Lockshin: All advisors must deal with the threat of low industry standards -- before investors do it for them

I agree with everything the author stated. And, I have no hope that financial services will ever become a true profession. There is no one right answer, therefore no peer review, therefore the opportunity for salespeople to manipulate the system exists. An industry like ours can never be effectively regulated for those reasons. The UK and Australia eliminated commissions from the equation and they still are dealing with regulatory problems. We’re stuck with what we have. Paranoia is indeed healthy for advisors. My paranoia drops each time I get a new client who brings a portfolio to me full of high priced garbage product, no financial planning, zero service and a small chance of success for the client to achieve their goals. When that happens, I shake my head regarding the lack of professionalism present, and am thankful I am in a position to take the business and hopefully keep a client for life by providing all they are missing and asking for.

Well said, Steve. What’s even more frightening, in my opinion, is when we see generalists working in a specialized field like the pension industry. I still scratch my head when I see advisers selling and servicing ERISA plans on a commission basis, with no training or education on ERISA or a solid understanding of what actions would make that adviser a fiduciary.

I’m a strong advocate for training and education standards in the pension industry (in fact I wrote an article titled The Birth of an Industry Leads to the Need for Specialization earlier this year) and will closely follow Advizent to see what trickle down effect it has on implementing standards in the the specialized segments.

Well said, Steve. What’s even more frightening, in my opinion, is when we see generalists working in a specialized field like the pension industry. I still scratch my head when I see advisers selling and servicing ERISA plans on a commission basis, with no training or education on ERISA or a solid understanding of what actions would make that adviser a fiduciary.

I’m a strong advocate for training and education standards in the pension industry (in fact I wrote an article titled The Birth of an Industry Leads to the Need for Specialization earlier this year) and will closely follow Advizent to see what trickle down effect it has on implementing standards in the specialized segments.

Steve. First of all thank you for your efforts to step back from the day to day practice of advice and serve up your observations of the current reality and help us see the plausible constraints of “what got us here may not get us to where we need to go”.

As a Licensed Psychologist (also passed CFP exam in early 80’s) working for the last 15 yrs in your industry… more narrowly in the financial planning, service or experience delivery side. I might offer a few additional observations:

1. Physicians are one of the least trained professionals in advice delivery. In fact, I helped design an elective bedside manners course back in the early 80’s. It is only in the last few years that a seminar version in now required in all med schools. However there is still no performance outcome assessment. (i.e.doing vs. knowing gap). Extra yrs of training the same skills (technical) may only yield better technical expertise. For example in my residency training some of the most advanced personality theorist (expert at explaining behavior) failed the outcome measures (were clients willing to be influenced and implement advice…in short start and sustain behavioral change). Lets get more quality measures for delivery of advice.

2. Consider the analogy of NFL combine for advisers…it is performance based (both past/present), uses character profiles, assessment of ability to manage complexity, and responses to adversity (resilience, GRIT, optimism). Lets get the skill measurement out in the open and more american idol like. Perform, Feedback, Coaching, Practice, Perform…repeat. That is how professionals accelerate performance.

3. One example: In the advice world advisers are trained to ask great questions…if you ask well they will trust, respect, etc…In all my yrs of training (1500 hours of video tape analysis of real sessions) I was never measured on my quality of questions. I was assessed and scored on the quality of my responses (which can be observed, tiered, scored, standardized, etc). In my discipline all the science supports response quality as the basis for trust for example. Lets bring more science to the delivery of advice.

Thanks again for drawing attention to how the sausage is really being made and delivered by the general financial advice profession (your not the only one feeling a twinge when you describe your observations). Here’s to a productive “raise the bar” dialogue.

As my former college football coach used to say “scratch where it itches”.

Dr. David Lazenby
Chief Science Officer
ScenarioNow

Steve, I totally agree. I have been a proponent for years of more rigorous standards. The majority of “entrance exams” for our industry focus more on compliance than anything else, and often on topics that have no relevance to our practice (ie. options, security registration process, etc.).

I believe that there should be some standard financial education requirements – a CFP “Lite” designation, the AAMS, whatever. But something that actually focuses on a broad range of financial topics – but would need to fall short of “advanced” certifications (CFP, CFA, etc.). And ongoing CE should be a must. I have never understood why we don’t have those requirements.

In addition, I have also felt that upon entering the industry, there should be an “apprenticeship” period – similar to that of a CPA in most (many?) states. Unfortunately, entering our industry can be as simple as passing a 1 hour exam, being given a phone book and a “Good Luck” from a manager.

I agree with a previous post – until we raise the bar, we will never truly be considered a “profession”, but simply a sales force.

I represented InvestorWatchdog.com at a meeting of seniors yesterday and this topic came up. I said the answer was easy. Who was the winner when there are low requirements? Wall Street wants the industry to be easy access for two reasons. 1. It is easy to hire and license thousands of new reps every year. 2. They can get the new reps producing revenue the next day. As usual the victims are the investors who believe advisors have to be ethical experts to sell investment experts. Why is it this way? Wall Street is dominated by a sales culture. How much do you have to know to sell a mutual fund?
How about this? There are no education or experience requirements to be an advisor and convicted criminals can obtain securities licenses as long as the crime was not securities related. Can you say axe murderer?
Investors, who can afford them, should only select RIAs and IARs who acknowledge they are fiduciaries, work for one of the three forms of fees, and practice full transparency (documented).

Jack, that makes sense. The problem in our industry (as compared to law, accounting, doctors, etc.) is the low barriers to entry. Even with Paladin/Watchdog (of which I am a happy member!), there are limitations to what is “reportable”. With such low minimum standards, the skill level and experience of different advisors can be so vastly different. And in so many cases, years of service does not equal “experience”.

It’s very frustrating indeed.

Make no mistake Wall Street wants easy entry: No minimum education or experience requirements, easy test, even convicted criminals can obtain securities licenses. Wall Street hides this mess from investors by fighting fiduciary standards for reps and any form of mandatory disclosure. The bottom-line is investors have to step-up and protect their own interests. Wall Street is betting they won’t do that. So far Wall Street is right.

Although doctors have years of training, there is the same degree of difficulty determining their skill set as there is with Investment Adivser Representatives. A few years ago, I was in a bicycle accident and had numerous broken bones, surgeries, etc. I bounced around to different doctors and surgeons some with multiple university degreees in addition to being doctors. Yet, the care I received was simply awful. All these doctors cared about was running up their bill. Conincidentally not unlike registered representatives who have quotas to acheive and run up their own bill.

Personally, I have 4 professional designations including the CFP. No one has ever said that they came to do business with me because of my 4 designations. Truthfully, the 4 designations have helped me become a whole lot smarter than my peers, but not much help in gaining new clients. People do not care how smart you are. They only care if you care about them.