All Financial Advice is Wrong – Upset The Industry Series Part 2


Yesterday I ran across an article titled Financial Advisor Training – Real World Advice From a Successful CFP® on the WealthPilgrim.com blog. The article gives a good, accurate description of the entry-path into the financial advisory world. The path described is how most of the individuals I have met enter the financial services industry. And I wonder how education and mentored training cannot be an important part of the development of a financial planning career? I thought this article would provide a good lead-in into Part 2 (link to Part 1 here) of my barely-edited, stream-of-consciousness Upset the Industry Series discussing why all financial advice is wrong, in this case why new entrants are bound to provide financial advice which is wrong.


Financial planners and advisors are destined to make the same errors and impact people’s lives negatively over and over again. This is because there is a fundamental flaw in the entry-path for an individual hoping to work in this industry. It creates a perpetual cycle of learning and relearning the same mistakes, giving the same wrong advice and not bringing the industry or profession forward. Would you ever consider hiring a doctor who learned to practice medicine from study of a book for a month or two followed by trial and error on patients? Would you allow your children to be taught by teachers with no training nor formal education, but only on the job training provided by textbook publishers? I suspect the answer to these questions is negative, yet this is the risk you take every time you work with a financial advisor.

My Entry Into The Industry

When I first entered the industry with a large insurance company, I had to pass a few tests before I could begin approaching and “advising” potential clients. This study and testing took me about two months of work after which I was legal prepared to dispense financial advice. I was utterly unprepared to take on this role. In fact, after I informed my supervisor that I had passed the exam with a score of 94% correct, I was told I had studied 24% too hard! These tests were not about learning, but simply about being allowed to sell product.

My business card read “Financial Advisor”, yet I would have struggled to balance my own checkbook much less help people with complex financial decisions. I was expected to learn on the job with little oversight and input from experienced financial advisors. I was encouraged to pursue further education as time allowed, but advised to first build a client base and focus on one product to sell to that client base. The damage I might have done to people’s finances is unspeakable. Fortunately, I was horrible about approaching the people I was recommended to try to secure as clients, my friends and family.

This is how many financial advisors enter their financial services careers. There is no career path, no formal training, no required mentoring or residency. Trial and error on early clients is what is advised. This means that each generation of financial advisors is destined to make the same errors and provide the same wrong financial advice as previous generations. The body of knowledge does not expand, the profession does not develop. There is no professional memory.

A Well-Designed Path

The solution to this problem is simple, yet expensive and unlikely to move forward quickly. In fact, many smaller financial planning firms across the country have begun to take steps to create professional memory and a true career path for people wishing to enter the industry. The solution requires a path of entry which is not predicated on selling product immediately. There must be meaningful education required. Mentoring or residency has to be included. A well-defined path to becoming a financial advisor is necessary in order to move the profession forward. Large financial institutions have no incentive to help push the solution forward, however. They are creating sales people, not trusted advocates for clients. Less expense and quicker sales results are their focus. Education, mentoring and residency mean increased cost and time to making new entrants productive.

The CFP® curriculum has provided a good first step toward education requirements. It provides a great deal of the technical knowledge necessary to provide clients good financial advice. It is, however, beset by problems leaving it short of what is needed to advise clients well. The curriculum is almost entirely technically focused; there is no education on how to work with clients and how the delivery of advice can impact the likelihood of a successful relationship. There is no focus on how to deal with difficult situations such as clients in true financial distress. The most powerful, yet basic, parts of financial planning are glossed over (budgeting, goal setting) in favor of more focus on complex investment, tax and estate planning knowledge. The CFP® curriculum is grounded in high-net worth financial planning focus and lacks focus on helping a broad spectrum of consumers.

Mentoring or residency is critical to the development of the profession and to prevent wrong financial advice from being dispensed with such regularity. There is tremendous amount of knowledge in existence today, knowledge which should be passed from the older to younger generations of financial advisors. The older generations have experienced several economic cycles, different financial behavior trends by Americans and have can teach new generations about their learning. This needs to be experiential learning where the new generation is allowed to provide financial advice with an older generation advisor stepping in to prevent major mistakes. The new generation must be allowed to make mistakes to learn, but these should not reach clients. The lessons have been learned by the profession, clients should not have to experience them again. This type of learning can only be accomplished with a deep junior/senior advisor mentoring relationship.

Where We Stand Today

If you are wealthy and can afford the services is a very good financial planning firm, much of what I have described is becoming available to you. More and more firms are recognizing the need to develop the next generation of financial planners and have worked on a strong path to do so in a responsible manner, not putting clients’ well-being at risk. These firms are the exception, however. Most new entrants begin with large financial services companies who continue to throw inexperienced and untrained individuals into the fray, recognizing a few will stick and be able to sell product and having no concern for the damage done in the process.

If you are not wealthy, these are predominantly the people available to you right now. These are the individuals who need to take on any client in order to make a sale and put food on the family table. Most who I have met are trying to provide good financial advice and help you, but they lack the training and experience to do so well. They live in a compensation system designed not to give them the time to develop. You should have access to better financial advice than this.

The CFP® curriculum is constantly being tweaked, and there seems to be some momentum to include new focus areas into the body of knowledge. Hopefully, we will see a new form of financial knowledge being taught to future CFP® certificants. Colleges and universities are beginning to offer financial planning degrees, as well.

There is movement in the correct direction. But until this movement has made significant strides, financial advice will continue to be wrong. As a client or potential client, you must understand that you are not working with a profession trained the way other fiduciary professions have been trained. You will receive financial advice that is wrong when it does not need to be. You will encounter inexperienced advisors who do not have someone looking over their shoulder to make certain they do not guide you poorly. Be aware of this, and understand that you must shoulder the burden to know the limitations of your financial advisor and to seek a new opinion when something feels wrong.

All financial advice is wrong. This is another example of where this “wrongness” stems from.


2 comments:

Aaron @ Clarifinancial said...

Funny, but unfortunately true. This problem continues because of the massive turnover in the industry and the strong financial incentive of managers.

My first job involved calling up strangers and convincing them to invite me into their house. Then I was trained that only one life insurance company could solve all of their problems. I've been pushing for better comparisons and clarity ever since.

Gordon said...

I want to invest my money in some insurance policy but I don’t have any idea how much to invest first time in it? If anyone has any information about it then please share with me. Thanks.
Financial planning advisor

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