The personal financial services industry is going through a major metamorphosis for the better, and it is creating a true profession. At present, the overwhelming majority of the financial industry is sales- and relationship-driven. The majority of advice that financial representatives provide to clients is guided by what the representative can sell to generate revenue, be it through a fee or commission.
Very few financial representatives have extensive education or training in the personal finance fields of estate planning, income taxes, all types of insurance (e.g., auto, home, life, medical, long-term care, liability), investments, retirement planning (e.g., IRA, Roth, 401K, 403B), college-tuition planning, mortgages, debt management, company benefits, stock options, restricted stock, and business owner personal finances, including succession planning. In addition, the law allows today’s representatives to represent themselves to the public as financial advisors, without concern for the client’s best interest. If your advisor works for a brokerage firm or an insurance company, then they are likely not required to work in your sole best interest.
What are now emerging are what I call personal financial managers, who are fully educated, credentialed, and trained to assist you with your personal finances and to work solely in your best interest. Personal financial managers are independent and work based on fees only, that is, they do not accept commissions or referral fees.
Working solely in your best interest is important. Assume that you need disability insurance, and you have access to an association that offers disability insurance coverage to its members. A sales person has no desire to consider this option, but a personal financial manager must consider all options and assist you in making the most informed decision. Assume you want to make a crowd-funded investment and want honest guidance on the deal. Today’s sales person likely has little incentive to assist, but the emerging personal financial manager must help you to analyze the worthiness of this offering.
The personal financial manager operates much like a general practitioner physician. You desire your doctors to be independent, you desire them to work in your best interest, you desire that they not receive referral fees or commissions for prescribing drugs or from other specialists that they recommend, and most of all you desire that they be educated, well-trained, and credentialed. Is that what you are getting in your financial advisor? If not, you are dealing with the old-line service model, and in today’s fast-changing world, you will soon see that it will prove to be detrimental. Better to see the evolution through an article like this than to learn the lesson through experience.