If you’re as old as Methuselah, like I am, you might remember a pivotal moment in the evolution of the planning profession, when Forbes magazine noticed that brokers, life insurance and tax shelter salespeople were starting to call themselves ‘financial planners.’ Many of them were creating financial plans, using computer programs where they would carefully enter a client’s detailed financial information, and no matter what client data was typed into those fields, the output, in the form of a very professional-looking financial plan, would strongly recommend that the customer put his/her entire investment portfolio in the stocks that the broker had been told to recommend via the morning’s squawk box, or the high commission cash value life insurance policies that the agent happened to have in his briefcase, or a random bunch of tax shelters.
The cover article talked about this professional bait-and-switch, and the cover of the magazine featured a monkey in a business suit, with the caption: “These days, everybody is a financial planner.”
Shock! Chaos! Pandemonium! I happened to be editor of Financial Planning magazine at the time, working in the offices of the International Association for Financial Planning, and the sight of that cover image turned the organization’s leadership and board members purple with righteous outrage. They drafted an angry letter to the Forbes editorial staff demanding a retraction of its defamatory depiction of a financial planner as a monkey. They demanded that I write a stern editorial denouncing Forbes, the article and the questionable ancestry of whomever approved that offending cover.
But then we heard from the membership, and their response, based on their real-world experiences, was not outraged at all. I remember one letter (no email back them) where an advisor suggested that we ‘chill.’ “I know that monkey,” he said. “He works right down the street from my office. I’m working with clients who used to work with him, and I can’t tell you how hard it has been to clean up the messes he’s made with their financial situations.”
I bring up this ancient history because it has taken this long before somebody decided to do something about the monkeys. After what appears to be a lot of discussion at the Board level, the Financial Planning Association has decided that its highest advocacy priority, going forward, will be to create some form of legal title protection around the term ‘financial planner.’ The organization will pursue state or federal legal recognition of the term, and put standards around who can and cannot call him/herself a financial planner.
In the press comments that followed, including my quick interview with FPA President Dennis Moore and FPA CEO Patrick Mahoney, there was a clear recognition that A) this is a pretty big task, and B) this is a necessary step if financial planning is ever going to become a real profession. Doctors, lawyers and accountants have all achieved government recognition of their professional status. In our interview, Moore pointed out that literally anybody can hang out a shingle as a financial planner. (Yes, there are regulatory requirements to register as an investment advisor. But not as a financial planner.)
So what will this look like? We don’t yet know, because, instead of drafting those standards and creating a proposed framework in isolation, the FPA is going to listen to suggestions from all interested parties. “We want to be very inclusive as to what this looks like and how it happens,” says Moore. “We’re not looking to create additional unnecessary regulatory burdens,” he adds. “But we do want to protect the title ‘financial planner.’ Not only to help establish our profession, but also to provide protection to consumers. They should be able to know what a financial planner is, and when they engage the services of a financial planner, they should know that that person will be held to a set of standards that are on the same level as other professions.”
I think this means that the FPA is open to suggestions from the financial planning community, prominently including NAPFA, the CFP Board, the AICPA, the Committee and the Institute for the Fiduciary Standard, academics and the collective wisdom of all those advisors who have been functioning as true professionals in the absence of a true professional framework.
Mahoney says that right now the organization is looking at a blank slate. “Currently there are no minimum standards for competency or ethics for those professing to be financial planners. There are,” he says, “some credentialing bodies that have their own prescribed standards, but policymakers have established nothing at the state or federal level.”
It’s an interesting question, how you get the government involved in deciding who can and cannot call themselves a financial planner without running the risk that the government will be intruding deeply into what kind of advice can legally be provided. But we might get a hint of the ultimate solution from those other professions. Doctors, accountants and attorneys are fundamentally responsible for their own regulation, enforcing standards they have set internally by working closely with the regulatory bodies.
In the planning world, there have been occasional efforts to create a self-regulatory organization (SRO) for financial planning. But those initiatives were greatly hampered by the remarkably awful example of FINRA, which started life as an SRO for broker-dealers, and ultimately became a powerful lobbying organization that now dictates what many of us regard as consumer-unfriendly regulatory policies to the SEC—when, of course, it’s supposed to work the other way around. Even financial planners were leery of letting another FINRA loose on the American economic landscape. And, of course, the pursuit of an SRO opened the door for FINRA (previously the NASD) to argue that it should become that SRO, which would give it free rein to strangle and eliminate these annoying client-first competitors to wirehouse sales agents and asset-gatherers.
The other elephant in the room is the CFP Board, which has, at various times, explored becoming a regulatory body. Its initiatives might have gained more traction had the organization exhibited a consistently fair and even-handed enforcement policy. But a disturbing number of advisors who go through its appeals process have used the term ‘kangaroo court’ to describe their experiences, and of course the organization has, in the past, leaned over backwards, nearly breaking its back, to accommodate wirehouse CFP brokers. A lot of us are still angry at the decision to take down compensation data on advisors who were listed on the organization’s website, rather than confront the fact that thousands of brokers and asset-gatherers had slyly listed themselves as ‘fee-only.’ The organization did not help its case as a regulator by carelessly allowing advisors to omit their (often significant) regulatory history that they were supposed to disclose in their web profiles.
Finding common ground with an ambitious CFP Board, with NAPFA (which is sure to suggest that anyone who earns commissions is not a professional) and with the AICPA (which regards ‘personal financial planning’ as a subset of the CPA profession rather than an independent profession) is going to be daunting. It may be even more complicated to get FPA members to agree on what standards they prefer to live under—though Mahoney says that internal polls show that 80% of them support this new initiative at the concept level.
But just because this is hard doesn’t mean that it’s not worth pursuing. I think anybody who dismisses the FPA’s new focus as tilting at windmills should remember that financial planning cannot become a profession—ever—so long as people like this author could decide, on a whim, to hang out a shingle and start charging unwary consumers for incompetent advice on taxes, insurance and investment policy.
Mahoney says that advisors across the board are fed up with the status quo. “I run into members,” he says, “who say to me, you know, I’m up to speed on all my competencies. I’m meeting all the highest ethical standards. I’m delivering high quality plans to my clients. And meanwhile, that individual down the road is not doing anything that I’m doing, and yet he calls himself a financial planner.”
Addressing me directly, Mahoney adds: “I think that a lot of the conversations that you’ve been privy to over the years have finally come to a head. There has been a growing interest in our membership to be respected as members of the profession to which they contribute and support. Just like medicine or dentistry, law or accounting, this profession is a noble one, and it deserves respect. And the only way to generate that respect,” Mahoney continues, “is to make sure the things that we do that make us who we are for the American consumer are held to the highest degree of competency and ethics.”
We don’t know where this initiative is going to take us. But I hope that, in the end, the result is to finally chase away the monkeys.