The Bright Line that Doesn’t Exist

By Bob Veres

Some years ago, I received a call out of the blue from a prominent journalist who wrote a personal finance column for a national publication. He was perplexed.

Bob, he said, I interviewed three advisors for my personal finances. After a while, it became clear that one of them does a perfunctory financial plan and mostly concentrates on managing mutual fund portfolios. The second does a deep dive into my total financial situation and also manages assets. The third person I interviewed tried to sell me an annuity on the spot.

Bob, he continued, they are all calling themselves financial planners and financial advisors, and their websites look virtually identical. If, after years of writing about personal finance, I can’t tell the difference between these three advisors from the outside, how can I tell my less sophisticated readers what to look for?         

We are still looking for an answer to his question. 

The Challenge to Identify Real Professionals

Like many writers, I’ve occasionally tried my hand at telling people how to identify a real financial planning professional—the needle in a bunch of haystacks in our professional ecosystem—and each time I’ve failed. For a brief period back in the 1990s and 2000s, NAPFA served as a kind of safe harbor; you could tell people to look for a NAPFA advisor and feel pretty comfortable about the recommendation. Today, as the profession has evolved in scope and complexity, as new business models have emerged, Fee-Only and the CFP^® credential aren’t a sufficient guarantee of quality any more. It’s possible to be a NAPFA member and sell TAMP services with add-on fees, and provide what I would regard as perfunctory planning. The world outside has caught up to the Fee-Only “differentiator.” The safe harbor doesn’t feel that safe anymore.

The situation is complicated by bogus “top” advisor lists like the 5-Star Planner awards. Their boilerplate disclosure, if you can read the six-point font on the advisory firm website, says the selection criteria is what the firm self-reported on a form, and does not, curiously, disclose the fact that you have to pay for the honor. (I have been solicited to be a 5-Star advisor.) 

Recently, Investment News asked firms to apply to be a “top” planning firm—but only rapidly growing organizations with over $10 billion AUM would be considered. This bogus award will put wind behind the marketing and sales of a few firms, and entice consumers to work with a “top” firm that is “top” for reasons that have nothing to do with the quality of their advice and service.

Cutting Through the Clutter

If somebody managed to overcome my many objections, and hired me to write an article that would help the reader find those elusive needles in the many haystacks, I would start with Fee-Only and fiduciary as the table stakes—both NAPFA requirements that make NAPFA a good place to start. I do happen to know some wirehouse brokers and reps at regional brokerage organizations who seem to do a great job for their customers. But until they give up the sales (asset-gathering) incentives altogether, I would avoid anyone affiliated with those firms.

Next, I would want the advisor to have the CFP^® or CPA/PFS credential, and maybe the CFA® would be an acceptable substitute. We are still in NAPFA territory, although there are many others out there who are similarly credentialed.

Of course I would check the IAPD disclosures on the SEC website.

From there, it gets complicated. In my initial Google search, I would look for advisors who not only meet those basic criteria but whose websites talk about my particular situation, whether I’m a doctor coming out of residency; an executive with various stock grants; or a business owner, athlete, widow, recent inheritor, or somebody just starting out—whatever. I would schedule a call with at least three of these individuals, and pay attention to the questions they ask. 

If they mostly talk about themselves, their credentials, their process etc., then to me that’s the same kind of red flag as the man on the first date who talks about himself throughout the meal, and never seems to be at all curious about the person sitting across the restaurant table.

A More Concrete Solution

Most readers have noticed that this is a far-from-perfect solution for the confused consumer. As a writer, and as a citizen of the financial ecosystem, I would like to rely on something more concrete—a pool of advisors who have agreed to live up to higher standards that would preclude rewards for asset-gathering and include things like vetted planning expertise, peer review and planning audits, and the willingness to specialize in one or more of the myriad types of clients, so their expertise is deeper and more valuable than a generic financial plan.

Ideally, a group of advisors would agree to refer out clients who are not in their area of specialty to advisors who are, and there would be a common referral network to facilitate this. They would abide by service standards that would be defined (in some way) by responsiveness, a willingness to provide client education, and perhaps going beyond a purely professional relationship into something more personal.

All of this would not just be agreed to but enforced as conditions of membership in this group. I would envision a robust internal process that would have members nominate for exclusion other members who fail to live up to the standards—and there will be many of these, because just like the alleged 5-Star planners, membership would provide a differentiation that the unworthy will covet. 

Writers like my colleague at the national publication would view a group like this as a safe harbor recommendation, like NAPFA membership was back in the days when it was made up of the only Fee-Only advisors in the marketplace.

And if/when this venture was ever to get off the ground, I would love to see some individual or organization create a secret shopper process to test some of the firms that fill up the haystacks. What does a consumer really get from that 5-Star planning firm, the rapidly growing serial acquirer or the young Edward Jones broker? What is their onboarding process? What are the recommendations and how do they fit the client circumstances presented to them? 

That would complete the picture, providing a visible (probably harsh) contrast between the haystacks and the needles, perhaps as an ongoing feature that draws an ever-clearer distinction between the two.

Change Will Come       

In my 40-plus year career, I’ve never seen a blurrier contrast between real professionals and people pretending to be than what we have today. That has to change, and I think it will eventually, somehow. I applaud NAPFA for having taken us down that road by defining and enforcing the Fee-Only standard that so many others have adopted. The question in my mind is how to redraw the line in light of a couple of decades of professional evolution—and define new, higher standards for the benefit of the consuming public.

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Bob Veres is the publisher of Inside Information and one of the strongest advocates of Fee-Only planning in today’s profession. If you think his columns are full of the stuff that hits the fan, tell him so directly at bob@bobveres.com.

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