People always view the world from their own perspective and sometimes it is hard to get them to think critically and see the other side of the coin. There is a lack of critical thinking in the financial services industry today and we need to right the ship.
Today, there is rapid change going on right now and
unfortunately, there is no shortage of opinions about winners and
losers. Sometimes, it is best to express an opinion through the use of an analogy.
Let us look at two imaginary baseball coaches. Coach John is a very successful college baseball coach. His goal in life has been to further his career. He started out coaching kids, quickly jumped to high school baseball and ended up as a college baseball coach. Coach John's style is to recruit the best and win at all costs. When he was coaching kids, he was brutal. He didn't want bad players as he quickly ran them off. At the high school level, he was figuring out how to get the best baseball players to move to his district by convincing their families to move, so their kid could play for him. His high school baseball team soon after won multiple state championships and it didn't take long before major colleges started calling. Coach John took his skills to a major college and recruited the best high school players to come to his college. He only recruited the best. Of course, since he was successful at recruiting, his college teams were also successful. Coach John's goal all along was to be a successful baseball coach and he achieved that goal.
Coach David on the other hand was also a coach of young kids, high school players and college players too, but with a major difference. When he coached young kids, instead of dispensing with the players who were not star athletes, he encouraged them and taught them the game of baseball. He took the time to teach every player on his team the game of baseball. He taught them how to throw a baseball. He taught them how to stand in the batters box. He taught them how to hit and how to bunt. He taught them how to catch a ground ball. He taught them how to catch a fly ball. He taught them how to run the bases and he taught them how to be a team player. Coach David carried this same coaching philosophy on to his high school and finally college coaching career where he too was a success.
Coach John was all about Coach John. He looked at the world from his viewpoint that he wanted to be a successful coach and that what was most important to him. Coach David on the other hand, looked at each individual player on his teams and his goal was to teach these players the game of baseball, how to handle disappointment and challenges in life and be a team player, so that they would go on in life with the skill set they needed to succeed.
Which coach would you rather have played for?
In the financial industry today, we have a lot of people who act like Coach John. They are all about their own egos, building the biggest business, becoming a thought leader, speaking at industry conferences, making the most money they can and stepping on and over anyone in their way. The do not mind calling out the compensation models of other advisors from their "ivory towers". They look at the world from their "pure as the wind driven snow" perspective. They think everyone else is overcharging investors while they have the "best" method of compensation. A lot of times, these Coach John people in our industry have somehow convinced enough people in the industry to be a "thought leader". This gives them the audience and the platform to continue to preach and talk down to other financial industry professionals. At the same time, they do not even realize the effect they are having on the young "players" just coming into the profession.
The Coach David people in our industry are critical thinkers. They see a rapidly changing industry. They see a huge unfilled market of young investors that would not get to open an account with Coach John. You see, Coach John only wants people who pay him according to his "pristine" business model. Kind of like the baseball Coach John who only wanted the best players to reach his personal goals and was not concerned with teaching anyone anything. After all, if you only recruit the best players (people with money), then why do you need to teach them anything? They are already great players (successful people).
The Coach Davids see fee commoditization. They see zero commissions on trading from the major custodians of RIA firms. They see the threats to mutual fund and ETF companies from direct indexing and the move to fractional shares. They see this huge unmet need of younger investors, so these Coach Davids choose to educate and encourage these young investors (players.) Coach David would never show these young investors the door. He believes in giving them the skill set they need to be successful in life.
Coach John also has a problem with the Coach Davids of the world. He routinely calls them out as overcharging clients, ripping off these young investors and criticizing their compensation models. In reality though, the Coach Davids of the world are the ones who are encouraging the young black woman to get into our industry. He is the one who is encouraging the Indian-American to get into our industry. He is the one encouraging the young black man to get into our industry. He is the one encouraging more women to join our industry. Coach David is the one taking the time to teach young investors the best ways to plan for their future and charging a fair fee based on his valued teaching and coaching skills. Coach David is the one encouraging diversity at every opportunity and who is a mentor to young advisors who want to join our industry.
Coach John is all about Coach John. He doesn't encourage anyone unless it fulfills his pocketbook. He routinely beats up on other financial service industry professionals as ripping people off. Coach John is not a thought leader. Far from it. He is narcissistic. I feel sorry for Coach John's clients. Little do they know that he doesn't really care about their future. He only cares about making money from them, if they meet his "recruiting" criteria.
Personally, I do not think we need any more Coach Johns in our industry. I would rather see more Coach Davids. We need advisors like Coach David who not only encourage young investors, but also young advisors to get into our industry and help them determine how best to run their businesses. Coach David's value is immeasurable when it comes down to it, because he is having such an impact not only on young investors by teaching them financial planning strategies, but also helping young advisors from diverse backgrounds to join our industry and be the best advisors they can be.
I would rather be a Coach David any day. What type of coach are you?
https://www.firstcoastplanning.com and https://www.marianfs.com
Wednesday, October 23, 2019
Wednesday, September 18, 2019
New CFP Disclosure
Effective October 1, 2019, The CFP® Board of Standards has done a complete re-write of their Code of Ethics and Standards of Conduct for Certified Financial Planners®. The purpose as stated in the recently released "Roadmap" is as follows:
"CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. The Code of Ethics applies at all times, and sets forth principles that guide the behavior of CFP® professionals, ... The cornerstone of the Code of Standards is a CFP® professional's duty to act as a fiduciary and, therefore, act in the best interest of the Client at all times when providing Financial Advice."
Things just got a whole lot more complicated for CFP® professionals.
Under the "Duty to Provide Information to a Client", we will now need two disclosures, or one combined disclosure. The first one is a "Financial Advice Engagement Disclosure" and the other one is a "Financial Planning Engagement Disclosure." What's the difference? I'm glad you asked. The Financial Advice Engagement Disclosure is for clients who only want financial advice and not a financial plan. Whereas, the Financial Planning Engagement Disclosure is for clients who want a Financial Plan that may also include financial advice. Got that?
Well, it might help to understand what the steps are to a Financial Plan first. Here they are:
Here are some items that a CFP® professional reviews as part of a Financial Plan:
If you are a consumer of Financial Advice or Financial Planning, then be prepared to receive more communication from your CFP® professional in the form of written disclosures. Right now, I have a combined document of four (4) pages. Add that to my Investment Advisory Agreement which is ten (10) pages. Of course, my Form ADV 2A is twenty-five (25) pages. Don't forget my Form ADV 2B which is fourteen (14) pages. Further still, there is the new Form CRS that is another two (2) pages. Just to be safe, I think that I will need to add another three (3) pages to describe my services and a fee comparison, so potential clients can see what they are getting for their money. All totaled, we are looking at a total of fifty-eight (58) pages of disclosures. FIFTY-EIGHT PAGES!
Of course, if you are a consumer of Financial Advice or Financial Planning, then I fully expect you to read all 58 pages and sign off on the fact that you did.
Forgive me for being a little bit sarcastic, but does the United States Securities and Exchange Commission, better known as the SEC, truly believe in their heart of hearts that people are going to read fifty-eight (58) pages of disclosures? How about the CFP® Board? Do they believe it?
Written disclosures are not for the benefit of clients. It is for the benefit of regulators and attorneys who draft the documents. It is job security for both.
https://firstcoastplanning.com
"CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. The Code of Ethics applies at all times, and sets forth principles that guide the behavior of CFP® professionals, ... The cornerstone of the Code of Standards is a CFP® professional's duty to act as a fiduciary and, therefore, act in the best interest of the Client at all times when providing Financial Advice."
Things just got a whole lot more complicated for CFP® professionals.
Under the "Duty to Provide Information to a Client", we will now need two disclosures, or one combined disclosure. The first one is a "Financial Advice Engagement Disclosure" and the other one is a "Financial Planning Engagement Disclosure." What's the difference? I'm glad you asked. The Financial Advice Engagement Disclosure is for clients who only want financial advice and not a financial plan. Whereas, the Financial Planning Engagement Disclosure is for clients who want a Financial Plan that may also include financial advice. Got that?
Well, it might help to understand what the steps are to a Financial Plan first. Here they are:
- Understanding the Client's Personal and Financial Circumstances
- Identifying and Selecting Goals
- Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action
- Developing the Financial Planning Recommendation(s)
- Presenting the Financial Planning Recommendation(s)
- Implementing the Financial Planning Recommendation(s)
- Monitoring Progress and Updating
Here are some items that a CFP® professional reviews as part of a Financial Plan:
- Net Worth
- Balance Sheet
- Liquidity
- Budget
- Debt
- Student Loans
- Tax Returns - Most Recent and Projected
- Asset Allocation
- Taxable Accounts
- Tax-deferred and Retirement Accounts
- Sector and Style Concentration
- Retirement Income
- Retirement Income Taxation
- Retirement Income Stress Tests - Worst Case Scenarios
- Social Security Optimization
- Medicare
- Cash Flows - Current and Future
- Life Insurance
- Disability Insurance
- Long Term Care
- Property and Casualty
- Education Planning
- Account Titling and Re-Titling
- Wills and Pour-over Wills
- Revocable Trusts - Beneficiaries and Successor Trustees
- Health Care Proxies and Living Wills
- Real Estate Titling
If you are a consumer of Financial Advice or Financial Planning, then be prepared to receive more communication from your CFP® professional in the form of written disclosures. Right now, I have a combined document of four (4) pages. Add that to my Investment Advisory Agreement which is ten (10) pages. Of course, my Form ADV 2A is twenty-five (25) pages. Don't forget my Form ADV 2B which is fourteen (14) pages. Further still, there is the new Form CRS that is another two (2) pages. Just to be safe, I think that I will need to add another three (3) pages to describe my services and a fee comparison, so potential clients can see what they are getting for their money. All totaled, we are looking at a total of fifty-eight (58) pages of disclosures. FIFTY-EIGHT PAGES!
Of course, if you are a consumer of Financial Advice or Financial Planning, then I fully expect you to read all 58 pages and sign off on the fact that you did.
Forgive me for being a little bit sarcastic, but does the United States Securities and Exchange Commission, better known as the SEC, truly believe in their heart of hearts that people are going to read fifty-eight (58) pages of disclosures? How about the CFP® Board? Do they believe it?
Written disclosures are not for the benefit of clients. It is for the benefit of regulators and attorneys who draft the documents. It is job security for both.
https://firstcoastplanning.com
Wednesday, September 11, 2019
When Subscription Fees Work
I just read this article in Financial Advisor Magazine online.
When Subscription Fees Work: A different business model for an emerging clientele.
Looks like my firm, First Coast Planning, LLC is on the right track. My subscription model is $100 per month for one income families and $150 per month for two income families. According to this article, I may be priced too low!
You can read my firm's Form ADV 2A and 2B at the bottom of my web site at https://www.firstcoastplanning.com.
When Subscription Fees Work: A different business model for an emerging clientele.
Looks like my firm, First Coast Planning, LLC is on the right track. My subscription model is $100 per month for one income families and $150 per month for two income families. According to this article, I may be priced too low!
You can read my firm's Form ADV 2A and 2B at the bottom of my web site at https://www.firstcoastplanning.com.
Tuesday, September 10, 2019
I Love the CFP Board, But...
I love the CFP Board, but for solo-entreprenuers, trying to come up with a disclosure form that meets the SEC's Regulation Best Interest and the CFP Board's new Code of Ethics and Standards of Conduct means that I will have to develop two disclosure forms. There is no way on God's green earth that the Regulation Best Interest disclosure that I painstakingly came up with is going to qualify as a disclosure that meets the CFP Board's new Code of Ethics and Standards of Conduct.
Lucky for me, I have been doing this since December 1, 1992 and I have a lot of experience. I feel sorry for those CFP's who do not have my level of expertise. There was a chart that I saw recently on Twitter that used the Securities and Exchange Commission's estimate of costs to prepare the Regulation Best Interest Disclosure and it was staggering. The cost was between $4,000 to $8,000 per year, if I recall correctly. Don't forget to add on top of that, the cost to design a CFP disclosure that meets the new Code of Ethics and Standards of Conduct. That's probably easily another $5,000 per year. Of course, there is already the cost of Form ADV 2A and 2B disclosures that already cost in the $5,000 per year range. So, if we tally all this up, if you are a CFP and a Registered Investment Adviser, then you are probably looking at spending $15,000 per year just on disclosure forms.
If you are a client of a CFP, let me ask you, did you read from cover to cover and ask pertinent questions of your CFP and their business model as a result of their Form ADV 2A and 2B disclosures? Or, did you just trust them? What happens if now, in addition to the Form ADV 2A and 2B disclosures, your CFP now piles on top of that this new disclosure related to the Code of Ethics and Standards of Conduct and also, the SEC's Regulation Best Interest disclosure? If you did not read the Form ADV 2A and 2B before, are you really going to read these additional pages of disclosures?
This is what drives me batty about regulations in the financial services industry. The powers that be always believe that more disclosure is better than less disclosure. In my opinion, more disclosure increases the likelihood of someone not reading your disclosures. Let's face the truth, who wants to read 50 pages of stuff and sign over and over again in multiple locations that you are aware of this and agree with that? It is just going to be more confusing and harder to get new clients!!! People will freeze up and not do anything. More regulation, in my opinion does not protect clients from unscrupulous financial advisors. If you do not believe me, read my prior post about California Alcohol Licensee "Investments." Those "advisors" did not disclose doodle squat. They just stole people's money.
It is the same thing with gun control and these crooked advisors. One crooked advisor rips people off, then ALL advisors have to have more regulation as a result. It is not going to stop crooked advisors from stealing people's money. They will continue to steal people's money no matter what the regulations, because like criminals who manage to obtain guns illegally despite laws against it, these kind of "advisors" do not care about laws and regulations. Why? Because they are criminals, too. It is the same line of thinking that making law abiding gun owners subject to more gun laws will do absolutely nothing to stop guns from getting into the hands of criminals. The criminals will just break into more houses and more cars to get the guns they need to commit their crimes. A new gun law is not going to stop them, just like more regulations for financial advisors is not going to stop crooked advisors from stealing people's money.
Again, I will do the grunt work and come up with the proper forms and disclosures, but brother do I feel sorry for people without my level of expertise.
Maybe, just maybe, if you are a client of a financial advisor, then you might be a little forgiving about the things we have to go through just for the privilege of giving you advice. Further, have a little compassion when your financial advisor asks you to sign their CFP disclosure and their other forms, now that you know what goes into it.
Lucky for me, I have been doing this since December 1, 1992 and I have a lot of experience. I feel sorry for those CFP's who do not have my level of expertise. There was a chart that I saw recently on Twitter that used the Securities and Exchange Commission's estimate of costs to prepare the Regulation Best Interest Disclosure and it was staggering. The cost was between $4,000 to $8,000 per year, if I recall correctly. Don't forget to add on top of that, the cost to design a CFP disclosure that meets the new Code of Ethics and Standards of Conduct. That's probably easily another $5,000 per year. Of course, there is already the cost of Form ADV 2A and 2B disclosures that already cost in the $5,000 per year range. So, if we tally all this up, if you are a CFP and a Registered Investment Adviser, then you are probably looking at spending $15,000 per year just on disclosure forms.
If you are a client of a CFP, let me ask you, did you read from cover to cover and ask pertinent questions of your CFP and their business model as a result of their Form ADV 2A and 2B disclosures? Or, did you just trust them? What happens if now, in addition to the Form ADV 2A and 2B disclosures, your CFP now piles on top of that this new disclosure related to the Code of Ethics and Standards of Conduct and also, the SEC's Regulation Best Interest disclosure? If you did not read the Form ADV 2A and 2B before, are you really going to read these additional pages of disclosures?
This is what drives me batty about regulations in the financial services industry. The powers that be always believe that more disclosure is better than less disclosure. In my opinion, more disclosure increases the likelihood of someone not reading your disclosures. Let's face the truth, who wants to read 50 pages of stuff and sign over and over again in multiple locations that you are aware of this and agree with that? It is just going to be more confusing and harder to get new clients!!! People will freeze up and not do anything. More regulation, in my opinion does not protect clients from unscrupulous financial advisors. If you do not believe me, read my prior post about California Alcohol Licensee "Investments." Those "advisors" did not disclose doodle squat. They just stole people's money.
It is the same thing with gun control and these crooked advisors. One crooked advisor rips people off, then ALL advisors have to have more regulation as a result. It is not going to stop crooked advisors from stealing people's money. They will continue to steal people's money no matter what the regulations, because like criminals who manage to obtain guns illegally despite laws against it, these kind of "advisors" do not care about laws and regulations. Why? Because they are criminals, too. It is the same line of thinking that making law abiding gun owners subject to more gun laws will do absolutely nothing to stop guns from getting into the hands of criminals. The criminals will just break into more houses and more cars to get the guns they need to commit their crimes. A new gun law is not going to stop them, just like more regulations for financial advisors is not going to stop crooked advisors from stealing people's money.
Again, I will do the grunt work and come up with the proper forms and disclosures, but brother do I feel sorry for people without my level of expertise.
Maybe, just maybe, if you are a client of a financial advisor, then you might be a little forgiving about the things we have to go through just for the privilege of giving you advice. Further, have a little compassion when your financial advisor asks you to sign their CFP disclosure and their other forms, now that you know what goes into it.
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