Legislation Of Financial Planners in New York Needs Work

Friday, September 02, 2011 08:38
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Legislation Of Financial Planners in New York Needs Work

Legislators in the state of New York are considering a bill to require planners with clients age 60 or older to be Certified Financial Planners©. Well intentioned, though not well considered, such a law highlights major problems in the financial planning industry but would do little to fix them.

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Apparently the state of New York believes that Americans aged 60 and older need special consideration when it comes to their financial planning. That is not without merit, but it importantly raises questions that require better answers. Is the state of the financial services industry, and its regulatory oversight, such that a state law is needed to ensure competency and right behavior? If so, why only protect the 60+ crowd? And why only people living in NY? Is the CFP designation the most appropriate in all situations (I am a CFP by the way)? What are the inherent problems with financial planners and investment advisors the New York legislators are trying to fix? Could this law create more problems than it fixes (e.g. a person is suddenly required to find a new advisor after many years with a planner they know and trust because they turned 60 today)? How many other states will follow suit but choose different credentials, and how does that impact the industry? Is this a Bandaid on a heart attack? Or is it overkill and unnecessary?  Many important questions are raised by the New York bill (more than listed above certainly). 

 

As to the question regarding the state of the industry, I would answer yes, the industry needs to be policed better and the highest standards of behavior established. But not on a state by state basis! New York should be putting pressure on their national representatives to require a fiduciary standard of behavior for all advisors, not just New York advisors. And why just Americans of a certain age? Don’t folks in their fifties need and deserve competent, prudent planning? Of course they do. And so do the 20 somethings that are just getting started with their financial decision-making. An arbitrarily selected age for a law such as this is simply not rationally supportable. Any argument for doing this for a 60 year old is as valid for the 50 year old.

 

The industry does need to become a profession. I won’t get into all the arguments for that (and all the complications it would create) here, but suffice it to say that the time for evolving from a sales driven model to an advice driven model is upon us. There are better ways to do that than on a state by state basis, singling out one particular designation as the only one that connotes competency, ethics and professionalism.   Are attorneys not adequately competent to provide financial advice to clients over age 59? Especially when it comes to estate and gift transfer planning?  Are CPAs not qualified to give tax planning or financial planning advice, especially if they have received a Personal Financial Specialist designation from their national professional association? Who could conceivably argue that a Charted Financial Analyst is not a competent and capable enough advisor to help clients make investment decisions? The Investment Management Consultants Association could argue that their Certified Investment Management Analysts are more qualified than CFPs to give investment advice.
 
Clearly what New York is trying to fix needs to be fixed a different way. But it does need to be fixed. One way to fix it is to make all providers of personalized financial advice the fiduciaries their clients (or "customers") expect them to be. True, authentic  fiduciaries.  Not redefined, “harmonized” fiduciaries that would allow sales organizations to maintain obviously conflicting interests designed to ensure maximized corporate profitability at the expense of objective, unbiased professional advice.

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