I have been a financial planner for more than 20 years. During that time I have had an opportunity to work at a variety of firms that operated in different business and compensation models. Currently, I serve as vice president and financial planner at a wealth management firm in Houston where we derive most of our revenue from fees. Over all these years, and through all of these experiences, I have learned an important truth. Financial planners should be measured by the competency they possess, not by the form of their compensation.
Contrary to the opinion of some in the profession, compensation alone is not a fair indicator of a professional's competency and ethical standing. An unfortunate faulty narrative has been promulgated that certain compensation methods are somehow corollary to a level of competency, ethical standing or are even absent of conflicts of interest. The fact is, compensation is not a measure of any of these. It never guarantees that a professional will always act in the best interests of those they serve and leading the public to believe so does them and the profession a major disservice.
No respected, recognized profession has ever been defined so prominently by compensation methods and how those in the profession are paid. The legal, medical and accounting professions are recognized and defined as true professions because of the high educational, ethical and competency standards required to be an attorney, doctor, or CPA.
For financial planning to ascend to the ranks of other noted professions, we need to cease advancing the narrative that compensation – while a key factor for the public to consider – is the most important facet or first filter people should consider when looking to retain the services of a financial planner.
Competency, and a financial planner's willingness to continue honing his or her knowledge and necessary skills, is the true measure.
ESSENCE OF FINANCIAL PLANNING
As the late financial planning visionary Dick Wagner wrote in his seminal paper, "To Think…Like a CFP," in the January 1990 issue of the Journal of Financial Planning, "The essence of financial planning is not finding a product to best fit the client's needs. The essence is to provide answers and services within the context of the client's own special situation. It is to 'be there' for the client when financial issues arise, to answer the questions that cannot be answered anywhere else."
Compensation does not enable a financial planner to "be there" for clients, competency does.
The Financial Planning Association is a compensation-neutral community of financial planners of various backgrounds and business models who believe in the importance of the Certified Financial Planner marks and the need for practitioners to continually advance their capabilities and hone their skills to be competent while serving clients under a fiduciary standard of care. Rather than continue debating the merits of different forms of compensation, we believe that it is through certification and advancing one's competency, as evidenced in the CFP marks, that we can elevate the profession of financial planning to new heights of respect and recognition, or as financial planning pioneer P. Kemp Fain, Jr., challenged us many years ago to rally behind the idea of "One Profession, One Designation."
The more than 78,000 financial planning professionals bearing the CFP marks have taken the necessary steps to accrue the essential educational, ethical and experience requirements to be considered qualified and competent in this growing profession. And while CFP professionals are required – no matter how they are paid – to work in a fiduciary capacity throughout the financial planning engagement with their clients, more can and should be done to further cement the CFP marks as the true measure of what makes financial planning a profession.
FPA has always advocated for an unambiguous fiduciary standard and has actively encouraged CFP Board and their Commission on Standards to extend the fiduciary requirement throughout the entire relationship CFP professionals have with their clients – not just during the financial planning process. Expanding the fiduciary standard to all engagements with a client will further reduce the need to focus on a financial planner's compensation method because the public will know the planner is required to act in their best interest no matter how he or she is compensated.
DIVISION AMONG US
It's time to remove the "compensation wedge" that is dividing us within our profession and confusing the public. Let's focus on actually building a recognized, respected profession in the same way the medical and legal professions were established - through a focus on advancing higher standards for education, ethics and experience.
I have attended my fair share of conferences and have been involved as a volunteer leader in professional communities like FPA for more than 15 years. These experiences have provided me opportunities to meet with and talk with countless colleagues and industry leaders across the country. I know this topic has been discussed among practitioners in every corner of the profession for years, but I believe it has not yet fully taken root as a central focus of our discourse.
Given the current inferences to compensation models within the regulatory discussions we are engaged in around fiduciary advice, it is time to have an honest, direct, and respectful conversation about this important profession-building issue. I call on all of us to have that discussion now.
Shannon J. Pike is vice president of Tanglewood Legacy Advisors and the Financial Planning Association's 2017 president.