Kitces.com - Advancing Knowledge in Financial Planning

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...