Survey About Financial Planners Casts Doubt On GAO Report

By Cyril Tuohy

InsuranceNewsNet

New research released by the Financial Planning Coalition about the “misuse” of financial planner titles casts doubt on a Government Accountability Office (GAO) report that found planners were adequately regulated under federal, state and industry rule-making bodies.

Consumers are “harmed by the lack of appropriate regulatory standards for those who hold themselves out as ‘financial planners’ but provide narrowly focused advice, single-product solutions, or advice that is not in the consumers’ best interest,” the coalition said.

The coalition, comprised of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors, stopped short of calling for sweeping new rules.

Bob Gerstemeier, chairman of the National Association of Personal Financial Advisors, which represents fee-only advisors, told InsuranceNewsNet that the industry could benefit from rules related specifically to financial planners.

“This is about closing the gaps,” Gerstemeier said.

In 2011, the GAO found that “more robust enforcement of existing laws could strengthen oversight efforts,” but that “it does not appear that an additional layer of regulation specific to financial planners is warranted at this time.”

Under the Securities and Exchange Commission (SEC), state insurance commissioners and the Financial Industry Regulatory Authority (FINRA), most planners “nearly always fall under one or more regulatory regimes, depending on their activities,” the GAO said in a 51-page report to Congress.

The Financial Planning Coalition’s message comes at a sensitive time. The SEC and the U.S. Department of Labor, which are in the process of reviewing what standards of care advisors and planners need to keep investors safe, are expected to deliver opinions next year.

Over the past several years, a fog has descended upon the world of financial planning, leaving investors groping for differentiation among financial planners, financial advisors, financial consultants, investment advisors, wealth managers and broker-dealers. And the economic or regulatory nuances are not always clear between fee-only planners and fee-based advisors, or the privately conferred professional designations such as Certified Financial Planner, Chartered Financial Consultant and Personal Financial Specialist.

More than ever, the muddle obfuscates, confuses and narrows the options facing investors, according to the coalition.

The coalition commissioned the consulting firm Fondulas Strategic Research to survey 1,250 consumers last fall.

Of the survey's respondents, 82 percent thought a financial planner was the same as a financial advisor, 70 percent believed a financial planner was the same as a wealth manager, and 68 percent thought a financial planner was the same as an investment advisor.

Distinctions between planners, advisors and wealth managers may come across as transparent in the eyes of federal, state and FINRA regulators, who are paid to parse through the meaning of three letters behind a name on a business card. But even the GAO in its report of three years ago found that the different titles of financial professionals could be confusing — even to experienced investors.

Finely siloed financial planning distinctions — whether by design or happenstance — appear to have confused investors, and the industry may have the most to lose as baby boomers retire in droves and seek out “competent, ethical, and integrated financial planning advice,” in the words of the CFP Board.

Nothing can stop a disbarred broker from hanging a financial planner shingle, Gerstemeier said, and a significant number of the coalition survey's respondents said they were ill served by their financial planner.

One-third of respondents who worked with an advisor on a financial plan said they did not receive the financial planning service they were looking for. Only 31 percent of respondents received two or fewer services as part of their financial plan; 30 percent said they did not get the services they needed; and 27 percent said they wanted a financial plan but did not get one.

The last people financial planners want to alienate are the baby boomers as they move deeper into retirement. Boomers hold trillions of dollars in wealth and there are more than 76.4 million of them living in the United States.

Either regulators do a better job of cracking down on who qualifies as a financial planner, or the industry risks erosion of its client base.

“If you say you are a financial planner," Gerstemeier said, "it ought to mean something."

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].