Financial Planning is the successful transition from Asset Accumulation to Income Generation to Wealth Transfer
Because the Financial Planning profession is still developing, there are huge differences in the services of those holding themselves out to be “Financial Planners”. One of the main differences is how financial planners are regulated. While planners that are securities registeres as investment advisers, are regulated as fiduciaries, the vast majority are not. Even though planners may be duly licensed and credentialed, they are not required by statute to be held to a fiduciary standard to act in the best interest of the client and provide full disclosure unless they are also registered as investment advisers.
Only registered invested advisor can charge fees for financial planning, the rest are resigned to offer only “free meetings”. There has been a loophole in existence for several years allowing stockbrokers the ability to charge fees for money management without being registered.
Credentials are also important in selecting a financial planner. In looking at the present state of the Financial Planning Profession, it is interesting to look at the historical development of the medical profession.* In England starting with the 17th century, the practice of medicine was divided into three groups: Physicians, Surgeons, and Apothecaries. Physicians usually held an advanced degree and were the elite. Surgeons were usually apprenticed and received their training in the hospital. Sometimes Surgeons served dual roles, e.g., also acting as barber. Apothecaries learned how to prescribe, make and sell medicine either through apprenticeships or in hospitals. Eventually, it was the Physicians who would perform surgery and prescribe medicine. In the financial planning profession today, you have stockbrokers, insurance agents, money managers, some accountants, bankers, trust officers, and others acting in various roles and regulated by various states, associations and the like. Many receive their training while working for large financial service and insurance companies. Just as the Doctor of Medicine (MD) has risen to be the preeminent credential in the medical profession, the Certified Financial PlannerTM is now rising to be the defining credential in the financial planning profession. Of course, you wouldn’t let a Surgeon operate on you without being credentialed. Being credentialed as a CFP® professional involves work experience, academic study, testing, and continuing education.†
Many financial planners attract clients because of their ability to analyze client’s issues and produce an initial financial plan. The quality of the plans varies widely, some are boiler plate plans giving the same general recommendations to different clients with similar assets, and some are very well researched and presented.
Financial planning is a process, not an event. Since the initial written financial plan is a static document, it quickly becomes interesting only from a historical perspective. It has been my experience that most planners, who produce financial plans, send only investment reports thereafter. What the clients can end up with is fee-based money management that is expensive with no ongoing planning. Many clients want ongoing advice, not just a quarterly investment report.
Clients’ goals and circumstances change over time, assets get adjusted, hard assets are depreciated, and client’s income tax and estate situation is always dynamic. Financial planning is more than a few pages of recommendations and ending with the implementation of products and services. Every financial transaction has an effect and must be recorded and analyzed so the planner can advise clients as their world changes. Having all the tools to analyze the effects of selling real estate, for example, on a client’s cash flow, income taxes, financial statement and estate plan is critical, and is the service most often missing in a “Financial Planning” engagement. Planners need to have all of the systems in place to allow them to answer your questions aided by financial planning reports produced in real time; where they are able to make recommendations.
Being able to make recommendations backed up with sound analysis in the areas of Retirement, Cash Flow, Tax-Advantage Planning, Investment and Estate allows a planner to:
- Create a formal Financial Plan
- Proactively contact clients when tax and other changes occur affecting their taxes or their investment portfolio
- Clearly show client’s the overall results and expenses of their investment portfolio
- More fully incorporate a client’s goals and objectives into their financial plan
- Identify when to bring in appropriate professionals to help with important financial decisions
- Provide a coordinated and integrated process for investment decision making
- Coordinate and organize all financial documents
When looking for advice, look for a financial planner who is registered and regulated to act in your best interest and required by law to disclose their conflicts of interest and has demonstrated competence as evidenced by continuing-education, experience, and credentials.
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