Investors are “Confused and Harmed”


Pity the poor consumer of financial services. According to The Financial Planning Coalition, a collaboration of the Certified Financial Planner Board of Standards (“CFP Board”), the Financial Planning Association® (“FPA”), and the National Association of Personal Financial Advisors (“NAPFA”), “consumers who want financial planning services are…unable to differentiate those who are truly competent to provide financial planning services from those who are using financial planning as a marketing tool.” The Coalition recently released a white paper, “Consumers Are Confused and Harmed,” which highlighted the problem. I know that you too will be shocked, just shocked to learn that the misunderstanding is not solely our fault…it has something to do with the fact that some financial service providers “are contributing to the confusion in the marketplace by identifying themselves as financial planners but not providing financial planning services.”

The Coalition points to a Cerulli study, which found that over 166,000 financial advisors self-identified as members of a financial planning focused practice, but after conducting detailed analysis, Cerulli “determined that only 38 percent of the self-identified financial planners actually had financial planning focused practices. In other words, over 100,000 financial advisors incorrectly self-identified as being part of a financial planning practice.”

Let’s think about this in another way. Let’s say that you go to the doctor to have a knee replacement and the doctor identifies himself as someone who does orthopedic surgery. Upon further analysis, you find out that the guy is a primary care physician and not a surgeon. You sure would have liked to know that fact, before you went under the knife, right?

According to Kevin Keller, the CEO of the CFP Board “American consumers looking for financial planning services face an uphill battle when it comes to identifying a competent, ethical financial planner. Just as consumers expect a medical doctor to have an M.D., a lawyer – a J.D., an accountant – a CPA, they should expect their financial planner to demonstrate expertise, experience, and accountability, and be held to standards the public can understand and trust.”

Here’s the problem: there is NO uniform regulation of financial planners, which would ensure that our expectations are met. In 2011, the SEC’s “Study on investment advisers and broker-dealers advocated that the “fiduciary standard” be applied to the industry. A fiduciary duty means that a financial professional must put your needs first. (CFP® professionals are held to the fiduciary duty.) Those who aren’t fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest. The SEC has noted, “most [investors] are unaware of the different legal standards that apply to their advice and recommendations…and expect that the recommendations they receive will be in their best interests.”

The coalition’s white paper corroborates the SEC: “A full 82 percent of consumers believe that a financial planner is essentially the same as a financial advisor, and there is only slightly less confusion between the titles financial planner, wealth manager and investment advisor.” And the vast majority of those who are held to the suitability standard would like to keep you mired in confusion. That’s why SIFMA, the industry’s lobbying arm, has spent millions of dollars to prevent the fiduciary standard from becoming law.

Lauren M. Schadle, CEO/Executive Director of FPA cuts to the chase: “It’s really pretty simple. Consumers who seek integrated, financial planning and receive narrow advice or one-product solutions with their life savings are harmed by the lack of appropriate regulation…time and time again, consumers are misled and harmed by those who simply use the moniker ‘financial planner’ as a marketing tactic but fail to deliver actual financial planning.” NAPFA CEO Geof Brown adds that the current environment can lead consumers to purchase “investment or insurance products that are inappropriate for them.”

What’s the fix? Until the government adopts the fiduciary standard, your best bet is to come right out and ask any potential or current financial professional, “Are you a fiduciary?” If not, you may want to find someone who is.

Here are three resources to find fiduciary advisors: