Critical Question: Who taught your financial planner what you know?


As a financial planner, I have a certain pessimism about my own industry. Of course, I have no doubts about the value that true comprehensive financial planning can bring to clients, and I am very proud of the service I provide. Rather, it is the actual terms “financial advisor” or “financial planner” that concern me.

According to a 2012 study by the US Department of Labor, there are 929,700 US citizens who refer to themselves as financial advisors. The sad reality, however, is that 411,500 of these people are really just insurance salesmen when you look at what they do, and 312,200 are nothing more than stockbrokers who are paid to sell investment products. I think these people use the term “financial advisor” to avoid the negative connotations that come with the more traditional terms “insurance salesman” and “stockbroker.”

I’m certainly not claiming that there is anything wrong with these professions, but I would say that people in these industries referring to themselves as “financial advisors” or “financial planners” is a bit misleading. At the end of the day, these people are very unlikely to do any real planning on behalf of their clients and are likely to focus their efforts simply on selling a product and collecting a commission. Consequently, a consumer who uses the services of these professionals hoping to benefit from any type of objective financial planning is likely to be disappointed.

So when you meet someone who refers to themselves as a financial planner, how can you tell if the person is capable of providing exactly the service you’re looking for? A key indicator revolves around where the person received their education and training.

Jason Zweig of the Wall Street Journal recently provided an excellent example. He obtained two emails that a company called Table Bay Financial Network of San Diego sent to his apprentices. Table Bay specializes in training Certified Public Accountants and Financial Advisors across the country. The first email offered a Maserati to advisers who sold at least $7.5 million in annuities in 2014 and a BMW, Range Rover or Porsche for at least $6 million in sales. The second email promoted an indexed annuity that paid a 9% commission.

I would say that awarding luxury cars for selling expensive products could incentivize a financial advisor to recommend investments that are not in the best interest of the client. Upon further investigation, Mr. Zweig discovered that the Table Bay founder had a settlement with the Department of Labor in 2008 that cost him $500,000 in which he was permanently barred from serving as a retirement plan fiduciary. Of course, this information can be difficult for a consumer to obtain. As Mr. Zweig writes: “This is all a reminder that when you hire a retirement advisor, don’t just ask what they know. Ask who taught you what they know.”

Going back to the 2012 Department of Labor study, of the 929,700 people who refer to themselves as financial planners, only 67,323 (7.2%) are certified financial planners (CFPs). The CFP designation is what I consider to be the gold standard in financial advisor education. Additionally, only 2,400 (0.3%) are members of the National Association of Personal Financial Advisors (NAPFA), which is the national organization for fee-only financial planners. Pay-only planners never charge a commission for the products they recommend and receive no compensation other than what they earn directly from their client. This method of compensation ensures that the advisor always has the best interest of the client in mind.

The CFP Board recently published a witty 30-second commercial explaining the point of making sure your financial planning professional receives proper ethics training. The ad puts real consumers up against a purported financial advisor and illustrates that he appears to be a qualified professional. It turns out that the adviser is not really a financial professional, but a DJ. As the ad says, “unless he’s a CFP professional, he just doesn’t know.”

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