I Don't Know What Financial Planning Means

Ask a financial advisor to define financial planning and they will give you an answer. Unfortunately, you could ask five different advisors and receive five different answers. The financial advice industry does not have a common lexicon to describe what it is we do nor to describe financial theories and concepts. In speaking with other advisors, I have often recognized that we were using similar words, but not discussing the same thing. This is a major problem both for the industry and profession, and for clients. How are you, as a client, supposed to understand what is being discussed if the industry cannot even agree on definitions.

In a previous post, I discussed the lack of clarity in titles used by financial professional. None of these titles are terms of art, although I hope that in the future we will see that some become so. This is one glaring example of the lack of shared vocabulary in the industry. 

Another example can be found when discussing investment advice. Professionals who believe in active investment management often use the phrase "buy-and-hold" to characterize passive investment management. A professional who believes in passive management is unlikely to believe in the concept of "buy-and-hold" recognizing that passive investment management does not mean doing nothing. Passive and active managers do not agree on the definitions of their investment styles, despite being similarly trained.

A third example, and of particular interest to me, is the definition of financial planning. I have a definition of financial planning, one which I know is not shared by many other professionals. I have met financial professionals who believe financial planning to be nothing more than investment management; and others who believe investment management could be excluded entirely from the definition of financial planning. 

The most disturbing part of all of this is that there is no dialog in the industry to try to arrive at common definitions. We recognize that there are differences, but continue speaking with one another even while we understand that we are not speaking the same language.

Clients and potential clients are hurt by this. You cannot know with any confidence what a financial professional is intending to explain when the definition can vary so significantly from one professional to another. The industry must begin to correct this if we truly hope to work for our clients. We must have a forum where open discussion can occur to create a common language. We must agree on the definition of financial jargon.


financial planning said...

I want to offer a personal financial planning service for young families, covering analysis of present financial condition, budgeting, investment and insurance planning, retirement planning etc. Where can I go learn about financial planning and insurance sector?

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