Financial Advisors Speak Financial Mumbo Jumbo
April 08, 2011I read a great column about the financial planning/financial advisory business recently. The column was a mock conversation between a financial planner (who wanted to look at the big picture before offering ANY advice and spoke mostly in financial industry jargon) and a prospective client (who was looking for VERY specific advice on several topics and immediate investment recommendations, “ Should I buy gold?”). As a financial planner, I saw the conversation through the financial planner’s eyes and thought that the client was a bit unreasonable. Really, when a financial planner asks questions about age, income, investment experience, those questions help us know if the recommendations we are making are in line with clients’ goals. If I walked into a doctor’s office and he recommended that I have an appendectomy without asking questions, I just might be a little concerned, especially if I walked into the office with knee pain. Financial planners take their role seriously and want to understand goals, resources, time frames – basically your whole life – before making recommendations. Giving advice “in a vacuum” rarely leads to good results.
I showed the article to my girlfriend who saw it from the client’s eyes and thought that the financial advisor was speaking in “financial mumbo jumbo” and not answering any of her realistic and important questions directly. When we “switched places” and read it a second time, I paid attention to the financial advisor’s answers while she paid attention to the client and we were able to see exactly what the other person saw during the first viewing. What’s the point of the article and why do I felt compelled to write about it?
There is often a huge disconnect between the financial industry and the people the industry serves. As someone who spent the better part of two decades giving advice to people, there was always a gnawing feeling in my gut when I thought about that disconnect. In the traditional world of financial planning and financial advisory, revenue is generated by selling products or by managing money. The more money on the table, the higher the fees. So, the whole financial world is chasing the top few percent of wealthy households, when in reality if those households get great advice, mediocre advice or lousy advice, they would be financially secure long term, short of Bernie Madoff type criminal activity. Those who can afford the advice of financial planning professionals are the ones who “need it” the least. But, that’s who we (the financial advisory world) all wanted as our clients.
Unfortunately, those who need our advice the most are the ones who can least afford it. Now that I am in the world of financial education and not financial advisory, I no longer get paid commissions or fees based on what I sell to a person. The only goal I have is to help the person in front of me; there isn’t a revenue or profit motive. I often feel like I truly make a difference in a person’s life. When I developed an estate planning strategy in the past that could save a client hundreds of thousands of dollars in estate tax, I felt good, but not truly fulfilled. Today, when I help someone understand that at their current pace they will always be on the verge of financial ruin, but with a few behavior modifications (developing some budgetary guidelines, spending less, saving more, maximizing employee benefit programs, etc.) they can be debt free and financially secure one day, I feel like I have done something worthwhile. I am now working with people who actually can be impacted by the guidance that I provide.
The part that still is unsettling to me is that while I have changed, moving into the world of financial education rather than financial advisory/money management, the financial industry at large still under-serves those who could most use our help. The “financial advisor” business dwarfs the “financial education/financial literacy” business, while the overwhelming majority of the public needs financial education. There is a huge imbalance in the supply and demand where financial education is concerned. How do we bridge that gap?