Professionalizing the Financial Advice Industry: Panel Weighs In, Part 1

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Here at Gregory FCA, we are fortunate to work closely with a variety of firms in the wealth management and financial advice business. On the backdrop of the fiduciary rule debate, the drive to do more to professionalize the financial advice business and create a lasting standard for investor protection has never been stronger. Over the last 20 years working with RIA firms, investment managers, broker-dealers and more, we have heard from a lot of our clients and thought leaders in the business on the ways to do this.  We were able to gather insights on the issue from Blaine Aikin, CFP®, CFA®, AIFA®, executive chairman of Fi360, whose firm runs the credentialing of the AIF® and AIFA® designations; Pete Maher, CFA®, the most recent past-president of the CFA Society of Philadelphia; and Cary Carbonaro, Managing Director at United Capital, a financial life management firm, and ambassador for CFP Board. Check out the first installment of our two-part series below:

What separates the perception of financial advice professionals from how attorneys and doctors are perceived?

Blaine Aikin: The financial advice profession is more fragmented than the classic professions and faces notable obstacles in terms of meeting generally recognized attributes of a profession. The field of financial advice is so diverse that there isn’t universal agreement on whether there are multiple disciplines within a single profession covering all financial advice or if the disciplines (investments, insurance, planning, etc.) should be treated as distinct professions.

There are five commonly accepted attributes of a profession. By looking at each, you can see why “financial advisor” faces challenges when it comes to being perceived as a unique and generally recognized profession:

  • Public Service Orientation – People generally enter medicine to advance public health and those who enter law seek to protect legal rights and promote public justice. The culture and structure of these professions are oriented toward public service. The motivations of those who enter financial services are less clear and consistent. Many do enter the field of financial advice with a service orientation toward their clients and society at large; however, service and sales cultures are intertwined in the world of finance. That makes it difficult for the public to differentiate those who are drawn to the field primarily to achieve financial success for themselves versus prosperity for the public.
  • Standard of Professional Conduct that Requires Clients’ Best Interests to be Served – Society has long recognized that we must be able to rely on professional advisors to be ethical and skilled because they exert incredible influence over our well-being. Consequently, professionals are held to fiduciary obligations. In financial services, the lack of a clear, consistent, and strong fiduciary standard for all who provide advice damages the reputation of financial advice as a profession.
  • Body of Knowledge – While there is a robust body of knowledge in financial services, it is quite diverse and there is no true “academic home” that serves as the central repository for that knowledge.
  • Pathway to the Profession – There are clear academic curricula and career paths associated with law and medicine. Conversely, people enter the field of financial advice with a wide range of educational backgrounds and work experiences. There is no standard set of requirements to guide mastery of an appropriate body of knowledge, professional code of ethics, and standard of practices. Professional designations can help guide those who enter specific disciplines in financial services but they are specialized, numerous, and not unified in the same way as in other professions.
  • Sanctioning Authority – Other professions are formally recognized and regulated by laws and generally have centralized self-regulatory organizations, such as the American Medical Association for physicians and state Bar Associations.

It may be that a discipline within the realm of financial advice will have greater success in achieving recognition as a profession. For example, financial planning is closer to meeting the attributes listed above than other disciplines. Based upon my experience as a CFP Board Director, I can tell you that establishing financial planning as a distinct and valued profession is an important long-term objective for the organization.

Pete Maher: There are many different versions of the financial advice professional, and no common standard, which is one of the issues driving the regulations for the fiduciary standard. The Department of Labor (DOL) is attempting to move the industry towards a standard level of care for individual investors. When you talk about a fiduciary versus a sales person, it is difficult for many investors to measure the level or quality of advice they are receiving from a financial advisor. There is a lack of transparency as to how financial advice professionals operate and are compensated. This issue is exacerbated by the abundance of choice we have in today’s age of information. There is not a single common standard all advice professionals are held to and the DOL regulations are a step in the right direction. I hope the momentum toward creating an industry standard continues.

Cary Carbonaro: My dream is that we will one day be perceived exactly the same. The reality of why I think we’re not is because of advisors who are non-designated, who muddy the waters for people who don’t know the difference between a broker, an insurance agent, a Certified Financial Planner™, or an independent advisor. We thought the fiduciary rule would help, but I don’t think it has yet.

Did you see the episode of John Oliver’s “Last Week Tonight” where he covered our industry? While his messages ring true, it’s also embarrassing, because he says anyone can hang up a shingle and call themselves a financial planner. It shows how much work the profession still has to do.

I think the fiduciary rule will help, but it will take a lot of ongoing public education. Without a doubt, many consumers still don’t know the difference between any of these titles. To make things more complicated, an advisor could take on multiple roles — such as a CFP® professional who is also an insurance agent.

Do we need more public education? Sure. But we’re definitely moving the needle. We’ve come a long way since I’ve earned mine. CFP Board has allocated more and more resources to educating people and improving the perception of trusted financial planning professionals. I know it’s working. They know it’s working. They can measure it and continue to work toward improving public perception.

Do you think that the financial advice industry should narrow the crop of acceptable designations and credentials?  Why/why not?

Blaine: I do believe that the proliferation of financial designations and credentials can be confusing for the public and is an impediment to having financial advice recognized as a unique and valued profession. However, there are many important financial credentials that do demonstrate special expertise. Those seeking financial advice benefit from the enhanced skill set of those who have earned these high-quality designations. For example, I am very proud of the designations I hold (CFA, CFP®, and AIFA®) and strongly recommend them to others in the profession. I should note that the AIFA® (Accredited Investment Fiduciary Analyst) is a designation offered by Fi360 where I am employed as Executive Chairman. Additionally, I currently serve as Chair of the Board of Directors of CFP Board of Standards.

I believe the best means of regulating and reducing the number of designations is for there to be greater transparency regarding the rigor and value of financial credentials (or lack thereof). It would not surprise me to see future federal or state regulations setting standards for designations and requiring disclosure of the characteristics and requirements of credentials.

Pete: In an ideal world we would have fewer designations. Fewer designations would mean less confusion for investors. The major credentialed bodies, such as the CFA Institute, have always required that clients are first and foremost in any and all interaction involving investment recommendations and investment advice. Other designations share a similar goal of making sure advice is geared toward the benefit of the client. When this is the focal point of the accreditation, clients should benefit, however it doesn’t make it any easier for the end user – the client – to sift through and navigate.

Cary: Yes. All it does is create confusion. You don’t need to have 700 designations after your name! Some designations are merely earned from online courses that can be finished in as little as five hours. If you’re just starting out, or if you’re a senior trying to manage your retirement, you may not know the difference between one of those designations and one with more substance, like the CFP® certification.

Be sure to check back next week for part two of this Q&A series.