Regulation and Financial Planning – What’s Next?

The issue of financial regulation has taken center stage over the past few weeks. This was inevitable given the circumstances surrounding the recession: a bursting bubble in the real estate market exacerbated by rampant greed and a total lack of transparency on Wall Street. If history has taught us anything, it’s that capitalism thinks and acts much faster than regulation. After the damage is already done, regulators scramble to assign blame and over-regulate to compensate for their own glaring errors. My article today pertains to my end of the industry: financial planning and investment advice. While advisors are typically regulated by either FINRA and/or the SEC, there is a huge amount of confusion about the standards advisors need to follow when it comes to selling products and offering investment advice. There is also confusion about ‘who is’ an advisor because there is no state-issued designation for financial planners the way there is for accountants and financial analysts. The closest thing we have is the Certified Financial Planner (CFP) which is controversial among industry professionals for a variety of reasons ranging from the ethical requirements to the fees. As our field grows continues be in great demand, it’s important that regulators maintain some clear-cut rules and regulations for financial professionals in the business of giving advice.

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Are Fee-based Financial Planners Taking all the Business?

It certainly looks that way to me. Throughout my eight years in the financial planning profession I’ve watched the rapid transition from commission and transaction-based business models into fee models. Back in the 80’s and 90’s it was standard practice to buy and sell stocks and pay commissions to your broker based on the dollar value of your transaction. The same applied to other financial products which worked on a commission schedule. Nowadays, commissions tend to raise eyebrows, even in cases where the commission may be reasonable, hard-earned, or perhaps work out cheaper for the client in the long-run.

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