When is a Financial Planner Not a Financial Planner?

A recent study from the industry research firm Cerulli Associates evaluated advisors across all business channels and compared how they title themselves with how they actually do business. The result: 59 percent of advisors described themselves as a “financial planner,” but just 30 percent of those advisors actually practiced “financial planning.” In the registered investment advisor (RIA) space, that percentage was slightly higher at 35 percent. And, not surprisingly, the percentage was the lowest, 23 percent, among wirehouse brokers.

Apparently, even advisors who had planning designations such as the CERTIFIED FINANCIAL PLANNER^TM (CFP^®) license and the Personal Financial Specialist (PFS) designation often neglected to do a comprehensive financial plan before offering investment advice.

Additionally, the study found that just 22 percent of advisors considered themselves to be “investment planners,” or offering advice on investments alone. Yet, after studying the advisors’ work, Cerulli found the percentage of “investment planners” to 56 percent, more than double the advisors’ estimate.

What does that mean for the consumer of financial advisory services? Just as you cannot judge a book by its cover, you can’t judge an advisor by his or her title. Take the time to really interview any advisor you are considering working with. At our firm, the financial planning and investment management work go hand in hand. And, frankly, that’s the most effective, beneficial way to work. You’ll find a list of useful questions to ask any potential financial advisor at Focus on Fiduciary.

Pessimistic Mass Affluent Need a Plan

MFS' recently released findings from its Investing Sentiment Survey show that mass affluent investors (those with between $100,000 and $1 million in household investable assets) have pessimistic attitudes toward investing. Primary factors contributing to the negativity include the impact of 2008's financial crisis and concerns over potential reductions in Social Security. Interestingly, although many have accumulated significant assets, these investors are not optimistic about the future. In fact, 32% describe themselves as protective, 17% as pessimistic, and 16% as fearful. Only 41% describe themselves as hopeful. Other findings include:

• 44% reported reducing their discretionary spending over the last 12 months; only 14% reported an increase in discretionary purchases.
• 59% agreed with the statement: “I am more concerned than ever about being able to retire when I thought I would,” with only 16% disagreeing.
• 49% agreed with the statement: “Over the past few years, I've lowered my expectations about what life will be like in retirement.”

It seems to me that the mass affluent need a financial plan. I would point out that in the October 2010 Dow Jones Affluent Investor Study of 1,287 investors with more than $500,000 in investable assets, approximately half reported that they prefer to manage their own investment portfolios. Additionally, the study found that of those investor working with an advisor, one-third said they had not developed a retirement plan.

As our clients know, an investment policy statement (IPS), a written plan that details their goals and a plan to meet them, is integral to feeling secure. To ensure investment decisions are based on reason rather than emotions and support short- and long-term goals, an IPS specifies an investor’s time horizon, risk tolerance, and standards for a diversified, risk-appropriate portfolio he or she can live with in all markets. In addition to keeping investors grounded during times of market stress, an IPS helps them measure their progress towards their goals.