A Question of Conflict
The cover story in the September 2020 issue of The Journal of Financial Planning struck either a chord or a nerve or perhaps both depending on how you approach the subject of conflict of interest that exists in varying degrees between an Advisor and the client. The quest to offer pure and untainted financial planning advice depends heavily on the eradication and/or mitigation of conflict between these two parties. To be sure, employing and maintaining a FIDUCIARY standard goes a long way towards reaching the utopian state that we as Planners need for our profession to be recognized and respected as such. But alas, there is utopia and then there is the real world.
The waters stay muddy because while financial planning is a PROCESS, it is all too often exploited by product vendors and their distribution channels to sell PRODUCT. Viola! Instant conflict. The quote on the cover of the Journal for Financial Planning encapsulates it quite well…
“My advice, if I was going to feed my family,
had to lead to some sort of sale”
To be fair, one component of the process most certainly involves the area of money management and investments. Nevertheless, when the financial planning process is employed as intended, it is possible to manage a client’s wealth with little to no conflict. VFA,Inc. is proof it can be done.
Practically speaking, it takes years of compromise and cutting corners on these ideals before an Advisor’s practice can evolve into a “conflict-free” business. This reality is something all new planners face and must work through. Gaining experience in this profession depends largely on meeting production quotas in the early years. Personally, even with a clear career path towards planning nirvana, it took nearly three decades (1985 – 2013) for me to attain the holy grail of a financial planning business.
For the next generation of Financial Planning professionals, I can offer the following lessons…
- Even in the early years, when you have to sell product, keep it simple. Avoid complex investments and avoid anything that requires you to continually reselling clients on their purchase decision. There is no amount of commission that can compensate you for having to constantly convince and/or re-educate your clients on something you sold.
- Keeping a client relationship is exponentially more cost effective than locating/recruiting/onboarding a new one. Do everything with the view that you will be working with these folks for the long term and that they will be ambassadors of your awesomeness for a lifetime.
- Become your “own” boss as soon as possible. No single career move catapults you closer to the conflict-free-zone than only having one boss- your client. Not having more than one master is even in the Bible; so don’t argue with me on this point or try to be the exception.
- Convert to a fee only practice 100% with no exceptions. The water is indeed warm- jump in. The grass is indeed greener- come on over. For me, this was an easy decision to make, but a hard one to execute. To go fee-only meant I needed to forsake a couple coveted Securities licenses as well as the numerous insurance licenses I held. As hard as I had worked to garner these, it was a real gut-check on my conviction to be the best planner I could be. Fast forward to the present - no regrets.
- Be absolutely transparent on everything related to compensation. Don’t make price the pivotal factor in someone selecting you. Be fair. Be competitive. But be much more than your fee. For this, you need a clear and convincing value proposition.
- Adopt a business model that embraces a DO LESS- BETTER philosophy. Intrinsically, a Financial Planner employing the full planning process is a generalist. Nonetheless, you should specialize in one segment of the market. For example, we do comprehensive planning for only high net worth households in or near retirement. We don’t do business planning. We don’t do company sponsored retirement plans. And we don’t do insurance. All of these needs are outsourced. Doing less- better however is mostly employed in your business systems such as marketing, onboarding, client service, estate settlement, etc. If you keep your operational systems streamlined, your benefit is twofold. First, your overhead is kept in check and secondly, you are free to spend your time and energy on taking care of your clients and actually do planning – you know – the fun part.
This is the future of Advice. This is planning done right!