Mark Schoeff Jr. has an interesting article in Investments News entitled, “Financial planning clients not getting what they pay for: study.” The article is subtitled, “Coalition says public harmed by lumping advisers and planners together.” The article is based on research conducted on behalf of the Financial Planning Coalition that shows that, “consumers could not identify certified financial planners from other advisers, and that when they worked with someone claiming to be a planner – either a CFP or someone else — they were sometimes given inadequate financial guidance.”

The Financial Planning Coalition is comprised of:

• The Certified Financial Planner Board of Standards, Inc. (CFP Board)
• The Financial Planning Association® (FPA®)
• and the National Association of Personal Financial Advisors (NAPFA)

I am a member of all three organizations and agree with their push for less fraud and less purposefully confusing use of terms. As the article suggests:

Nearly one-third of consumers received only two services — usually investment advice and retirement planning — when they sought help with a comprehensive financial plan, the study said. Less than 10% got advice on taxes, estate planning, education planning, debt management or personal budgeting.

About 30% said they weren’t given the help they required, while 27% sought, but didn’t receive, a financial plan. …

The Fondulas Strategic Research study also showed that consumers are confused by the term “financial planner,” with 82% saying it is the same as “financial adviser,” 70% equating it with a “wealth manager” and 68% using it interchangeably with “investment adviser.”

On Monday, the coalition also pointed to 2013 data from Cerulli Associates that showed about 100,000 out of 168,000 financial advisers who called themselves financial planners were not actually providing financial planning services.

The coalition is vexed by people who call themselves planners but don’t hold a CFP, and believe clients pay the price.

“Consumers continue to be deluged with misleading terms and practices,” said Janet Stanzak, FPA president.

Consumers, by and large, want Comprehensive Wealth Management. But most of the financial services world is comprised of commission-based agents and brokers who earn their living by selling products and transactions. My estimate is that only about 7% of the financial services world are fee-only fiduciaries. The other 93% have their very livelihood dependent on blurring the distinction between fee-only and fee-based (fee plus commissions).

Since commission-based agents and brokers get paid for selling products and transactions but consumers want financial advice, they have an incentive to promise financial planning and deliver as little as possible. Getting advice for “free” can be very expensive. Financial advisors can also have an incentive to deliver as little as possible, but at least it is their core business and it is what they are getting paid for.

Comprehensive wealth management is a endless job. There is always something more that you can be doing. No one can deliver comprehensive wealth management. You can only offer a large number of services. And you can only be proactive with as many as possible.

While we believe that advisors who have a CFP or belong to NAPFA are probably above average, we think those two questions alone won’t safeguard your time and money. There are plenty of advisors with a CFP who we believe are not servicing their clients well. We have our own list of ten questions we think you should ask a financial advisor.

While I agree with the study, I don’t know that I agree with the prescribed solutions suggested. The study suggests there are “insufficient regulatory standards for financial planners.” The subtitle of the print version read, “Loose ‘patchwork’ of regulation allows confusion, fraud” but this is incorrect. “Fraud” is clearly against existing laws and protecting people from fraud is one of the two primary purposes of government even according to Libertarians.

The question the article fails to grapple with is: Why are misleading and fraudulent practices allowed when they are already a violation of existing law?

An even more important follow-up question: If 93% of the financial services world is comprised of commission-based agents and brokers, what makes us think that additional regulation won’t be used by this portion of the industry to squelch their fee-only fiduciary competition?

No one benefits more than the consumer from understanding and caring about what a fiduciary standard means and what to look for in judging an advisor’s competency. If they don’t care, no amount of industry-sponsored regulation will help. Those who don’t understand or experience regulatory capture wrongly believe in a team of angels at these federal agencies tirelessly working for the common good. Financial advisors are already subject to enough regulations. You can’t regulate crooks.

Personally I think the article and the study don’t have a healthy enough skepticism about regulation.

We tend to compare government in its idealized form with the reality of private corporations. We never stop to ask ourselves about the harm that government regulators as they really are can inflict on very good private corporations because of the power we give them. At least consumers have the choice of avoiding financial advisors who are not fee-only fiduciaries or who do not have a CFP.

Photo by Nico Hogg used here under Flickr Creative Commons.