PCI Founder and Chairperson Reacts to Perception of Adviser Industry – An Open Letter
Updated: Sep 18
A recent headline caught my eye. Advisors Rank Almost as Low as Mechanics on Trustworthiness. This unfortunate fact was broadcast on WealthManagement.com in a May 7, 2020, article reporting the findings of a recent study conducted by the CFA Institute. I found it both sad and infuriating. Why? Because to me, it’s clear that the plan adviser industry and its big brother, the financial adviser industry, should be recognized as the true, helpful professions they are meant to be.
I put serious work into achieving the credentials required to be an adviser. I graduated from a public university in December of 1989 with a degree in Economics. It took me three and a half years. My grades were so-so. I got by without having to study much. After graduation, Investors Diversified Services (IDS) offered me an opportunity to become a financial planner, and I took it. Before I could “officially” join though (and get paid), I would have to pass the Series 7 exam. The Series 7 exam is the General Securities Representative Qualification Examination and is a requirement for brokers to solicit or sell securities to customers.
The Monday after graduation, I walked back to my old school’s library and sat down for eight-hour days – for the next three weeks. I had never studied so hard in my life and was grateful to pass the exam. Later, I went on to earn the Certified Financial Planner (CFP®) designation. It too required discipline and dedication, this time with long hours devoted over a period of years. Down the road, I hit the books again to earn the Qualified Pension Administrator (QPA) designation through the American Society of Pension Actuaries (now known as ASPPA). I believe I have earned the right to be recognized as a professional.
But the 3,525 retail investors and 921 institutional investors surveyed by the CFA Institute disagree, if not about advisers’ qualifications, then about how we use them. Of six professions listed, Financial Adviser ranked fourth, behind Doctor, Accountant, and Lawyer and ahead of Mechanic (barely) and Politician. Just twenty-three percent of respondents rated Financial Adviser high for trustworthiness. Thirty-two percent rated it low.
Culprit #1: Conflicts of Interest
The sad truth? If you are in my industry, you are probably not surprised. Actually, the more surprising thing to me isn’t that consumers have low trust in us, it is that those of us in this profession continue to go about our work as if everything is just fine. I’m saddened that thirty years on, my industry has continued to accept things as they have been, including bad practices.
To join the rank of other trusted professionals, the adviser industry must change in two major areas. First, we need to eliminate the incessant conflicts of interest.
How do we get better?
Our devotion must be singularly to our clients, not product suppliers. This means cutting out all sales commissions, up front and ongoing. We must refuse firms we recommend to our clients when they offer meals, paid due-diligence trips, and marketing assistance via reimbursements. We must demand that broker/dealers stop “pay-to-play.” These practices, both through perception and in reality, harm the trust and influence that we seek with our clients.
Culprit #2: Concealing Real Value Provided to Clients…AND PARTICIPANTS
Second, our industry must transparently and clearly report our value contribution. That is, the value we contribute directly to our clients. Most plan advisers and financial advisers build and monitor investment portfolios. Our industry reports performance. That isn’t what I mean.
How do we get better?
I mean, what value do you add through your advice or recommendation? Simply, what is the surplus of what your client earned with you, over what they could have earned without you. And we must measure against something objective, like an appropriately allocated index portfolio. When our advice costs our clients, we must admit it. That is transparent reporting.
People may say that it’s unrealistic or even impossible for an adviser to make these difficult but necessary changes. But it is possible. Let’s no longer tolerate the rampant conflicts of interests that have plagued our past. Let’s embrace transparency of our value contribution. Let’s make a trusted profession.