Comments From Advisors On The Trouble With The CFP Business Model Show Planners Themselves Are Skeptical About Making A Living On Financial Planning

Monday, June 27, 2011 21:29
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Comments From Advisors On The Trouble With The CFP Business Model Show Planners Themselves Are Skeptical About Making A Living On Financial Planning

Comments from A4A members on my recent post about problems plaguing the CFP business model express serious concern at the direction of the financial planning profession.

 
Here are a few snippets from the four most disturbing comments, but read the post to understand the serious challenge facing the financial planning profession.
 
 
"The profession (if it ever was a profession) has morphed into one where Financial Planning now means gathering and managing assets. Advisors are ignoring all of the other aspects that planning is supposed to involve. Certainly the problem won't be fixed by government regulation. Maybe the business model never worked but it seems to work less effectively now."
 
"Realistically, the average planner (not investment adviser/manager) has a hard time working with truly high net worth individuals. There are not that many of them relative to the number of planners. So the average planner has to work with the mass affluent and people who have lesser income/assets. Run the numbers and it's easy to see the financial difficulty for such planners."
 
“We've got the vocabulary and soul-orientation to do lots of good. It's time to put the rest of the puzzle together so American families don't have to go through this terrifying transitional economy alone. But, the companies with the money to support the status quo are paying for the meetings where this might happen, and dramatic change and reformation is not on their want list.”
 
"How long before our young planner finally throws up his hands and gets so tired of competing against the "free" salesmen that decides to virtually leave the profession, focus on his technical skills, start the CFA program, and open what is primarily a money management firm (with planning snuck in on the side)? In my experience it takes about 14 years. Those a bit sharper than me perhaps a bit less. "

 

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Comments (10)

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vguettlein
It's hard to disagree with the comments above. I charge fees for plans or modular advice, and combine with AUM fees and an occassional term-life insurance commission. This combination makes smaller mass-affluent clients almost worth the effort. If they're savers, easy to work with, and will take advice, then a long term relationship can develop. If they want Suze Orman, then I can't help. Another pet peeve of mine, and I see this ALL the time, is the VA or FIA salesman dressed as a "planner" They get their 7%+ commission, move on to the next sucker, and then I'm supposed to pick up the pieces for 1% or a small fee? Just had a couple in my office that have paid over $14,000 in commissions (some churning) in the last 3 years on less than $100k. Because they're in my building, I'm helping with the remaining assets that aren't frozen in annuities. I'll make a whopping $600 per year. Wow. How exciting is that? Fortunately, I have a profitable practice, but it IS hard to sit by and watch people with no credentials, or ethics, make 5 or 10x what I do for slamming anyone who can fog a mirror. I like working with the mass affluent market, but it gets frustrating and disheartening at times. It does not bode well for the future of our profession. As a side note, I see fee compression occurring in MANY related professions, so we're not alone, either. Some how we need to become better at marketing our value proposition, and becoming better networkers and business people. I believe the financial media could help with the former, but I doubt they'll get off their do-it-yourself with the help of Suze, MoneyMagazine and Forbes annual "best of" lists, and, of course CNBC talking idiots, kick.
vguettlein , June 28, 2011
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agluck
The tail-end of your comment nails it: it's about marketing and education. Social media can be your best friend. Also video. You could make a video explaining your point of view and it would be very convincing. I've been doing this with some advisors and it is powerful.
agluck , June 28, 2011
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kevinpaulcondon
There's a parallel thread of discussion on Linkedin on the Certified Financial Planner Certificants of North America page. In response to Brian Albig's comment that he gave free advice to less than wealthy, I replied:

Yeah, Brian, I used to do that. However, I've come to believe that it is unprofessional to do so. Why? Because it furthers the myth that advice is free. Our profession serves the wealthy with focused services, but it GIVES advice to the rest of the people that need it. Isn't that a little patronizing? You've come up with services that make sense for the less than wealthy market, but why give it away? In my opinoin, that's a technique that will keep us from coming up with economies of scale and technology leverage to actually charge for what we do...like it's worth something! Don't get me wrong, it's great you are helping people. But, most of the people in the middle income population pay for other services they get. Most pay for dentistry, medical, legal and even physical fitness advice. Why not pay for financial advice? Because the methods we use only work up market? Because the industry has been built on bait and switch techniques that allow product transactions in repayment for "free" advice? Because we don't know any Garret Planning People who are available to take new clients?

My advice, as if you asked for it? Quit supporting the old model. It's so 20th Century. It's over. Let's develop an attitude of professionalism that includes adjusting our methods or marketing to deliver advice in smaller bites that people will actually pay for, willingly. Except in cases of dire need and poverty, let's decide that "free" advice is unprofessional.

I believe this is the first time in my life I've quoted myself. A little disturbing.
kevinpaulcondon , June 28, 2011
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agluck
Please explain the Garret Planning Group reference.
agluck , June 28, 2011
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vguettlein
Besides, it's demoralizing to "give it away". By the way, if I inferred I was giving away free advice, I apologize. I do not, because as I said... (quoting myself, too.), and because the work I do IS valuable and so am I. My point of frustration is that I have to work hard to make an honest buck, while the hock-meister makes $5 or $10 for being good at selling numbers neither he nor the client understand. I used to tell myself, "At least I can sleep at night." I won't get rid of my morals, but the guy with none is also sleeping at night.
vguettlein , June 28, 2011
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vguettlein
Afterthought, Kevin: people quibble about paying for the other services you mention. And in the case of dental and healthcare, it is heavily subsidized and many actually believe someone else should pay for it. Hardly a comforting thought. People don't pay for legal unless they must, and often not then. Self-serve sites like LegalZoom are doing gang-buster business. No personal service, so it's possibly garbage-in, garbage-out. I personally do not believe a non-personal model for our industry, emulating the likes of LegalZoom and other sites popping up, is in the best interest of our middle class and mass affluent planning/investing public.
vguettlein , June 28, 2011
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kevinpaulcondon
Andy, my comment about Garrett Planning was meant to indicate that GPN members actually know how to serve the less than wealthy with a menu of services priced and designed for that market. I'm a big fan of what these folks do. In private practice serving high net worth people, I often referred to local NAPFA members who were GPN members all the time.

That's right, vguettlein (?), there has been a subsidy on advice embedded in the industry for decades. The subsidizing firms write huge checks to FPA and have huge exhibits in our meetings. They support financial advice and their subsidy is threatened right now under a strict fiduciary definition. But the public has learned from long exposure that most "advisors" they meet have conflicts in the product chain. NAPFA's huge contribution to the industry has been to point this out, for which they were roundly vilified in the heyday of "Gee, the emperor has no clothes". The emperors were names in the exhibit hall and on Bob Veres' dinosaur t-shirts.

OK, how do we get to the next stage of the evolution of our "profession"? I think we work on models that bring advice, not those that "drive 401k participation" with gimmicks that side-step personal responsibility in retirement and benefits decision support. The reason that online calculators are preferred by employers over real "advice" is that principled professionals actually work with the needs of the plan participant, not the needs of the plan and the product vendors in the waiting room of large employers.

Most of you know I have a dog in this hunt, but for those that don't, Ron Peremel and I've been working for years to bring online solutions and methods that make workplace advice affordable and economic. There, I'm revealed! We want everyone to have real advice, not manipulative push marketing and product "guidance", but the real deal. The business models that go this way need marketing support and some of the millions that now goes to "literacy", but what they really need is a profession that supports giving the advice that is sought by the people, not the formulaic advice preferred by the industry giants and their regulator buddies.

I'll save that thought for another thread. I get dizzy on my soap box, but keep it handy for conversations that might appreciate the input, like this one.
kevinpaulcondon , June 29, 2011
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vguettlein
Kevin, please explain the meaning of is the (?)after my moniker at the beginning of Paragraph 2 in your post above.

I would also point out that it's not only NAPFA and GPN members that can help these people objectively. I am primarily fee compensated (about 90%), but my clients that occasionally buy an insurance policy or immediate annuity prefer to buy from me, and not be sent to the "wolves". The fact that I can receive a commission in these cases means I can help more people, with lower asset levels, without charging them $225 per hour for the full amount of time I spend helping them, as is commensurate with GPN's fee schedule for someone with my experience. An insurance license is not a breach of fiduciary duty. And I would also argue that many of these planners without an insurance license do not understand the insurance marketplace as well as someone that maintains a license.

By the way, I used to be part of one of your experiments here in Denver several years back (can't remember what it was called), and I eventually gave up on it because people did not want to pay for advice the way it was set up. I spent hours writing proposals for $75-150 worth of single topic advice, and the only taker was one of your employees. Perhaps others had better results.

BTW, there at least two optional services for personalized, online, advisor-assisted 401k advice that I'm aware of.
vguettlein , June 29, 2011
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kevinpaulcondon
It just meant it is the only name on your profile and I don't really know what to call you! Sorry.

I was commission only for the first ten years of my business and then migrated to NAPFA. I am positive that ethical practice has nothing to do with either business model. There was a great column recently on this issue, I think relating a conversation with an old guard planner (perhaps with the initials JB). He said we were stranding a lot of folks because we couldn't serve them and make a living. He was right. All we have here is a monetization engine to make it possible to give and receive advice with compliance. We haven't been able to bring the marketing dollars to allow us to compete with the subsidized advice providers. Not their fault or ours, it's a time of transition. We've created a lot, but not the whole tamale. That may need offsetting subsidies if we can't come up with the quantitative stuff. (I just realized you are Victor! You did a great job when you were on our site.) But, we couldn't bring the business in the right form to you. However, you may be able to bring it to yourself with social marketing tools, FB and Twitter. We spent all our time chasing large pilots with large companies. We have a new concept. I'll send you a file on it.
kevinpaulcondon , June 29, 2011
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vguettlein
Good sleuthing, Kevin. Thanks for the compliment, and again, I hope I didn't infer anything wrong with the product. I was merely stating my frustration with the results.

I agree with you, and with Andy's previous comments, that WE need to be better at communicating our value proposition, both personally, and as profession. It' our own responsibility.

RE: NAPFA. I've said it before; I would probably join up because I like what they envisage, BUT apparently I am a pariah dog because I have an insurance license. They exclude a lot of very capable planners with their stand on insurance licensure/commissions. Again, an insurance license is NOT a breach of fiduciary duty.

I'd love to see what you're up to; please do send it along.
vguettlein , June 29, 2011

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