Planning or Planning the Portfolio?
Last week's Converesation, asking where in the investment process you get the most bang for your buck (or the most benefit to clients for the time spent), told me more about the advisors who responded than about portfolio management itself. One group of advisors in particular dominated the private messages I received. They said, sometimes rather tartly, said that I should have asked about benefiting "The Client" rather than the client's portfolios, and shouldn't the real focus be on "The Client" and what is good for "The Client?"
In my e-mailings back, I said, yes, I think everybody agrees that working with your clients is undeniably important, but that wasn't the question. If you spend any time at all tending client portfolios, then how is your time best (or most productively) spent?
But the responses tell me that some advisors are averse to even DISCUSSING the value of portfolio management, possibly believing that we all spend too much time talking as if financial planning and portfolio management are the same service--which they clearly are not.
I hear this debate pretty much everywhere I go now. On the one hand (and we talked about this in an earlier discussion), you have a lot of salespeople who have managed to disguise themselves as financial planners--which is a sly way to earn a client's trust while pursuing a sales agenda. But within the fee community, many advisors are equally alarmed by their colleagues who pay lip service to financial planning, but really all they do is manage assets. And, since they are paid based on the assets they manage (the AUM revenue model), naturally their attention is drawn to the client's portfolio rather than to the client him/herself.
There are several consequences of this. First, most lay consumers believe that financial planning equals money management, and they are being taught to believe this by their current advisor relationship. That makes it much harder for those advisors who DO offer planning services to charge appropriately for it.
And it also leads many people to believe that the value of an advisor's service can be measured by whether or not he or she beat an index, or kept the portfolio safe during bear markets. As we saw in 2008, this can be a very dangerous thing to hang your value proposition on.
My first question is: is this really a problem in the profession. And if it is, is there anything we can do about it? Should we identify some advisors as portfolio managers, and others as financial planners? Is this a meaningful distinction to consumers?
As always, I find myself with more questions than answers. Any help and encouragement you can give me in the discussion forum would help me get smarter and better-informed.