January 15, 2005
I am a small financial planner who is under the Investment Advisers Act of 1940 and wanted to voice my objection to the different regulatory treatment that I receive versus the treatment that brokers offering financial advice are subject to.
As a point of reference, I find myself competing against large brokers who have virtually no training in financial planning and advisory service. What they do have training in is how to keep and obtain their customers assets, which is really what they are after. Allowing the brokers to imply that they are providing financial planning advice to their customers is at best deceitful.
How many brokers advise on appropriate insurance coverage, social security, retiree healthcare changes and its implications on savings rates, making sure lifestyle and spending levels are consistent with projected income levels, tax rules surrounding savings and retirement plans, etc.? I have seen a few brokers who do, but it is a small percentage and this is where the risk to society lies.
Many broker clients think they are getting this type of complete information, or would, if there was a problem. Logically, brokerage firms wont do this because they dont get paid for it. No one will work for nothing, or should, and if your business is asset management or transaction processing, you are to going to pay your employees for giving customers great financial advice - unless they do it on there own time. Having asset gathering pass for financial planning is not healthy for our society. Most of the clients that I have gotten from brokers are really surprised by their financial exposure when a complete financial analysis is done.
I have former brokers clients who, left alone, would run out of money when they are 70 to 80 years old and the brokers did not tell them. In fact, the brokers never even looked at it. Unfortunately, this double standard allows advisers in the brokerage community to quietly continue to let their clients believe they are handling these types of financial situations. In face of the real possibility of greater society security cutbacks, the gradual elimination of company provided retiree healthcare, the disappearing defined benefit plans and the bulge in baby-boomer retirement that will stress the whole system I honestly dont know how you can rationalize two different standards existing. In this critical financial environment when citizens are being asked to shoulder more and more of their own financial needs with fewer and fewer safety nets, we need less confusion in our citizens minds, not more.
As for rationalizing two different regulatory standards if in one situation it is incidental to their other business activity, that rationalization makes no sense. How do you explain that to John Doe when he is 75, long since retired, healthy with another 15 years to live and realizing that he did not have the money someone told him, or lead him to believe, he would have. Being a broker does not have any correlation to being able to provide sound financial planning advice, any more than a medical doctor does. Hey, if I affiliate with a large medical center to provide financial advice to their dying customers, can I operate under a different standard since it is incidental to their business? I apologize for being so impertinent, but this two standard approach at this time and place in our society is really disturbing to me and will contribute to a very large financial problem in the not to distant future. Also understand that I am not against brokers providing financial advice just make sure they meet the same qualifications and standards as the rest of us.
I urge you to level this playing field. A lot a people are going to be hurt if a double standard is permitted to exist.