industry insight BY
Defining ‘Real’ Planning
If you’re not doing the hard work of developing detailed plans for your clients,
maybe you need a new job description.
Who is a real financial planner? There is nothing wrong with managing client assets and being paid for it. But if you’re following the siren song from planning to AUM, then call yourself something other than a financial planner.
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.
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.
STA TUS 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 com-
DEFINE ‘REAL’ PLANNING
easy AUM money
may be a great
but it always
seems to fail
in the long run.
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.
December 2012 Financial Planning 25