A widow just shy of her 90th birthday recently asked me to review her investment portfolio. This happens a lot: Much of my practice involves giving second opinions to other financial planners' clients.
This widow had a reason to worry. She had been sold two expensive annuities — just about the last thing a 90-year-old needs — and the rest of her portfolio consisted mostly of risky stock funds and junk bond funds. The planner was making a fortune as the widow's nest egg dwindled.
A natural reaction would be to file this story next to that of Bernie Madoff or other brazen crooks. But that would be too easy. Like every financial planner I know, the widow's adviser really seemed to believe that she was doing her client a great service. In fact, she considered her a dear friend.
My point is this: Bad advice is epidemic in my industry, and it doesn't come only from villainous fraudsters such as Madoff. It also comes from pleasant, empathetic folks who are merely responding predictably to my industry's perverse incentives and self-serving ethical standards.
We financial planners are masters at persuading ourselves that what's in our best interest also happens to be the moral thing to do. By and large, we're good people, which is why we can be so convincing — and so potentially dangerous to your money.
Who I am
I spent 20 years in the business world as a corporate finance officer before becoming a personal planner more than a decade ago. I started my practice because I knew that a lot of the advice families got was mediocre or worse, and I hoped that I could help counteract that.
That's also why I write very candidly about how this profession works, and what you should know about it before you seek advice from me or any other planner. (This article isn't a plea for business: I have a long waiting list and don't need to advertise.)
For two years I penned these insights anonymously in a column called The Mole in Money magazine; today I write for the website CBS MoneyWatch and elsewhere, often giving an insider's view of my industry and how it treats its clients.
Sad to say, the worst cases often involve older clients. We planners target you because you have the largest nest eggs, and the more money we manage, the bigger our take. Also — and let me be frank here — you often view your money more emotionally than younger people do, because you have so much at stake. And that makes you vulnerable.
What planners want from you
I'm a certified financial planner (CFP) and a member of the Financial Planning Association (FPA). Roughly 70 percent of the FPA's 23,800 members are CFPs; earning the designation typically requires months of study to pass a reasonably tough exam.
About half of the members have been in business at least 15 years. As an organization, we want to establish planning as a true profession, one seen in the same light as medicine, the law and accounting.
But that's not our only motivation: Planners have financial aspirations of our own. We make money by getting it from you. This isn't evil in its own right. But it is a conflict of interest, and it pervades everything we do.
What Planners Can Do for You
- Help you define your financial goals.
- Help you build a diversified, low-cost investment portfolio — and then stick with it.
- Make sure you have the lowest-cost insurance coverage for your needs.
- Help you make the best moves regarding Social Security and your pension.
- Reduce taxation on your investments.
- Help you pass assets to your heirs.
We spend a great deal of effort trying to win your trust. A CFP is a serious designation, but that's not true of all the strings of initials after our names: At least 100 financial designations are in circulation, each meant to convey expertise in something. Some prove only that the planner passed an easy exam.
One organization, representing the Certified Retirement Financial Advisor (CRFA) designation, solicited me in 2007 to obtain both this “prestigious designation” and to sell me the names and contact information for older people who might want to buy an annuity. (CRFA spokesperson Lynda McColl says that the organization is under new leadership and has not sold names since 2007; its current certification requirement consists of a 100-question test.)
Other businesses will anoint us (for a fee) with even loftier distinctions. For instance, I've received an America's Top Financial Planners award from the Consumers' Research Council of America.
Forbes.com found that the council's Washington, D.C., address was a rented mailbox, and its vetting process is questionable, to say the least: To memorialize my honor, I called the 800 number the council gave me and received a $183 acrylic plaque — bearing the name of my dachshund, Max Tailwag’er. After I wrote about this in my MoneyWatch column, the council contacted Forbes.com (but not me) to demand the plaque’s return.