Of elephants, blind men & financial planning —Part 1 in a 6 part series

The endless bickering over the regulation of financial planners is wearisome at best. It seems that every organization and entity is on this bandwagon: the Government Accountability Office, the Security and Exchange Commission, the Financial Industry Regulatory Authority, the National Association of Insurance Commissioners, the Federal Trade Commission and the Financial Planning Coalition. And the sum total of all their time, talent and treasure are the following findings: No single law governs providers of financial planning services. Therefore,

• Almost anyone can call themselves a financial planner.
• Financial planners may have an inherent conflict of interest in selling products from which they receive a commission or managing assets from which they will receive asset management fees
• Consumers are confused by the numerous titles and designations that financial planners may use.
These results are not new and are the same conclusions, which were made over 30 years ago!All of these machinations remind me of a poem by John Godfrey Saxe, “The Blind Men and the Elephant.”  The poem concludes with —

And so these men of Indostan

Disputed loud and long, Each in his own opinion

Exceeding stiff and strong,

Though each was partly in the right,

And all were in the wrong!

The poem is a retelling of an Indian parable. The parable illustrates that one’s subjective experience may be true, but that experience is limited by its failure to account for the experience of others. The parable goes something like this: six blind men wanted to understand what an elephant was, and so each of the blind men touched a different part of the elephant and each was adamant that an elephant was just like: a wall, a spear, a snake, a tree, a fan and a rope. Each described a part of the elephant that they had touched; and because each was vested in their own unique experience, they failed to describe the elephant. And to quote Saxe, they “all were in the wrong.”

I have held back for years watching this fiasco transpire. Here is the simple answer to everyone’s question: financial planning is a profession just like medicine, law and accounting. Financial planning is not asset management or product sales. And so, just like medicine, law and accounting, the profession should be regulated by the states. As to the confusion on the part of consumers: financial planning should be separated from product sales and asset management. The financial planning service should be paid for separately, and apart from, the asset management fees and/or insurance commissions. It should not be offered for “free” as an ancillary benefit—sic sales tool—to asset management or product sales.

This month, I will be taking each of the various groups and organizations to task for helping to create this regulatory morass. I hope that you will follow my postings and I invite regulators, advisers and consumers to participate.

Also, I hope you will join my webcast Personal Financial Planning: Regulations, Updates, Future of the Profession on Friday, February 28 at 1:30 PM EST. This Webcast will review the history of Financial Planning and the Investment Adviser’s Act of 1940. Additional topics to be discussed are the regulation of Financial Advisers and the three main organizations which provide certification for Personal Financial Planning. The presentation is web based and virtual seating is limited. The course is approved for one hour of CPE and CE. For more information or to register, please email hello@ttillery.com at ttillery.com.

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