Professional Financial Advice Is Alive and Well

October 18, 2016
H. William Wolfson, DC, MS, MPASSM, CFP®

When we think of a professional, such as a physician, attorney, or CPA, there is an expectation of prudent advice or exemplary service rendered. Unfortunately, negative press because of the shenanigans by Wall Street executives, bankers, and unscrupulous firms.

When we think of a professional, such as a physician, attorney, or CPA, there is an expectation of prudent advice or exemplary service rendered. Unfortunately, negative press because of the shenanigans by Wall Street executives, bankers, and unscrupulous firms often causes the public to view financial professionals with suspicion of being unethical or worse. Federal, state, and local regulations are promulgated to protect the public, but unfortunately it takes only a few to spoil the ethical and valuable services many of these professionals provide.

The increasing investor ease of financial data and report access, accessibility of Robo-investing and the perceived lack of financial advisor trust is causing a shift in the financial advice arena. Allegations of errors, maleficence, fraud, or lack of due diligence, complaints by clients, regulatory agencies, compliance officers, or employers are of increased concern. The Department of Labor (DOL) April 2017 fiduciary versus suitability financial advisor requirements for retirement planning and investing, relentless FINRA and SEC rules and regulations, increased internal and external compliance oversight of advisors, perhaps warranted, are collectively causing financial professionals to dot the I’s and cross the T’s, not once but twice.

FEAR-False Evidence Appearing Real

According to Hearts & Wallets, “Getting cheated by a financial adviser is a concern for 44% of Americans. Most Americans say they need more help when it comes to saving money and preparing for retirement, according to the latest poll. But they appear to have a high degree of mistrust of financial advisors.”

Sheryl Rowling differentiates investor choices by stating, “There are essentially two types of financial advisors: asset gatherers and wealth managers. The asset gatherers concentrate only on investing while wealth managers seek to integrate individualized financial planning with investment strategy decisions.” Of the wealth managers, a subset may offer a level of “holistic” financial planning. “Holistic financial advice isn’t about beating generic benchmarks. It’s about using your knowledge and skill to help clients meet a lifetime of goals and creating client relationships,” she said.

The Strong Shall Survive

Competition within the financial planning arena always has been keen, but with the increased scrutiny and questioning by clients on cost versus value, financial professionals across the whole spectrum of consulting, and advisors are being challenged to show their worth. The question presents, how do financial professionals show their true value to investors’ versus an investor going it alone?

“The difference now is that technology and access to data have made it both easier and more important for advisors to explicitly articulate the benefits of ongoing financial planning,” said Tricia Rothschild, head of global advisor solutions at Morningstar.

Investor data accessibility is important, however Diana Britton reported, “Next-generation wealth advisors will need to be hyper responsive, highly empathetic and digitally savvy … they will need to be multidimensional professionals able to provide both specialized advice and life goal-planning — always keeping their clients’ best interests in mind.”

Adding to the conversation Rich Ramassini accurately stated, “The most digitally connected investors tend to be better informed … they are more likely to know about the fiduciary standard for investment advisers, and are more likely to consult with an adviser who follows the standard.”

Demographic Changes Are Here

In less than 15 years, 20% of Americans will be over age 65. “Millennials, whom we define as those ages 18-34 in 2015, now number 75.4 million, surpassing the 74.9 million Baby Boomers (ages 51-69). And Generation X (ages 35-50 in 2015) is projected to pass the Boomers in population by 2028,” Richard Fry of the Pew Research Center reported. “Millennials are the most apt to replace their adviser, with 38% saying they are planning to do so; 28% of Generation Xers plan on it, while only 8% of baby boomers are planning to make such a change. That is significant, however, since by 2020 millennials and Generation X will control $30 trillion, or half of all investible assets, according to the study.”

It should come as no surprise that financial professionals are being faced with a tsunami of demographic group shifts. The cultural, philosophical, and stark differences between these groups are becoming increasingly evident. The shift has already started and will continue for the foreseeable future.

Stephen Gardner of The Street surmised, “Advisers must behave and work differently with investors than they did in the past. It is now more of a team effort to get to accomplish financial goals. And with all the information available, advisory clients will want to provide input on their finances.”

The Proven Value

Michael Kitces, a well-respected CFP professional opinioned, “Of course, in the end a financial planning business is only viable if it correctly offers a service that consumers value, can afford, and that can be delivered profitably given its costs. Yet in the context of financial planning fees, each of those mechanisms — the cost (in terms of time) to deliver the service, its affordability for clients, and its perceive value – are each mechanisms that can be used to set a price on financial planning.”

With any transaction, there is a buyer and seller. The dilemma that presents, and ultimately to be determined, is whether financial professionals will deliver the objective analysis, hand holding, and listening-action skills required to meet the needs of an increasing and discerning population of self-motivated, research oriented, socially responsible, and independent investors. Simply put, a financial professional’s value to a client must exceed perceived and actual costs.

Consulting with a qualified CFP can help allay any trepidation allowing a client to be assured the financial professional is not only exceeding the suitability requirement but acting in a fiduciary role. Excellent financial planning services are always needed. It boils down to not only a value-cost analysis, but the developed bridges of mutual trust and client satisfaction.