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Questions for the Secret Society

To change popular attitudes about professional financial advice, 'Real Financial Planners' need to get clear about three questions.

Carl Richards, 06/08/2011

This article first appeared in the June/July 2011 issue of Morningstar Advisor magazine. Get your free subscription today! 

I belong to the Secret Society of Real Financial Planners. I believe that many of you do, too. Membership is not so much about the title on your card, where you work, or the designations you hold. It is about taking the craft of advice seriously, considering yourself a professional, and, above all, being someone worthy of the sacred trust people place in us. In fact, the bar for membership in my personal secret society is simply being someone that I would send my mother to for advice.

The society remains a secret because no one really believes it exists. I get skeptical looks when I tell people that there are real, live professionals that take the role of giving financial advice seriously and can be trusted. This attitude has to be changed. For it to happen on anything more than a local scale, we need to get clear about three questions:

1. What do we call ourselves?
Even after 15 years, I'm still not sure what to tell people when they ask me what I do. I've had more than 10 different titles on my business card, but those were all created by marketing departments to sell products, not for a professional who gives actionable advice. For people to take what we do seriously and consider us to be professionals, we need to be clear that what we call ourselves matches what we do.

2. What difference do we make?
What impact can a real financial planner make in someone's life? It was not too long ago that the value of a financial professional was tied to information access and transactions. Now a large part of the industry believes that we should be paid to walk someone through a risk-tolerance questionnaire and pick a portfolio. Do we now just provide access to prepackaged portfolios instead of picking stocks? It's really important that we get very clear about what it is that we do or we will be replaced by faster and cheaper ways of doing it.

3. How do people pay us?
Once we're clear about what to call ourselves and the service we provide, then we have to address how we get paid. If you're providing comprehensive advice, does it make sense to bill based on an AUM model that was designed to compensate investment managers for outperformance? I've had clients comment that our industry is confusing because we charge for a commodity (access to mutual funds) and give away the valuable stuff (our advice).

For too long, investors have been confused and disappointed by the traditional financial-services industry. Isn't it time for the real professionals to step up and push for change? It's clear to me that if we don't accept the challenge, we can and will be replaced. What we have to offer as real financial planners is valuable. I believe it's time that we recognize it and help others understand why we're different. Are you ready to declare your membership in the Secret Society of Real Financial Planners?

Carl Richards believes that the world is a better place when people make smarter decisions about their money. That's just one of the big ideas he promotes at BehaviorGap.com, where Richards asks tough questions about financial planning and investor behavior. Richards puts his ideas to work in the real world through his firm, Prasada Capital Management.

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The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
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