As Congress prepares to debate financial services reform, one critical issue pits Wall Street against Main Street, and the outcome could affect clients' wallets.
The House Financial Services Committee is considering legislation that would affect how financial advice is regulated. I am concerned that Wall Street and its special interests will pressure Congress into writing legislation that maintains the status quo and even weakens the few protections now afforded to consumers who seek financial advice.
Right now, financial planners are unregulated as a profession. No single law covers the delivery of financial planning advice to the public.
Rather, the individual components of the planning process (planning and preparing income taxes; saving for college, homeownership, a comfortable retirement; obtaining appropriate insurance coverage; and estate planning) are covered by a diverse set of regulations.
One byproduct of the regulatory environment is a patchwork scheme in which planners maintain as many as three different licenses — insurance, brokerage and investment advisory — with different standards of care and accountability to consumers.
A second byproduct is consumer confusion. There is no easy way for consumers to differentiate among the many people offering advice.
Industry research shows that nearly 300,000 financial agents refer to themselves as financial advisers, using titles such as money manager, investment planner, financial planner, wealth manager and more. Many are qualified to sell only certain products or to give advice in only one area of the financial services sector, and the ethical and legal standards to which they are held vary widely.
The Financial Planning Coalition, made up of the three leading financial planning organizations — the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors — has proposed legislation which would ensure that planning services were delivered to the public with fiduciary accountability and transparency.
No consumer who seeks a trusted adviser should be subjected to bad advice or, worse, financial abuse. Yet, that is exactly what happens to all too many consumers.
Hundreds of thousands of individuals hold themselves out as advisers but aren't subject to competency or ethical standards, nor are they required to put the interests of their clients ahead of their own. I have seen countless examples of this financial abuse in my 16-year career.
Some planners, however, have met competence and ethical standards. As a CFP, I have undergone an extensive education program, an exacting and exhaustive examination to demonstrate my command of planning, and have agreed to abide by a code of ethics requiring that I treat clients with a fiduciary level of care.
What Congress must do is establish baseline competency, practice and ethical standards for planners. Congress must establish clear qualifications and standards to allow consumers to distinguish between fiduciary advisers and those who offer limited product solutions that may conflict with customers' long-term goals.
Financial services reform must include the regulatory oversight of planners through the creation of a professional-oversight board that would set and enforce standards for the delivery of planning services. In addition, it must require those who provide planning services to individuals or families, or who hold themselves out as “financial planners,” to meet the standards of the board.
Only through these actions will consumers have the tools they need to make sound financial decisions.
Chris Walden, a CFP, is president-elect of the Greater Kansas City chapter of the Financial Planning Association. He is an investment adviser with Heartland Capital Advisors.
