I have long hoped the profession would find a way to distinguish between advisors who are doing real planning work for their clients and those who aren't. There are many categories of people who I believe should not have "financial planner" on their business card, but two stick out: commissioned salespeople who do just enough planning work to justify the sale of the product they already know they will recommend, and advisors who focus primarily on the portfolio rather than the client.
I struck a nerve in June when I wrote that advisors who abandon the hard (and not always highly profitable) planning work for clients should stop calling themselves planners. My words sparked a long thread on the FPA discussion forum, and the FPA's annual conference actually held a related session on my FP column. The wisdom of the crowd has taken the discussion to new levels. Let me address a few of the questions critics have been raising.
DEFINE 'REAL' PLANNING
Who elected you to define what is "real" financial planning?
Nobody. If I were voted czar of the profession, and given the task of defining "real" financial planning, my first act would be to demand a recount.
But the much more important issue here is: Where will the profession itself eventually draw that line? Is it even possible to draw it? As I see it, we don't need a precise definition of "real" financial planning in order to identify real planners. Real planners follow a process that evaluates (with some degree of rigor) a client's goals and objectives - as well as taxes, insurance, current portfolio and future liabilities - and they create (and oversee the implementation of) a plan to get there.
I haven't seen anything superior to the traditional six-step process, but there should be room for creativity. Some advisors focus on one piece of the puzzle at a time and deliver a plan, bit by bit, over the course of a year. Others start the relationship with a document.
I hope we don't ever define "real" planning so precisely that we squelch the creativity of the advisor community. Let's recognize that this isn't the goal, because if we don't, it will block any progress toward the more important goal of identifying real financial planners.
STATUS QUO WOES
What harm is there in the status quo?
If it creates a tendency for advisors to gradually give up the hard, valuable work of planning, then there is harm to consumers who think they'll get this service but won't. There's also a risk to advisors. Those who base their client relationships on planning and a deep understanding of clients' goals and lives will keep their client base intact when the markets sink and AUM clients are unhappy and looking for a better return. Pursuing the easy AUM money may be a great short-term profit strategy, but it always seems to fail in the long run. Any returns-based relationship is subject to the whims of the market.
The profession seems to learn this lesson again and again and then forget it. I'm hoping that, with this debate, we can finally push the long-term value of planning services into the profession's longer-term memory.
If the status quo is a lot of people calling themselves financial planners who actually don't do planning with any rigor, then this is a mislabeling issue for consumers. Why shouldn't we fix it? We don't let companies put the word "organic" on products that haven't met certain standards. We don't let drug company wholesalers call themselves "doctors."
Whenever I bring this up, I hear from commissioned salespeople who ask me why I hate them. I've actually had people come up to me after I've given a speech with fire in their eyes. I'll sit in the back of the room and ask some earnest questions: Selling good investment and insurance products is an honorable profession, is it not? You believe in what you're selling, don't you? Are you ripping off your customers? Well then, why do you need to label yourself a financial planner?
Here's what they typically come around to saying: Many consumers have had bad experiences with bad commissioned salespeople, and I don't want my own reputation to be associated with those problems. And, yes, many of those harmful folks are now calling themselves financial planners. They've fouled one nest; now they're fouling another. These conversations make my case better than any dialogue I've ever had with planning professionals.