Where Have All The Financial Planners Gone?
Peter, Paul & Mary sang a beautiful song titled: “Where have all the flowers gone?”
If I could sing (which I can’t) my rendition would go something like this: “Where have all the financial planners gone? Gone to be portfolio managers every one. When will they ever learn. When will they ever learn.”
All financial advisers, consultants and brokers basically fall into one of two categories: Portfolio Managers or Financial Planners.
80% are portfolio managers. If you ask them what their main job is they will tell you that they try to choose above-average investments and/or a mix of investments for you. The problem is that if you peel back all of the hype you will find that they only deliver average returns before those ongoing fees and sub-par results after costs. Over any length of time we would all be better off just buying a few low-cost index funds and calling it a day.
Less than 20% (and falling fast) of financial advisers consider themselves “pure” financial planners. They will focus on creating a written financial plan for you covering a wide range of topics like insurance and estate planning. The problem with these folks is that unlike portfolio managers, they only get paid a one-time fee to draw up that plan. One-time fees are hard to live on so financial planners are increasingly morphing into portfolio managers who can even afford to throw the planning in for “free”.
Here is the issue: Portfolio management is sexy and mysterious and people are willing to pay way too much for a service they don’t’ need. Financial planning on the other hand, is valuable but most people are unwilling to pay for it.
The result of this mismatch is that we have created a whole industry focused on the wrong things. The brightest young minds are incentivized to go to Wall Street to be portfolio managers rather than main street to work as financial planners. More resources and time are wasted trying to pick hot investments rather than helping companies navigate challenges like Obamacare.
This holiday season please feed/hire a good financial planner that gets paid by the hour. It would be a great present for you and a good gift for my entire profession.