Morningstar Advisor - June/July 2011 - (Page 8)

Behavior Gap Questions for the Secret Society By Carl Richards I belong to the Secret Society of Real Financial Planners. I believe that many of you do, too. Membership is not so much about the title on your card, where you work, or the designations you hold. It is about taking the craft of advice seriously, considering yourself a professional, and, above all, being someone worthy of the sacred trust people place in us. In fact, the bar for membership in my personal secret society is simply being someone that I would send my mother to for advice. The society remains a secret because no one really believes it exists. I get skeptical looks when I tell people that there are real, live professionals that take the role of giving financial advice seriously and can be trusted. This attitude has to be changed. For it to happen on anything more than a local scale, we need to get clear about three questions: 1 What do we call ourselves? Even after 15 years, I’m still not sure what to tell people when they ask me what I do. I’ve had more than 10 different titles on my business card, but those were all created by marketing departments to sell products, not for a professional who gives actionable advice. For people to take what we do seriously and consider us to be professionals, we need to be clear that what we call ourselves matches what we do. 2 What difference do we make? should be paid to walk someone through a risk-tolerance questionnaire and pick a portfolio. Do we now just provide access to prepackaged portfolios instead of picking stocks? It’s really important that we get very clear about what it is that we do or we will be replaced by faster and cheaper ways of doing it. 3 How do people pay us? What impact can a real financial planner make in someone’s life? It was not too long ago that the value of a financial professional was tied to information access and transactions. Now a large part of the industry believes that we Once we’re clear about what to call ourselves and the service we provide, then we have to address how we get paid. If you’re providing comprehensive advice, does it make sense to bill based on an AUM model that was designed to compensate investment managers for outperformance? I’ve had clients comment that our industry is confusing because we charge for a commodity (access to mutual funds) and give away the valuable stuff (our advice). For too long, investors have been confused and disappointed by the traditional financial-services industry. Isn’t it time for the real professionals to step up and push for change? It’s clear to me that if we don’t accept the challenge, we can and will be replaced. What we have to offer as real financial planners is valuable. I believe it’s time that we recognize it and help others understand why we’re different. Are you ready to declare your membership in the Secret Society of Real Financial Planners? K Carl Richards believes the world is a better place when people make smarter decisions about their money. That’s just one of the big ideas he promotes at, a laboratory of sorts where Richards asks tough questions about financial planning and investor behavior. Richards puts his ideas to work in the real world through his firm, Prasada Capital Management. 8 Morningstar Advisor June/July 2011

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2011

Morningstar Advisor - June/July 2011
Letter From the Editor
Questions for the Secret Society
Are 529 Plans a Useful Tool for Clients’ College-Savings Goals?
Taking the Lead
How to Sell Covered Calls
The College-Savings Challenge
Time to Play Defense?
Four Picks for the Present
Investment Briefs
Careful What You Wish For
Caution in Utilities After Japan Crisis
Blossoms and Thorns in the 529 Garden
Lower Fees, Competitive Returns Help More 529s Make the Grade
Morningstar Grades 529 Plans
529 Risks Include the Political
Researching 529 Plans Made Easy
How Closed-End Funds Are Born
Boutique Within a Bank
The Inefficient Pricing of Moats
More Steak Than Sizzle
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Dangers of Demonizing

Morningstar Advisor - June/July 2011