When Advice Probably Isn't
07/29/201009:05 PM Filed in: Financial Planning
If you've read any of the financial press lately, you have to be concerned about that value of "advice" in America.
In a recent article in Financial Planning Magazine, (read the full article here) it appears that just about every socio-economic strata is going to have problems living out their retirement in a manner that they'd like to. Here's the caveat that I'd like to offer, only real financial planning is advice, everything else isn't.
At least in my small and obscure part of the world, I can say that on any given day at an IAFP, ICFP or FPA meeting, be it board, council or Chapter event, I could probably reach out and find more than a few financial planners around. These are the people who know in their hearts, that selling something to someone doesn't necessarily constitute advice. I think that the numbers about retirement tell that same story.
I'd bet, though I don't know for sure, that most of the people that fall into the "we're likely to have a problem" group own life insurance. Though my early years with a life insurance company tell me that they likely have an expensive cash value policy for a fraction of the death benefit that they actually could have gotten and actually needed. Or a trendy universal or variable life policy with the potential for skyrocketing cash values (didn't) and substantive wealth accumulation and tax free withdrawals because as I recall, "policy loans don't constitute constructive receipt of income."
And, I'd suppose most of those folks own an annuity of some ilk, experience there tells me that they likely own an annuity in their retirement plan where the value of the tax sheltering effect is about as notable and valuable as the commission paid.
If my years in the planning side tell me anything, it tells me that the brokerage relationship that they have has in fact, gotten them a little bit "broker" than they need to be. Perhaps then, the derivation of the name that Wall Street has so adeptly assigned its minions. Broker seems to work out about right to my way of thinking.
As the passage of the recent financial reforms tells us, there's not a lot of sentiment in favor of a fiduciary standard, can't imagine why, though I seriously doubt the argument that historically Wall Street has always put the client's best interest first, so why formalize it? Other than attaching legal responsibility to the act, and confirming by that it's validity as a defendable argument, I can't think of a reason. And the insurance industry has been right behind the effort, albeit pushing it over a cliff. I know any number of agents in New Jersey who will tell me that a fiduciary standard is all a lot of nonsense and that the level of regulation and oversight by their "home office" has become onerous to the point that they're considering leaving the industry. Well, that may then be one of the positive outcomes.
A recent article in a local New Jersey business newspaper, would lead us to believe that the costs of financial reform will have the net effect of gravely increasing costs to the consumer. As if, I suppose, the financial rescue package that kept the banks in business didn't cost us all that much.
And lastly, the "do it yourself group." That rather robust group for whom day trading was the way out, or the way in, depending on your preference for in and out and of what. Seemingly endless papers on neuroscience and behavioral finance seem to paint a decision making landscape for the DIY group that's pretty daunting. Although this group has two big things going for them. First, you don't ever fire yourself and secondarily, you never doubt the judgement of the decision maker. Albeit that beyond that any real "scale" goes out the window.
I know, these people can't all be getting it wrong, and they're not. Some, obviously, are getting most right, that's why the number with likely problems in the article wasn't EVERYBODY. It was, well, just mostly everybody.
And yet for some reason, people continue to specifically not seek out advice. Is it the cost? It could be, though it appears that the "actual" cost from not seeking advice will be profoundly greater. Perhaps the old adage is true, you either "pay me now, or pay me later..." It could be that the people who sell products under the guise of "planning" have just walked away from the planning part after the sale of the products. That likely accounts for some of this group.
And yes, I'm sure that it isn't EVERYONE who sells product. When I got on stage in New Orleans as National President of the FPA and commented that if it had been my wish to be granted, you wouldn't be able to provide financial planning nor hold yourself out as a financial planner if you weren't certified to do so, the onslaught of comments from the "uncertified" was both surprising in its scope, and overall, understanding in its tone. It was also remarkable in its volume and shear number.
We lost a client a couple of months ago, who explained to me that; "I can do what you do!" I noted that he in fact could not, since we manage other peoples money and his taking his account over, meant he was managing his own, not someone elses. I know there aren't many golfers that will read this, but I'll commit for the record that the analogy here is about like, "If I can fix my golf swing, I can fix yours." The golfers who do read this will tell you that neither of those are possible.
So at your next family gathering, business picnic or social event or whatever large gathering you're attending, look around. The numbers seem to indicate that nearly half of everyone in attendance is standing on a railroad track with the high degree of likelihood that the track isn't staying "out of use" forever.
Do everything you can to assure that these folks get real financial advice, where ever it may be.
In a recent article in Financial Planning Magazine, (read the full article here) it appears that just about every socio-economic strata is going to have problems living out their retirement in a manner that they'd like to. Here's the caveat that I'd like to offer, only real financial planning is advice, everything else isn't.
At least in my small and obscure part of the world, I can say that on any given day at an IAFP, ICFP or FPA meeting, be it board, council or Chapter event, I could probably reach out and find more than a few financial planners around. These are the people who know in their hearts, that selling something to someone doesn't necessarily constitute advice. I think that the numbers about retirement tell that same story.
I'd bet, though I don't know for sure, that most of the people that fall into the "we're likely to have a problem" group own life insurance. Though my early years with a life insurance company tell me that they likely have an expensive cash value policy for a fraction of the death benefit that they actually could have gotten and actually needed. Or a trendy universal or variable life policy with the potential for skyrocketing cash values (didn't) and substantive wealth accumulation and tax free withdrawals because as I recall, "policy loans don't constitute constructive receipt of income."
And, I'd suppose most of those folks own an annuity of some ilk, experience there tells me that they likely own an annuity in their retirement plan where the value of the tax sheltering effect is about as notable and valuable as the commission paid.
If my years in the planning side tell me anything, it tells me that the brokerage relationship that they have has in fact, gotten them a little bit "broker" than they need to be. Perhaps then, the derivation of the name that Wall Street has so adeptly assigned its minions. Broker seems to work out about right to my way of thinking.
As the passage of the recent financial reforms tells us, there's not a lot of sentiment in favor of a fiduciary standard, can't imagine why, though I seriously doubt the argument that historically Wall Street has always put the client's best interest first, so why formalize it? Other than attaching legal responsibility to the act, and confirming by that it's validity as a defendable argument, I can't think of a reason. And the insurance industry has been right behind the effort, albeit pushing it over a cliff. I know any number of agents in New Jersey who will tell me that a fiduciary standard is all a lot of nonsense and that the level of regulation and oversight by their "home office" has become onerous to the point that they're considering leaving the industry. Well, that may then be one of the positive outcomes.
A recent article in a local New Jersey business newspaper, would lead us to believe that the costs of financial reform will have the net effect of gravely increasing costs to the consumer. As if, I suppose, the financial rescue package that kept the banks in business didn't cost us all that much.
And lastly, the "do it yourself group." That rather robust group for whom day trading was the way out, or the way in, depending on your preference for in and out and of what. Seemingly endless papers on neuroscience and behavioral finance seem to paint a decision making landscape for the DIY group that's pretty daunting. Although this group has two big things going for them. First, you don't ever fire yourself and secondarily, you never doubt the judgement of the decision maker. Albeit that beyond that any real "scale" goes out the window.
I know, these people can't all be getting it wrong, and they're not. Some, obviously, are getting most right, that's why the number with likely problems in the article wasn't EVERYBODY. It was, well, just mostly everybody.
And yet for some reason, people continue to specifically not seek out advice. Is it the cost? It could be, though it appears that the "actual" cost from not seeking advice will be profoundly greater. Perhaps the old adage is true, you either "pay me now, or pay me later..." It could be that the people who sell products under the guise of "planning" have just walked away from the planning part after the sale of the products. That likely accounts for some of this group.
And yes, I'm sure that it isn't EVERYONE who sells product. When I got on stage in New Orleans as National President of the FPA and commented that if it had been my wish to be granted, you wouldn't be able to provide financial planning nor hold yourself out as a financial planner if you weren't certified to do so, the onslaught of comments from the "uncertified" was both surprising in its scope, and overall, understanding in its tone. It was also remarkable in its volume and shear number.
We lost a client a couple of months ago, who explained to me that; "I can do what you do!" I noted that he in fact could not, since we manage other peoples money and his taking his account over, meant he was managing his own, not someone elses. I know there aren't many golfers that will read this, but I'll commit for the record that the analogy here is about like, "If I can fix my golf swing, I can fix yours." The golfers who do read this will tell you that neither of those are possible.
So at your next family gathering, business picnic or social event or whatever large gathering you're attending, look around. The numbers seem to indicate that nearly half of everyone in attendance is standing on a railroad track with the high degree of likelihood that the track isn't staying "out of use" forever.
Do everything you can to assure that these folks get real financial advice, where ever it may be.