This year has brought an apparent tightening of the leash for financial planners. Whether you’re talking about the Fiduciary Rule in the US or new CRM2 reporting standards in Canada, new regulations are putting a clear emphasis on protecting the best interests of the investing public.
Unfortunately, the conversations surrounding “best interests” usually revolve around lowering fees. The thinking is simple: with online financial planning calculators and robo-advisors coming into fashion, financial advice is increasingly being perceived as a commodity rather than a tailored, professionally delivered product.
“There is little doubt that a financial planner can add substantial value to the personal finances of most individuals and their families,” said iSectors CEO Wern Sumnicht in a piece on Financial Advisor IQ. “There have been many studies done over the years quantifying this added benefit,” he added, citing research reported in the Wall Street Journal, Forbes, and so on, all pointing to a similar conclusion: investors who work with financial planners typically get higher returns, net of fees, than those who manage their own investment accounts.
But that’s not all, he said, pointing out other areas in which financial planners can guide their clients.
“One example might be risk management through insurance advice and review. What is the value of having recommended umbrella liability insurance when someone is subsequently sued and has a million-dollar liability judgment against them, or the value of having the proper medical insurance when faced with a catastrophic health problem requiring expensive medical care, etc.?”
Sumnicht also cited other examples that require financial sophistication that the average member of the public doesn’t possess, such as tax planning, retirement planning, social security, and estate planning, along with other personal affairs.
“Most individuals do not know the best way to give to their favorite charity, plan for college, approach a pre-nuptial agreement, sell their business, establish a trust for children or grandchildren, create a special needs trust for a handicapped child, use a charitable remainder trust to sell a highly appreciated asset or handle being executor of their parents’ estate – the list goes on and on and is unique to each family,” he wrote.
The piece concluded with a reminder that financial planning and advice, as it is today, goes beyond the capabilities of online services.
“The public needs a better understanding of the value a financial planner can add over time by providing assistance with many personal finance issues. These services, done correctly, cannot be done online and the advisors deserve to be compensated for the time and added value they provide.”
How do clients feel about paying for financial advice?
Next wave of robo-advisors pose little threat