Journal of Financial Planning: January 2021
Financial services remains one of the least trusted professions. You know that. I know that. We’ve known that for a while thanks to numerous reports, like the 2020 Edelman Trust Barometer.1
It’s time to do something about it, though.
Our industry is often looked upon as one that elicits sales, fraud, and expensive products. How do we counter this viewpoint?
We can work on gaining trust by having conviction. We have to believe in what we do. We have to believe in the value of our advice and the value of planning. And that means actually looking at evidence-based data on how to add value to our clients.
But even then, the bar is low. If we want to progress as a profession, we need more than our own belief that we can improve and grow. We need action to get to the next level.
Let’s look at a few action areas that require our attention: a standard of care, education, ethics, technology, and skillset.
(1) Implement a Standard of Care
The CFP® Duty of Care asks that as a professional, you act with care, skill, diligence, and prudence in light of a client’s goals, risk tolerance, and circumstances. But if we want to challenge ourselves and earn trust, we need to aim for a fiduciary standard of care.
Even if you’re not legally required to be a fiduciary, you can opt in by choosing to always put your clients’ interests first.
(2) Emphasize Education
Education is next. We need a baseline of education and a focus on continued education. I’m proud of the younger generations as so many more of them are entering this profession having completed financial planning programs. These young professionals are more educated about planning than we’ve ever seen in this profession.
(3) Engage Ethics
The next focus area is ethics. Ethics is interesting because while it’s incredibly important in our profession, it’s difficult to measure. One way to ensure ethics are followed is through transparency.
Recent research from my Value of an Advisor study2 showed that clients are more satisfied with their adviser when they understand their compensation before engaging them; yet, it was amazing how many clients didn’t understand their compensation before engaging with an adviser.
Nearly 80 percent of clients who know how their adviser is compensated say they’re highly satisfied. This is compared to 49 percent of clients who don’t know their adviser’s compensation and who say they’re highly satisfied.
If we want to advance as a profession, we need to close the gaps in those three areas: standard of care, education and ethics. We close the gap when we put planning and clients’ interests first.
(4) Embrace Technology
Another area of focus can help. Technology can help us scale planning—a much-needed tool as fewer professionals will serve more clients in the future.3
Technology will democratize advice and planning. We’ll be able to serve people we otherwise couldn’t under previous models, at the level we wanted to serve them.
This will be truly groundbreaking over the next decade. Technology will allow us to reach out into the communities we want to serve and actually be representative of this country in financial planning.
Robo-advice platforms also factor into the technology sphere. Robo-advice platforms that came into being (like Betterment) were initially viewed as a threat to the advisory space. This view has changed.
Advisers and financial services are starting to see technology as less of a threat and as more symbiotic. It will disrupt the financial services and planning industry; it’s not a matter of if, but when.
I don’t think the regulations fully allow for it yet. Technology will first disrupt offerings that are easier to replace and commodity like. Think investment management, account set-up, rollovers and base-level financial plans.
(5) Expand your Skillset
If you want to build a financial planning firm that will last the next 10, 20, or even 100 years, you need to focus on building a business that will work with technology, not against it. At the same time, you want services and offerings that aren’t easily disrupted.
To do this, we need to go deeper with clients on topics. If you continue to believe you can sustain a business by only offering investment management services, you will lose. If you think financial planning is all you need to do, you will lose.
You have to broaden your skillset to include tax planning, estate planning, long-term care planning, and other services. Not only must you look at clients holistically, but you need to do so on a human level as well.
We are in the first inning of game one when it comes to behavioral finance. We need to grow from being aware of behavioral finance to applying it in our practice. This involves anticipating needs before they arise, providing in-time education, activating responsive financial planning tactics that look out for opportunities all year round—not just in annual meetings, and communicating to bring forth more trust between the adviser and the client.
There is a tremendous opportunity for a bright future for financial services. People need trusted professionals. The question remains: do we as an industry have the conviction to move forward and advance as a profession?
Are we committed to putting clients’ interests first? Are we committed to acting with an industry-wide ethical standard of care? Are we committed to being radically transparent when it comes to fees? Are we committed to working side by side with disruptive technology?
Personal finance is emotional at its core. It’s based on experiences, dreams, and opportunities. If we want a more representative and sustainable profession, we should strive to embrace the human element of financial services. That is the conviction each and every person pushing for a trusted profession must commit to.
Jamie P. Hopkins, J.D., LL.M., CFP®, ChFC®, CLU®, RICP®, is the managing director for Carson Coaching at Carson Group. He is a nationally recognized writer and researcher who’s contributed to Forbes, InvestmentNews and MarketWatch. A highly sought-after speaker in the financial services industry, Jamie has also been featured on Wall Street Journal podcasts, NPR radio and Fox radio, and has made multiple appearances for NBC10 Philadelphia, PBS, and USA Today.
Endnotes
- See the 2020 Edelmen Trust Barometer at www.edelman.com/trustbarometer.
- See “The Value of an Advisor” study at www.jamiehopkins.com/value-of-an-advisor/.
- See the RIA Intel article, “The Wave of Advisor Retirements is About to Break,” at www.riaintel.com/article/b1k6vknndm4grt/the-wave-of-advisor-retirements-is-about-to-break.
This article was originally published in the December 2020 issue of the FPA Next Generation Planner. If you are interested in writing for the FPA Next Generation Planner, which is designed to provide relevant and helpful information to professionals in the first 10 years of the profession, email the editor HERE.