Is a Financial Planner a professional? – you decide.
The adjective ‘Trusted Professional’ is popping up all over the place. I guess people think it adds some sort of gold seal of approval but very often it is nonsense. It is also not helpful to throw the baby out with the bathwater and besmirch every professional who isn’t a doctor or lawyer as neither trustworthy nor a professional. There is some debate as to whether Financial Advisory and Planning is a profession or not, so instead of tearing into the fray, let’s look at the history and description of professions and professionals.
Contrary to popular opinion, the ‘oldest profession’ (prostitution) is not really a profession at all … or is it? But I digress…
Historically (and now we are going back hundreds of years) there were only 3 recognised ‘learned’ professions, Divinity, Medicine and Law – and they persist today, albeit with some novel interpretations including the use of insecticide instead of holy water.
There appears to be a defined route that an occupation needs to take to get to the ‘profession’. According to Wikipedia (HERE) it goes like this:
- An occupation becomes a full-time occupation
- The establishment of a training school
- The establishment of a university school
- The establishment of a local association
- the establishment of a national association
- the introduction of codes of professional ethics
- the establishment of state licensing laws
Surveying was the next to join the list, followed by medicine, actuarial science, law, dentistry, civil engineering, logistics, architecture and accounting. By 1900 other professions had been added, most notably: pharmacy, veterinary medicine, psychology, nursing, teaching, librarianship, optometry and social work. As you can see all of these professions have followed the above pathway to professionalism.
Financial Planning and Advisory has followed that path too, so calling it a profession is correct. Of course, unless an individual goes through this process and gets qualified and certified be or she will remain a “Broker”, a noble occupation but not really a profession, just like a Bookkeeper is not considered a professional but a Charted Accountant is.
In South Africa one such National (and International) Financial Planning Association is the Financial Planning Institute (FPI). You cannot walk out of school and become a professional overnight – and Financial Planning is no different. Just to do the final accreditation exams you need the equivalent of a Bachelor’s degree. The final exams are every bit as onerous as an MBA (I know, I have both).
So… having settled the issue as to whether Financial Advisory is a Profession or not, let’s look at the thorny issue of ‘trust’ and remuneration.
Trust is earned, we all know that – but it is also backed by legislation. The legislation is so onerous that if a financial advisor gives advice even in an informal setting like a braai or dinner party, he or she can be held liable for that advice if someone implements it and it goes pear-shaped. This is not unlike a doctor who can be sued for malpractice if they stop at an accident and their advice or ministrations don’t work. That is why the disclaimers on all financial advice come with 10 pages of small print. Financial advisors also cannot disclose personal information, unless you are breaking fiscal laws, in which case we have to report it or get into trouble ourselves.
There is an insatiable desire for information out there:- ‘Content’ as internet gurus call it. In the last 10 years the internet has gone from being one inch deep and a thousand miles wide to an almost infinite depth and width and where you can get any information you want – albeit not all of it right or true. Content is now king, and much of it is free. One would think that that would devalue the advice given by consultants and professionals but it just isn’t so. Why? For starters, finding the right information that you can trust is not easy. The rash of false news sites during the US presidential election is a case in point.
Advice on the internet can be very useful or dangerous. Medical advice on the web turns the sanest of us into hypochondriacs. Realtors are often considered professionals, but their jobs are being taken over by the internet (and in the UK the regulators are now cracking down on ‘fees’ charged by realtors on rentals – the beginning of the end?) You can now put your house on the market, buyers can view it online, contact you directly, offer contracts can be found online and basically cut realtors right out of the equation, along with their 6% commission.
There is the suggestion that financial advice is going the same way and “robo-advice” is the flavour of the month. The assumption is that you are giving advice on a “commodity” and the input variables are few and clearly defined. Is that true? Yes and no. In Investment decisions it is much easier to tie down the variables and objectives. Beware though that the recommendations are almost exclusively going to push you into products owned by the company who designed the robo-advisor. In other words, the advice is NOT independent and if you really want to trust an “Algo” (a computer program, basically), be my guest. In order for a ‘robo-advisor’ to give you holistic and independent advice, you will probably have to spend a good hour or two answering questions on the computer – very few people have the appetite or patience to do that.
Unfortunately, flesh-and-blood Trusted Advisors need all of life’s necessaries like food, shelter, clothing and transport and that means they have to get remunerated, like every other professional (shocking!) That brings me to one more thing… Every profession has them – friends, relatives, acquaintances and plain old strangers, who, on finding out you are a professional, assume they have the right to pick your brain – for free. Nothing wrong with that – right? Not so fast… Even in Financial Advisory if you give the wrong advice and the person implements it and loses money, you can be held liable for that advice – so don’t get upset if you just get a vague answer next time you try and pick a Financial Planner’s brain.
Action: When the going gets tough, the tough look to cut costs and financial advisory fees are often a target. The quality of the advice you get can vary as widely as it would in any industry, but with some certification comes some assurance as to the quality of that advice.
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Author Dawn Ridler ©