I found out awhile ago that most people would rather go to the dentist [nothing against dentists] than engage in what they think is “financial planning.” In fact, if I am on a flight and I want to be left in peace to get some reading done, I have found that if the person next to me asks what I do for a living and I tell him that I am a financial planner that pretty much seals the deal: peace and quiet for the rest of the flight.
Why is that?
Part of the reason is that there is no name, industry, or designation for someone that provides ongoing financial advice. There are groups that do a great job, like NAPFA, fi360, and C.F.P Board, but there are plenty of great advisors that don’t belong to any of these groups.
For the most part, the Real Financial Planning industry is still secret. But it is crystal clear that people have had enough of the financial plan industry.
As the stock brokerage business and insurance sales industry started to decline, it started a race to become the primary advisor. Now even bank tellers have been trained to ask you about financial planning, with everyone trying to get to one place…the primary family advisor. I have been at industry conferences where selling plans was part of an overall strategy to gain an increasing “share of wallet.”
The result is predictable.
When you take salespeople and reward them for selling financial plans, they do it. All of this has created a focus on the product called a financial plan, at the expense of those of us engaged in the process of planning.
Putting a name on this process is challenging. I feel like I have had an identity crisis for a decade. I don’t know what to call myself. In fact, some of the best financial planners don’t even use the term “financial planning” to describe what they do. They have tried “advisor,” “wealth manager,” and even “family CFO.” These all get close, but putting a name on it is really tough.
It’s a bit like the Supreme Court’s original attempt to define obscenity. In 1964, Justice Potter Stewart said that he “would not today attempt to define it…” and then the famous quote:
But I know it when I see it.
People who have found a trusted family advisor that they are happy with will tell you that it is a great thing. It might sound old fashion, but they describe it by using words like trust. In the end, it is really about putting the interests of the client first, even (and especially) when it is in conflict with the advisors.
It is about being the kind of person that someone else would trust with her mother’s money…
So while it may be hard to define when it is done correctly, Real Financial Planning changes peoples lives.
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It's a hard proposition- trust has to be earned and I'm sure that the sales people want to be trusted without the sacrifices needed to earn that trust.
-Rick Francis
Tough indeed. This is one of those “trust but verify” things.
I think much of financial planning is based on the concept of delaying consumption. Planning is about finding and executing efficient ways to preserve present financial resources for later use. It all boils down to helping people not spend too much money; that's really what I do in a nut shell. Unfortunately, that sounds about as exciting as helping people take care of their teeth (no offense meant to the dentists).
I think a good response to the, “what do you do for a living,” question might be, “I'm a REAL financial planner.” Either you sit in peace and quiet afterword anyway, or it prompts the question, “what's the 'real' part for?” (or something similar).
Delaying comsuption or at least understanding the trade-offs. And in
some cases those trade-offs actually involve convincing people to
spend more money.
I'll try that on my flight home tomorrow…
So where do I find one of those?
The core problem is that the financial interests of financial planners are often at odds with the financial interests of their clients.
My focus is the problems with advocacy of Passive Investing. When you think about it a bit, it's easy to see why this idea became popular with financial planners. There are times when super-safe asset classes like TIPS and IBond and CDs offer a better long-term return than stocks. But there are never times when the commissions on the non-stock asset classes are as big as the commissions on stocks. So the industry stands to generate hundreds of millions by promoting Passive Investing (while bankrupting the rest of us).
It does not follow that the financial planners are deliberately leading us astray. People who work for Pepsi generally believe that Pepsi really is better than Coke. People who make a living selling stocks are drawn to theories that argue that stocks are always best. That's just human nature (the psychological term is “cognitive dissonance”). The effect is not limited to those who make money selling stocks. Those of us who have come to believe in Passive Investing ourselves eventually become defensive over challenges to it. We don't want to have been proven wrong even if our belief in the theory ends up costing us large amounts of money.
The answer? Self-awareness.
The emotional aspects of money management have barely been touched on in the literature. Yet they are probably 70 percent of what we need to know about to manage our money effectively. The good news is that if understanding of this point breaks through because of the economic crisis, we have the potential to learn more about how to save and invest in five years than we have learned in the past 50. The lessons that we have been blocking out of consciousness for a long time now can bring about an economic revival if the pain of failing to let them in gets great enough that we become a bit more humble about our present state of knowledge of what works.
Rob
Three reasons…
1. Some people are intimidated by math. Or they simply can't do math and hate it. In any case, sitting down with pencil and paper to compute a budget, income statement, balance sheet, savings and investment plan, etc. sounds a lot like doing “word problems” in their 8th grade pre-algebra class.
2. Some people are keenly aware that there is way too much they don't know about finance, investing, taxes, etc. A lot of effort has to be invested upfront learning about it all before they can even begin to apply things to their situation, and just thinking about that is discouraging. I fell into this category a few years ago.
3. If their finances are in shambles (and they are, for many people) then it might be a sore subject. Some people would probably rather not think about their financial future, hoping instead that it will just take care of itself in time.
In short, I think a lot of people are just embarrassed by their situation and their lack of knowledge for improving it. This probably makes them feel even more vulnerable to those who might be trying to scam them.
Three reasons…
1. Some people are intimidated by math. Or they simply can't do math and hate it. In any case, sitting down with pencil and paper to compute a budget, income statement, balance sheet, savings and investment plan, etc. sounds a lot like doing “word problems” in their 8th grade pre-algebra class.
2. Some people are keenly aware that there is way too much they don't know about finance, investing, taxes, etc. A lot of effort has to be invested upfront learning about it all before they can even begin to apply things to their situation, and just thinking about that is discouraging. I fell into this category a few years ago.
3. If their finances are in shambles (and they are, for many people) then it might be a sore subject. Some people would probably rather not think about their financial future, hoping instead that it will just take care of itself in time.
In short, I think a lot of people are just embarrassed by their situation and their lack of knowledge for improving it. This probably makes them feel even more vulnerable to those who might be trying to scam them.
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