I got lots of great email responding to last week's
column in which I urged you to know where your financial planner is coming from. Some of it reduced me to ashes, and some put me on the mountaintop. All of it was serious and insightful, and I thank you.
Based on your responses, I need to clarify some points. First, the ability to serve someone professionally is a very personal matter. It seems simple. Good planners will do good work whether they are independent or work for a bank, insurance company or brokerage house. Bad planners will be bad whether independent or institutional. So, it isn't just affiliation with an institution or "independence" that determines the effectiveness of a planner.
My main point on the affiliation issue is that the more a planner is controlled, influenced and limited by being with an institutional company, the less objective -- and therefore the less effective -- a planner will be in helping clients reach their financial goals.
At the risk of boring you to death, let me use myself as an example. Back in 1971, all my overhead -- including office and private secretary -- was paid by an insurance company because I sold enough of its product to justify it. One day, I placed my securities license with an independent broker/dealer (B/D). The insurance company responded by requiring that I place my securities license with its own B/D. I explained that it was important to use an independent B/D so I could provide clients with a broad array of non-proprietary products and services. The management choked on that one and gave me 60 days to comply. I didn't and was fired.
Suddenly, I was independent and had to start from scratch with no office or secretary. That is when I did a permanent career disconnect from institutions because they forced me to sell only their proprietary products or services. When I have the freedom to pick and choose the investments, services and resources I need to objectively work with people without coercion or misdirected incentives (trips, etc.), then I feel independent. That is why I placed my license with
Financial Network Investment Corp.
FNIC was an independent B/D until a couple of years ago when it was sold to a major insurance company's retirement services subsidiary. If the insurance company affects my independence in any way in the future, I'll be gone. I hope it won't be
all over again. So far, so good.
Some of the people at FNIC may not like what I write at times, but they don't try to inhibit my freedom to write it. FNIC is also a registered investment adviser, for which I am an advisory associate. I also have my own registered investment advisory firm in registration, called
Hayden Financial Group
. It is the advisory companies that enable me to charge fees for giving investment advice and managing money. None of this is intended as a commercial. It simply serves as an example of what I mean by "independent."
For a truly independent planner, the client comes first, not the product. No planner who allows products to drive the planning process, and who is subject to coercion, pressure, quotas and the like can do an objective job of planning.
But for some, selling a product drives the planning process. More than one "planner" has told me he only needs a variable universal life product to help clients reach all their goals. Obviously, this kind of planner cannot objectively help clients reach their financial goals.
It is far better to have a planner who is focused on a client's needs and objectives first. Planning should come first. Products and services should then be objectively customized to match the needs of a client. Planners should only be able to reach their goals after enabling clients to reach theirs. And their needs must always be subordinated to the clients' needs.
Mountaintops and Ashes
sent me a three-page email. It was a very thorough and thoughtful critique of last week's column. "Independence means nothing without integrity," he wrote. Consumers "don't care if the planner is part of a sales force because a sales force is simply one way to distribute certain products. You, in fact, are part of a sales force for many funds. You just don't want to admit that fact ... if the sales guy is helping people, that's all that matters."
Now to the mountaintop. Another reader,
, wrote, "It's about time someone sounded off, and said it like it really is ... I thank you that you had the guts to do it in the easy-to-understand manner you did."
And back to ashes.
says, "I wish you luck in your work, but boy are you working the wrong crowd ... I'm sure the majority of
subscribers are like me! Entirely dissatisfied and distrustful of financial planners. We have done far better without you than with you."
Feisty words, but back to the mountaintop.
wrote, "I have worked for brokerages, banks and insurance companies. I thought you were very objective, to the point and brave."
This week, members of the
Institute of Certified Financial Planners
voted on a proposal to merge with the
International Association for Financial Planning
and create a new entity called the
Financial Planners Association
. The results won't be known for a couple of weeks.
Like two cats on a back fence, there is a lot of yelling and screaming going on over this merger proposal.
The FPA proposes that "anyone holding themselves out as a financial planner should seek attainment of the CFP
Certified Financial Planner mark." In effect, the organization would recognize only the CFP as the proper designation for a financial planner. The IAFP currently endorses a similar position. This was a contentious step within the industry because it basically alienated the other entities competing for recognition.
Next week, I promise to discuss the CFP designation and other designations, including ChFC, PFP, CFS and CPA and the new organization that the life insurance folks are creating.
Have a happy, healthy and profitable week!
Vern Hayden is a certified financial planner in Westport, Conn. He is a financial consultant and advisory associate of Financial Network Investment Corp. He also is an owner of Hayden Financial Group. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at