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Past event date: October 18, 2022 12:30 p.m. ET / 9:30 a.m. PT Available on-demand 30 Minutes
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FPA 2022 President-elect James Lee FP Chief Correspondent Tobias Salinger discuss the complexity surrounding the formal definition of financial planning and the challenges that poses to the field's true practitioners.

Tobias Salinger:

Hi, I'm Tobias Salinger. I'm the chief correspondent at Financial Planning. Our parent company is Arizent. Welcome to Leaders. It's a forum that brings together innovators and senior executives to share their experiences and perspectives on the most pressing topics. The subject of our discussion today is the title Financial Planner. What do those words mean today and what could they mean in the future? And I'm sure we have many planners and other advisors on the call today. We've got one as our featured guest financial advisor. James Lee is the 2022 President-Elect of the Financial Planning Association. He's also the founder of Saratoga Springs, New York based Lee Investment Management. Thank you for joining us and welcome to the Horizon Leaders Forum.

James Lee:

Thank you so much, Tobias for having me on today, and thanks to Financial Planning Magazine and Horizon for bringing awareness to this really critical issue.

Tobias Salinger:

Well, we appreciate that and you are one of a group of more than half a dozen advisors and compliance experts who spoke with FP for our RIA Leaders cover story. This month James is leading FPAs push for title protection of the title of financial planner. And the title of our cover story is "Financial Planning Clients: Undefined, Counted and Underserved." You can find the full feature on our website at financial-planning.com. Just one quick programming note for the audience before we jump in. Please feel free to chime in with questions at any time. I'll be sure to post some of them to James as we go but let's just get started now. What is the problem as FPA members see it with the current usage of the financial planner title?

James Lee:

Well, thanks for that question Tobias and just by way of background, I thought I'd explain the Financial Planning Association and its origins. FPA was founded in 2000 through the merger of two membership organizations, the International Association of Financial Planning and the Institute of Certified Financial Planners. These two organizations merged with the purpose and its written right in our bylaws of establishing the value of financial planning and the success of the financial planning profession. Fortunately, the value of comprehensive financial planning is becoming more well recognized in the marketplace, but we still have a long way to go. The problem is that today anyone can call themselves a financial planner without meeting any competency or ethical effort. As a result, consumers are confused and harmed by advisors who claim to be financial planners but aren't qualified or don't provide financial planning services that are in the best interest of their clients.

I've seen research that indicates about a hundred thousand advisors in the US self-identified as being part of a financial planning focus practice, but do not actually offer comprehensive financial planning services. And that's a problem. We as FPA members understand this better than most because we meet with clients all the time who engage with so-called financial planners who only provided single product solutions, used the term financial planner for marketing purposes or provided advice that was not in the client's best interests. Now, our members understand that every American can benefit from ethical financial planning advice, and we want to bring those benefits to as many Americans as possible. And as you highlighted in your financial planning article today, only a small number of Americans are receiving true financial planning services. And that's why there's significant support among our membership for this effort. In our surveys that we do annually, 80% of our members support the legal recognition of the term financial planner through title protection. And when you look at on the flip side, by the way, only 4% of FPA members surveyed indicated that they were actively opposed to that effort.

Tobias Salinger:

Well, those are pretty compelling figures when I think about financial advisors being rugged, individualist entrepreneurs small business owners, you don't usually see a lot of 80% consensus but 4% did say that they had some reservations. So just to put the whole issue just out there and think through just the end goal of this effort what form would that title protection take in terms of a new federal law or some kind of a trademark or anything else? What would that title protection look like?

James Lee:

Well, first thing that I'd like to tackle there is the question about what is the goal of title protection? Cause I think that is so important for everyone to understand. Ultimately, the goal of title protection is to bring the benefits of financial planning to as many Americans as possible. Today too many Americans aren't seeking financial planning advice because they don't know who to trust, or they think that financial planners are too expensive. And when I say that they don't know who to trust, it's evident in a lot of the consumer surveys, for example the latest Edelman Trust Barometer Survey shows that financial services is the second least trusted business sector behind fashion, but above social media. So that is a real shame and it's preventing Americans from seeking out a good financial planning advice.

So what does that create amongst Americans? That's a real problem for Americans if they don't seek advice. Since money continues to be at the top of surveys for stress, money creates the most amount of stress in people's lives. That's what people identify as the biggest stressor in their lives. And financial planners can help address that. So by creating threshold competency and ethical standards in order to calm oneself a financial planner, consumers would be able to easily identify qualified and ethical advisors. So if successful, this effort will be able to create standards that would be necessary to call on self a financial planner that will be well defined and supported by society. The standards to establish financial planning is a true profession on par with other professions, as you mentioned, like medicine, law and accounting. It also would accelerate the development of the financial planning profession and encourage others to join the profession. We need more financial planners to serve the needs of Americans.

If successful, we believe that this effort would benefit everyone. Financial planners would receive the recognition they deserve for meeting those standards. The public will become more aware of the value of financial planning and consumers would be assured that their financial planner has the qualifications to stand behind the title. With respect to the second part of your question about what form of would title protection take we have intentionally decided to engage with all the stakeholders in the financial planning ecosystem to actually form a consensus, hopefully, to determine what those competency and ethical standards would be. We wanna take the time to engage with all the stakeholders in the financial planning ecosystem and so that we can all agree on a single set of standards to be applicable to financial planners. One of the things you said you talked about earlier is that most people in an industry do not welcome additional regulation. And we recognize that, of course. And so we are not seeking here to create additional burdensome regulations on financial planners. After all, many aspects of what we do, investment advice, insurance advice for example, are already regulated. Investment advice is regulated on their investment advisors act. Insurance advice is regulated at the state level. The purpose of our effort is not to create more burdensome regulations, but to help consumers identify competent, ethical financial planners at the end of the day.

Tobias Salinger:

Well, and I think those are remarks would be well heard by the audience who would have some reservations about some kind of new regulatory entity or regime of some kind. And that's not even to mention these large wealth management firms out there that generate up to billions of dollars in revenue each year among them as well as regulators themselves who are also part of those stakeholders. You kind of got into the process a little bit but how can you thread that needle and find the consensus necessary for what you're trying to do here?

James Lee:

Well so over the next year or so, FPA is going to be engaged with all stakeholders in the ecosystem to understand their unique perspectives. We plan to engage with the entire ecosystem, and that means our members, first and foremost consumer groups, financial advisory firms, other membership or associations, credentialing bodies, academia and regulators, and try to have a conversation and understand what they think of when they think of threshold standards. For a financial planner, we're gonna be listening, gathering, input, and attempting to lead these stakeholders eventually to a consensus. We know the process is going to be long and we expect challenges along the way, of course, but we also know that the effort is worth it for the benefit of our members, the financial planning profession as a whole, and of course consumers in society.

Tobias Salinger:

Great. Well, we do have one question from the audience, and it kind of speaks to a little bit of the complexity here but just to bring up another side issue involved with certification and industry standards we have an audience member who is saying that and I don't kill the messenger here, but they're an open forum and I've heard people make this point before that fiduciaries and even CFPs say this is the attendees perspective. Even CFPs allege a breadth in depth of expertise that cannot be properly accommodated nor possessed by one individual while being held to a fiduciary standard. There are others who might disagree with that but just what do you think of that perspective and how would you respond to that?

James Lee:

I'm sorry, I did not understand the question. Could you repeat it?

Tobias Salinger:

Well, it was just getting at this idea of professional standards. Even the question was that do CFPs say they have a breadth and depth of expertise that they cannot properly even have just for one person while delivering fiduciary advice? Others would probably disagree with that, but just how would you answer that?

James Lee:

Again, I'm not totally clear on the question, but as a CFP myself and as a membership organization whose core member is the certified financial planner we have gone through extensive education experience, examination requirements in order to hold the CFP designation. And of course as a cfp, we also agree to be held to a fiduciary standard when providing financial advice. So that is the standard and standards that have been established by the CFP board. But we also recognize that there are other perspectives out there and we want to listen to those and try to come up with a consensus as we pursue legal recognition of financial planners through title protection.

Tobias Salinger:

And getting back to that just with the planner title, the financial planner title, it's been around for a while. It is a relatively young profession which is interesting to think about too. But after a four or five decades roughly of that professional title that calling that many of you who are joining us today or are part of have there been other attempts to just codify the financial planner title and why haven't they been successful?

James Lee:

Yes, there have been attempts made previously, and in fact, currently the term financial planner can be found in approximately 30 state statutes. Unfortunately, however these states, the way that the laws are written talk financial planners under the definition of investment advisor. So that's really not sufficient. We know that financial planners and investment advisors are different. Financial planners provide comprehensive holistic financial planning advice on a number of different integrated subjects, while strict investment advisors provide advice on portfolios and investments. There have been a few other attempts to codify the title of financial planner. In 2009, the Financial Planning Coalition proposed that Congress established an oversight board for financial planners under the S E C that would establish standards and oversee financial planners. This effort was opposed by industry. Often the argument with this complying with this would be too expensive and duplicate of existing regulations closer to my neck of the woods.

I'm in New York. In 2018 the New York Department of Financial Services issued a new regulation requiring a best interest standard for annuity and life insurance brokers. In that regulation the regulation had language that we require insurance producers who hold out as a financial planner to hold a certification or designation in that area. So that was a form of title protection. It didn't specify what those minimum competency ethical standards should be other than requiring a certification or designation in the financial planning area. That regulation, unfortunately, was struck down by the courts and most recently in 2021, XY Planning Network petitioned the SCC to require financial planners to register as an investment advisor and thus be held to a fiduciary standard. This petition, which addresses the ethical standards for financial planners is still pending before the S E C.

Tobias Salinger:

Interesting. Well, thank you for recounting that and because it is always interesting to think of that context. I was certainly also reminded in a different way, obviously a different issue technically speaking, but just showing the importance of FPAs initiative. Just thinking about the FPA Merrill Lynch case that was so important to advisory accounts about 15 years ago where it did that kind of start in the same way? Do you know the just kind of FPA members at a grassroots level kind of starting a push just like this?

James Lee:

Well, I wasn't in the room when, it wasn't in leadership at that time, of course, but I suspect that there were discussions about the standard of care that financial planners should be providing. And that created a situation where the leadership at the time decided that it was appropriate to sue the S E C in order to make sure that fiduciaries were acting as fiduciaries and those that were not the consumers could identify those that were not from those that were,

Tobias Salinger:

Yeah. Another question from the audience. We have a cpa or someone who knows many CPAs so mm-hmm. <affirmative> good to bring in another certification to the discussion. And they're saying pointing out the CPAs are already licensed and held to a fiduciary standard. Why would their planning skills need additional definition beyond that CPA mark, which is very recognizable out there already?

James Lee:

Sure. Well, we do believe that the financial planning profession and being a true profession does require specialized education in order to pull oneself out as a financial planner. A CPA, of course has education requirements that qualify an individual to hold out as a cpa. and there's no arguing that fact. However, there also are parts of, or financial planning does require education and experience that are not necessarily included in the education and experience requirements that are necessary to hold oneself out as a cpa. So in order to be a true profession we believe that part of the competency standards needs to be education that is specific to providing integrated financial planning advice. That being said, we know that there are CPAs who also hold a PFS designation, and we are obviously going to be reaching out to that group and to members who are PFSs in order to understand what they believe should be the minimum standards to hold one soft out as a financial planner.

Tobias Salinger:

Wow. A new that's, that acronym is new to me. I love to learn new ones but we're getting some really interesting questions here and all. I can't wait to learn more about the pfs as well myself. But another question from the audience. You brought up some of that history of the challenges encountered at by other efforts for title protection. What are some of the lessons that FPA can learn from those efforts so that FPA can avoid them this time around?

James Lee:

Okay. I think the major difference in our approach this time is our intentional decision to not announce any threshold standards compass or ethical standards at the outset. We really want to engage with all stakeholders to have a good understanding of all perspectives and are very interested in speaking to anyone who believes in the financial planning process, who believes that financial planning is a distinct and honorable profession, and try to get as much consensus as possible in order to achieve success, which is to create the legal recognition of financial planners through title protection. So I think that is the difference this time, is that we are intentionally seeking out different perspectives and leading the effort in that respect before making any regulatory or legislative effort to announce or push forward any threshold standards.

Tobias Salinger:

Here's another question from the audience, which I find interesting. Is unionizing an option for financial planners? Is that something that might be discussed under this policy idea, or do you think that might be a separate kind of thing?

James Lee:

Well yeah, I do think that these are two distinct concepts. One is trying to create threshold standards in law in order to call oneself a financial planner and unionizing which would be a group of planners getting together in order to advance benefits and for that group within a organization or a corporate entity. So I do think they're two distinct issues.

Tobias Salinger:

Yeah. Yeah. Well they're all very, very good questions. Coming in from the audience, I love to see this level of participation. And in that vein you're talking about taking this approach where all stakeholders are welcome to the table and sharing their ideas and bringing in lessons learned from CPAs and from other professions as well. How can financial advisors who are interested in this topic just get involved with FPAs discussion at this time?

James Lee:

Sure. Well number one at the risk of sounding self-serving one can join FPA as a member. FPA members have a direct voice in the organization driving the effort. We're also planning several town halls and forums around the country to talk with our members over the next year to listen to them about their opinion on this issue. Being a member of FPA for me and for many others especially on an issue like this helps them become something bigger than themselves on helping. We are all in it together to help define the profession for future generations. Number two FPA is now taking input and comments from anyone regarding the title protection effort. We have a online form that you can access through FPAs website under the title protection section where you can comment and voice your own opinion on the issue. I can assure you that the FPA board of directors reads these comments and we will be taking all of these comments into consideration as the process moves forwards. And then finally, when the time comes financial planners should engage with their lawmaker to make their voices heard, in addition as their clients, to contact lawmakers to express how a competent, ethical financial planner makes a difference in their own lives. So those are the different ways right now that people can get involved.

Tobias Salinger:

And I think it's always admirable when advisors like yourself are thinking of even bigger things than running their business. I know it can be such a challenging endeavor to run a small business. So I applaud all advisors who are here at this discussion today because they're interested in an important topic to the profession and contributing their time and efforts to advancing the professional community of advisors through their work and through their free time. So I think it's a great note to end on today. Everyone, please give a virtual round of applause to our guest, James Lee, of the Financial Planning Association and Lee Investment Management. And if you haven't already, don't forget to check financial-planning.com. For the RIA Leaders feature and all of FPSs Wealth Management news, go ahead and subscribe while you're there for Financial Planning. I'm Tobias Salinger. Thanks again to James Lee and everyone. Have a great afternoon.

Leaders Industry News Recruiting RIAs IBD Elite IBD Elite 2022
Speakers
  • James Lee
    2022 president-elect
    Financial Planning Association
  • Tobias Salinger
    Chief Correspondent
    Financial Planning
    (Host)
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