The financial planning industry has a problem

One of the most annoying things in the world is complaining about a problem without offering a solution. Prepare yourself for a healthy dose of that. I generally make it a practice to not do that. Alas, I don’t have the intelligence, resources, or wherewithal to fix this problem, but it’s a HUGE problem nonetheless. The financial industry doesn’t understand the word “best.”

Let’s start here, if you were to call up any large financial planning company and speak the following phrase “I would like to speak with your absolute best financial planner please,” your call would be immediately transfered to the firm’s top producer. You asked for the best financial planner. And the company is likely to send you to the “best” financial planner by their measure, revenue. I’m not anti-capitalist, or anti-financial planner for that matter, but this is a problem.

Don’t get me wrong, I’m not blaming the advisor, in this instance. The industry, mainly companies, have the problem. If they are going to continue to recognize top revenue-earners, then they will continue to face scrutiny.

I explored this problem in detail on last week’s radio show. Give the segment a listen below. After listening, I’d love to hear your thoughts. Leave a comment, and let me know how you feel.

Your definition of best is different than the financial industry’s definition

6 thoughts on “The financial planning industry has a problem

  1. A big problem is that people don’t know what real, comprehensive Financial Planning looks like. They believe they are getting “Financial Planning” from their “Financial Advisor”. A good comparison I’ve heard is that it’s like people going to a butcher thinking they’re going to a dietitian. A butcher is in the business of selling meat, not telling people they need to eat more veggies. So for starters, the FINANCIAL PLANNING industry needs to educate the public as to what real, comprehensive, financial planning looks like. The CFP Board is in the process of raising awareness with their “” campaign. Not helping the awareness effort is the media. For instance, the IBJ recently listed the “Top Financial Planning Firms” in Indianapolis (by assets, of course). The #1 firm was a big broker/dealer who is mostly a transactional firm. That’s like saying Starbucks is a top fast food restaurant. Sure, they sell some food, but we all know they are a coffee shop. The public doesn’t have this distinction with financial planning firms and investment brokers. Some dude advising you to put $5k in an IRA, or rolling over your 401k is not “financial planning”. Those transactions only represent a small part of real, comprehensive financial planning. Until the public understands the difference, (and, uh, the media starts differentiating it) when people call (as you say) “any large financial planning company” and ask for their “best financial planner”, they’re really asking for the best butcher. I hope they aren’t a vegetarian.

  2. Well I would like to say that, one thing you mention above is “Financial company send best financial planner for you, by their measure”. Well as you ask for best financial planner same way you can ask them to schedule interview of financial planners, from those who give answers to your questions and you think which one of them is most eligible and experienced then you should select that financial planner for you rather than letting them to select one by them. You have right of interview financial planner before hiring them and they are bound to answer you.

  3. Great response Brian, I would agree mostly but there are a few points that need to be brought up. First the industry it self needs to stop making things complicated for the public. Your comment about the CFP board is a great example. There are many designations that you can get and a CFP is just one of them. To piggy back on Pete’s comments, I have known several CFPs that no nothing about “planning” but are great at selling products. I have also known some that are boarder line criminals in there billing structures and claim they are giving “planning” so they can justify the charges. People in the industry might have a higher view of CFPs but if you got it more then 5 years ago, you didn’t even need to graduate college. You can be a CFP, CFA (granted,doesn’t work with the public), CRPC, CRPS and so on… Don’t even get me started on titles. You have Financial Planner, Financial Advisor, Financial Specialist, Financial Counselor, Licensed Specialist, Financial Consultant… All pretty much meaning the same thing to the public.

    The big problem I find is that you can’t use a bench mark for clients regarding making a return. All clients have different needs and risk tolerances. I would love to state that I returned a 15% on my clients money every year, but you can’t say that because people who are 75 would want that in retirement without the thought of risk. I liken that to the “gold rush” of the last 5 years.

    Truth is, there will never be a ideal view of “the best” in the industry. You actually hope that this never comes up because you really don’t want people calling into a firm asking for “the best” advisor. Hopefully they would have done some research before just making the call.

  4. […] The point is to trust your gut about your financial plan. Don't turn a blind eye to it, but more than anything Pete the Planner says “forget doing it the 'best' way.” […]

  5. […] The point is to trust your gut about your financial plan. Don't turn a blind eye to it, but more than anything Pete the Planner says “forget doing it the 'best' way.” […]

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