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You Should Know Where Your Financial Planner Is Coming From

The advice you get could depend on where your planner works -- in a bank, a brokerage or an insurance firm.

The various components of the financial services industry speak very different languages. Their only common ground is they all distribute information products and services to people and companies to make money. This information gets filtered in different ways depending on the motives behind the distributor.

If you are thinking of using a financial planner, it is important to understand these differences. You should know what potential bias can impact the planning process. Here are some examples of the differences among the financial services' languages:

Insurance Companies

Financial planning from this perspective will inevitably include a heavy dose of insurance products. The language will feature such terms as variable annuities, variable universal life and sub-accounts. The money that is made by the insurance agent is generally based on some form of commission.


The brokerage industry has traditionally been a transaction business based on earning commissions. The language of the industry has to do with buying and selling stocks, bonds, mutual funds and other financial instruments. Some of the brokerage houses also "sell" financial plans. I asked a person in charge of financial planning at a large brokerage if his firm expects these plans to be a profit center. He said the brokerage would be happy if it just broke even because the real purpose of the plans was to sell products and services.


Traditionally banks have built a wall between your money and risk. Full of conservative promises and guarantees, they have said your money was safe. The language that banks have spoken is certificates of deposit, credit cards and various forms of loans. In the simplest form, they have made money by charging interest at a higher level than they paid out. You never felt the amount of money that banks made on you because you never saw it. But the walls are coming down. Banks now have salespeople who will gladly advise you on cash flow, investments, insurance, estate planning, IRAs and more. Most have mutual funds, and they generally prefer you invest in one of their load funds.

Each of these three industries looks at your goals, needs and capabilities from its own perspective. Each tries to teach you its language.

Today, the delivery of products and services by these venerable institutions has become very confusing because of the blurring of their traditional roles.

Most "clients" or "customers" of financial institutions are not getting objective advice.

But why just pick on banks, insurance companies and brokerage houses? Who really gives objective advice?

Do credentials, degrees or affiliations guarantee objectivity? Of course not! What are you looking for in a financial adviser?

The least you want can be boiled down to four critical issues:

  • Objectivity.
  • Professional skills.
  • Honesty and integrity.
  • Appropriate and necessary resources.

While these are the traits everybody wants, it is hard to figure out who has them. I am convinced the very best qualification is a highly qualified referral. Highly qualified means you are referred to a financial adviser by someone who has had a substantial and successful relationship with him or her for at least 10 years.

Combine a good referral with experience, the right credentials and some degree of independence and you may have a winning combination.

Other than experience and a referral, the two most important issues relate to independence and credentials.

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Keep in mind the three main components of the financial services industry:

  • Manufacturers of a product.
  • Distribution system.
  • Advisory/planning function.

Most major institutions create (manufacture) proprietary products, have their own sales force (distribution system) and "sell" financial plans as an advisory service. These companies combine all three functions into one total process. It is virtually impossible for their salespeople/financial planners or advisers to give independent objective financial planning and investment advice.

I am not suggesting they do not help a lot of people. They probably do, but not by being objective or independent.

More people seem to be demanding a separation of these functions. If they have a financial planner, they do not want that person to be with a company that creates proprietary products and is part of the sales force.

I am an independent financial adviser, and obviously, the opinions in this column are filtered through that viewpoint. I charge a fixed fee based on the amount of assets under management, and I get no extra consideration for putting clients' money into any particular product.

But independence does not guarantee objectivity or higher quality of advice, products or service. Some independent advisers create their own products. That creates an obvious conflict of interest that could be even greater than the institutional one.

Next week, I'll clarify the various financial credentials you may run across, including ChFC, CFP, PFP, CFS, CPA and CFA. Have you heard about the new

Financial Planning Association

and the new

National Association of Insurance and Financial Advisors

? The credentials your planner has and the associations to which your financial planner belongs could tell you a lot about his or her objectivity, professionalism and overall qualifications to work for you.

I realize some readers, particularly those in the financial services sectors mentioned above, are going to strongly disagree with some of my opinions. Please

email me with any thoughts you may have on this subject. Thanks, and have a great 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