Blogs & Comment

“I thought I wanted a mutual fund” (IV)

In the previous post, I had linked to an articleby a financial advisor who had painted a rather bleak picture in regards the level of service provided by financial advisors remunerated through trailer fees and other embedded commissions. It suggested thatfinancial plans were performed at even lower rates than what was indicated in a Canadian Institute of Financial Planners surveyof financial planners. So I asked the author (a certified financial planner remunerated by embedded commissions, as I understand) what he thought of that survey.
His name, by the way, is Ed Rempel (CMA, CFP, C.H.F.S.), with Ed Rempel & Associates. Here is his response:
I don’t believe those numbers [in the survey]. It is like the “dirty little secret” of financial planners — that everyone wants to CLAIM they do planning.
When we talk with advisors we meet at the CFP [Chartered Financial Planners] Conference and ask them about their practice, nearly all claim to do holistic advice and planning. However, if I ask them any details about it, they look at me like I’m speaking Greek.
I often ask: “What nest egg are you finding that your clients typically need at retirement to have the retirement they want?” I usually get dumb-founded responses or they change the topic. If they actually had done any planning, they would be able to recall a detail from some recent plan.
[Aparticipant said] they often see what he calls fake plans. Often they are just a questionnaire to determine a need so they can sell a product, an investment projection, or a quick plan based on a rule of thumb.
In our opinion, most of the financial planning software is designed for a quick plan. You can enter a few facts, put in that the client wants to retire on 75% of today’s income, and hit a button. You get a nice plan, with pretty graphs, sometimes complete with generic commentary.
I’ve had people tell me they got a nice, printed financial plan after a 15 minute meeting at the bank, which included time to sell investments.
The same [surveysays that 70% of people have worked with a financial advisor, but “fewer than 10% claimed to have actually used these other services” (services other than investments). If so many advisors do planning, then why would less than 10% of the public claim to have used any other advice from a financial planner?
We’ve also found the same tendency among the public, where many people want to CLAIM they have a financial plan. However, after I ask them about it, they don’t know where it is, don’t know what it says, and don’t know what the goals in the plan are.
It takes work to make a plan real for clients, which is what a REAL plan needs. Early in my career, I used to do plans that I thought were thorough, but the client did not understand them or believe them.
In the end, a plan is only a REAL plan if the client understands it, believes it, and accepts that the goals are what they want to achieve.