There's something vital to financial planning that regulators can't regulate, legislators can't legislate and lobbyists can't influence. It's called leadership.
Every worthwhile activity has a leadership component, and financial planning is no exception. Through the eyes of your client, you have to be viewed as a leader; if you're not, you become merely an order taker and report generator until the client finds a more inspiring advisor. Yet as an industry, we have not put any rigor into the study of leadership and its impact on client relationships.
It's been nearly a year and a half since President Obama signed the Dodd-Frank Act. Eventually, we will get a fiduciary standard, but it appears the SEC is going to settle on language that meets the least resistance from special interest groups. The term "fiduciary" will become a box every broker and advisor will have to acknowledge.
As a former military pilot I learned that, when you train, you do it to the highest standards. The same approach should be taken here, reflecting the highest standards defined by law and regulations, as well as industry best practices.
As a planner, if you want to serve sophisticated clients, if you want to migrate into managing larger estates and portfolios, then you have to be intimately familiar with the highest standards of care. You can't fake an understanding of fiduciary responsibility and expect to be able to work with institutional clients. However, now that we're faced with the prospect of a bare minimum fiduciary standard, it's going to be more difficult to distinguish the good from the great in our industry.
How should we prepare professionals to serve effectively as stewards in critical decision-making roles? Combine training on a fiduciary standard with leadership behavior. Since leadership is outside the domain of legislators and regulators, we can develop and deliver the training with little interference. To develop such a framework, we need to blend the attributes of a number of the leading theories:
* Servant leadership stresses how best to serve a client.
* Situational leadership focuses on the capacity and willingness of a client to be involved in the decision-making process, or on how to meet the unique needs of a particular type of client.
* Transactional leadership emphasizes compliance and getting the right thing done at the right time.
* Transformational leadership looks to effect a positive change in the lives of clients.
* Emotional intelligence leadership emphasizes using a client's feelings to guide thinking and actions.
Having the capacity and knowledge to serve as a fiduciary used to be the gold standard for the industry. That, sadly, is likely to change as the essence of the term becomes marginalized. We can, however, continue to strive toward raising professional standards by augmenting fiduciary courses with leadership training, helping to prepare professionals to serve effectively as leaders in the eyes of their clients.
Donald B. Trone is founder and chief ethos officer of 3ethos, a training and standards development firm, and is co-author, with Charles A. Lowenhaupt, of Freedom From Wealth.