With the DOL rule in a state that is hard to describe and the CFP Board proposing updates to its rules, the topic of regulation has been on my mind a lot lately. I found myself referring to some of my prior writings in this publication, the Journal of Financial Planning and a few others. Despite the progress the financial planning profession has made, I was struck by how little has changed.

The professional financial planning community is still complaining about the same issues. These lamentations are warranted because these problems have not been solved.

First and foremost is public confusion. Actually, the public understands many of the essential concepts of financial planning but they lack protection from what they don’t want or need.

The subject of personal finances is full of unfamiliar terms, indecipherable disclosures, competing interests, conflicting information and a limitless number of opinions about what is best. That’s confusing. However, people know decision-making involves assessing trade-offs because they know one cannot spend a dollar on one thing, say taxes, and use that dollar for something else, like saving.

The need for financial planning is intuitive for most. If we take the latest definition of financial planning from the CFP Board’s proposed standards and ask, “Would you benefit from a collaborative process that helps maximize your potential for meeting your life goals through financial advice that integrates relevant elements of your personal and financial circumstances?”, the honest answer from most people would be “YES!”

Granted, that language doesn’t exactly roll off the tongue but that doesn’t matter. Use the old definition and I think most would still answer “YES!”

Financial planning is an inherently good thing. Done well, it can be transform a family’s life for the good. The classic six-step process makes sense to people. It’s the specifics and the trade-offs that are hard for them to assess, hence their need for financial planners. Unfortunately, our regulatory structure can make finding a real planner challenging.

I’ve been advising clients for over a quarter of a century. I’ve been involved deeply with the development of the profession. I can make a very strong case I know what is what and who is who when it comes to financial advice. Yet, when I hear someone is a “financial advisor,” I can honestly say I do not know what they do for a living. 

They could work for a brokerage, an insurance company, a bank, directly for clients or a combination of any or all or none of those. Now, I know what questions to ask and what to look for to figure it out, but if I can’t tell right away based on that title, or many similar sounding titles, how is Joe Public supposed to know?

The public shouldn’t need to know anything to figure it out. Personal financial advice is of such importance that regulations should be sorting this out for them. Alas, that hasn’t happened.

A proper regulatory structure is one in which practitioners show they

1.     know the right things,

2.     do the right things and

3.     are accountable if they fail to meet their obligations.

As it is currently, the SEC long ago stated through IA-1092 that holding out as a “financial planner” triggers the need to register as an investment advisor representative. This declaration did not make much of a splash probably because planning wasn’t as popular when it was released and it was released in October of 1987, shortly before the significant distraction of that month’s crash.

This declaration is good and proper but far from enough. Registering brings fiduciary duty to the party but only with respect to matters of investment advice. If you don’t want to be subject to the fiduciary duties that come with registration it is easily avoidable. Just don’t use the title “financial planner” or say you offer “financial planning.” Say instead you will “help with your financial plan” and call yourself a financial advisor (not “investment advisor”) or something similar, as an official title.

Doing this you could be selling a wide variety of products based on suitability or caveat emptor. In fact, oddly enough, you can even slap “CERTIFIED FINANCIAL PLANNER professional” on your card and letterhead and not be deemed to be holding out.

That is not a dig at the CFP Board. CFP Board’s process is a darn good model for meeting requirements number one and two from above. That is not the case with regulators. Even if you hold out as a planner and are registered for investment advice, there is no requirements about how you do planning or even that you do any planning at all.

With CFP Board, this massive void is filled. Regardless of how a person is registered or licensed or not, to use the marks they need to prove they know something significant about financial planning.

Further, through its rules and practice standards, CFP Board also requires certificants to maintain their knowledge and meet expectations relating to how practitioners put their knowledge to work.

Where the CFP Board construct is insufficient is accountability.

The disciplinary process is important but it only applies to CFP certificants and the only remedy for bad behavior is loss of the use of the marks. That is a big deal but it isn’t as significant a consumer protection as fining or imprisonment.

I’m not asking that CFP Board be given the power to fine or jail. I am just pointing out that the most publicly recognized body with a meaningful method of assessing financial planning competence, requiring maintenance of that financial planning competence through continuing education, and requiring that financial planning knowledge be put work for clients’ benefit cannot hold practitioners accountable to the extent necessary to provide the remedies the public often needs.

If a certifcant does an incompetent or unethical job as a planner but breaks no rules of a regulator, they may lose their right to use the marks but they can still carry on, legally selling lousy products in substandard ways and the harmed client is still separated from their money.

The groups that can provide stronger remedies regulate product sales and service delivery in just a few of the subject areas within planning and don’t care about the planning itself.  

The best solution for the public, and in my mind therefore the best solution for the professionals that serve the public, is separate (not additional) regulation for financial planning.

If that existed in a proper fashion, there would be a place where the public could look for people who have demonstrated competence at advising from a more holistic viewpoint, must continue to demonstrate competence, are required to provide such advice under an appropriate fiduciary standard of care, are required to provide such advice under appropriate standards of practice, and would be penalized in a meaningful way if they failed their clients under such standards.

If this were to happen, we wouldn’t see so many people who own a hodgepodge of whatever could be sold to them. For my entire career, I have seen a steady parade of people that own products sold to them that put them in a weaker financial position yet every sale was technically legal.

Alas, most of what I see now is more ineffective disclosure as the primary method of “protecting” the public. Disclosure is important, of course, but functionally it too often protects the “advisor” not the client. Even a young child knows telling someone you might harm them doesn’t excuse the harm.

There is some hope. The fiduciary horse is clearly out of the barn. The main issue is whether the industry will be able to water it down or render it less effective via a disclosure-based approach. I am encouraged by recent changes around the world and the recent discussions of ending the name game by regulating some titles here in the United States.

None of the ideas I have expressed here are new or even mine. I joined a movement already in progress—professionalizing financial planning. Regulating a title and requiring a bona fide fiduciary duty are good steps but those steps don’t go far enough.

Personal finance is not getting less complex for the public. Separate regulation of planning as a distinct profession is needed more than ever. It won’t stop bad behavior but it will reduce it and give us a method of addressing it that does not exist today. The public deserves such a regime and so does the financial planning profession. 

Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by several publications, is a past president of FPA and is a popular speaker on all things related to retirement advice and the profession of financial planning. He practices in Melbourne, Fla.  You can reach him at www.moisandfitzgerald.com.