What is a financial advisor?

Why the lack of a clear financial advisor definition is the root to so many problems, and some ideas on how to fix it

"Despite being a highly regulated industry,?the bizarre reality is that the title “Financial Advisor” itself is largely unregulated."

This quote from Michael Kitces in his blog should make advisors & consumers think twice.

This topic come up many times and seems to be something more and more people are talking about. Look at my friend Sid Misra, CFP? 's recent post about an interaction he had when working with a new client. It would appear that these clients, like so many people, thought they were working with a financial advisor when really they were working with a sales person.

First, let's back up a bit.

Money

Most people across the world have access to a very powerful tool called Money, it can come in a variety of types from bartering to bitcoin, and we use this tool to live our lives. Whether we are budgeting to buy groceries or looking at cash flow projections for retirement planning we all use money in some manner to help us do what we need & want to do.

Now some of us are DIY'ers when it comes to our money, investments, insurance, etc. and we are perfectly OK researching to solve a problem or fill a need we have and then doing the implementation ourselves.

But the majority of us turn to an expert at some point in our lives to help us assess, learn, plan, and implement a variety of solutions when it comes to our money and lives.

For example the search terms "financial advisor" and "financial advisor near me" are searched on average 135,000 & 33,100 a month respectively in just the USA alone.

The sticky wicket here is that the term "financial advisor", which is arguably used more than any other, is so generic that it leads to confusion for consumers since there's no formal financial advisor definition.

What does a financial advisor do?

If we don't know what the financial advisor definition is than how can we know what they do?

As you can see this becomes a slippery slope.

It would appear there's a major disconnect between what consumers think a financial advisor is and does and what they actually are and do like Micheal Kitces points out by saying "As a result,?all it takes to call oneself a “Financial Advisor” is a license to sell an insurance or investment product."

So, as a consumer I think I need to engage the services of a financial advisor when I perhaps need help with my investments, considering retirement, wondering how to pay for my kids education, buy a second home, and so on.

But because of the lack of financial advisor definition I might end up with a sales person (B) portraying themselves like a financial advisor (A), there's a huge difference here.

If the client is looking for A but ends up with B there's an inherent problem that could ultimately lead to poor or no advice at all.

I'm not saying sales people are bad, not at all, but when there is confusion on the client's part then there is an opportunity for the bad eggs out there to take advantage of the situation, and that my friends is very bad!

The client becomes jaded, they know the experience didn't feel good, they didn't get the help they wanted which means they didn't get any closer to realizing their hopes, dreams, and goals. And, now they will likely be less inclined to work with a true advisor in the future thus punting on making smart, important, and timely decisions that we are all faced with at some point and could benefit from real advice led guidance.

What is a financial advisor?

This would appear to be a fundamental and profound question that needs answering.

Do we keep the term "financial advisor" and insist on rallying the industry, profession, and regulatory bodies around clearly defining it?

Or are we too far gone and scrap it all together, opting into using something like "financial advicer" that Kitces coined?

Or something else?

And, who get's to define it?

Some ideas on how to fix the term

1. Agree, as a global industry, that the future of our industry & profession will be one that leads with advice. This is how we show the consumer we have their best interests at heart. It doesn't mean we will stop selling a variety of products & services, they are very much needed, but should be implemented as part of a plan just like one would do when seeking advice from their doctor.
2. Pick and define a term that best represents this (1) AND is also well known to the consumer, one that will make sense in their mind.
3. Standardize who's allowed to use the term. Just like the CFP Board has done.
4. Market the heck out of the new (or refined/redefined) term so the consumer is empowered to know what it means when they are working with said term. Using our collective voice could be tremendous...Talk about on Social, discuss it on a podcast like H. Adam Holt, CFP?, ChFC? have done, or even blog about it, just get the word out!
5. Use tech (fintech) to facilitate better human connection for consumers looking for a financial advisor, tech that connects people on human & financial dimensions while also promoting transparency so the consumer knows exactly what they might be getting themselves into.
6. Leverage Advice lead product placement. Train "advisors" to lead with advice. This can be done across the profession at large & small financial services companies alike employing the hundreds of thousands of "advisors" around the world. I even cover this for advisors in Conneqtor .

I realize there's a lot of work to be done here but it's gotta start somewhere so why not from within?

So, what is a financial advisor?

Well, at this point it's subjective.

As a "financial advisor" I consider myself someone who is supposed to listen to my client's deepest fears and greatest dreams and then use an advice led process to help them achieve any and everything that's important to them.

For me, a financial advisor:

• Leads with advice
• Focuses Process before Product
• Listens and then digs deeper
• Is transparent
• Is comprehensive in their assessment and planning

But this is just my definition and although I suspect other would agree with at least some of it would seem prudent that we formalize the definition.

Defining "financial advisor" or coming up with an strong alternative term would appear to be a great step forward in helping people with their money.

We all have to do our part.

If you're a consumer that might want the help from a "financial advisor" some day, what can the industry & profession do to define what a financial advisor is?

If you're an advisor, what do you think is the best way to answer the question; what is a financial advisor?

Would love your thoughts!

Cheers,

Derek Notman

#financialadvisors #financialadvisers #financialplanning #wealthmanagement