data gathering meeting can be an arduous process, and is also easily procrastinated, potentially delaying the entire planning process. It certainly is not something that most clients would describe as a positive or enjoyable experience. So what would it take to re-formulate the entire data gathering interaction, to change it from a planner-centric process into a client-centric positive experience? For starters, it needs lose the name: let the "data gathering" meeting become the "Get Organized!" experience!Read More...