The Financial Services Industry is Yet Again Under Fire, And it Should Be…

By: Jason D. Nickerson, CFP®, EA, President & Chief Operating Officer, John G. Ullman & Associates

When will we learn? When will we as consumers take matters of choice back into our own hands? Choice is about the only thing in our control and yet we make decisions fleetingly with minimal research. We make choices about our financial lives based on 30 seconds of research or quickly trust companies twisting and turning the latest industry compliance buzz words meant to protect us as sales pitches. The recent news of bank failures and other financial services companies being questioned has me troubled, infuriated, angry.

I am not in the banking industry so I have no business using this article as a platform to attack those in the industry. However, I am a 25-year vet of financial services and I am going to use this platform to take a stand. Enough with the over use of the term “fiduciary” and the phrase “comprehensive wealth management” if that is not what is provided. How does this tie to recent troubles in financial services? Because I believe that our personal financial matters tend to rank second on our life priority list only behind our family’s mental and physical health. And with that level of importance placed on that area, we quickly enter into relationships with financial services firms being sold on something that is not there.

I want to start with fiduciary. The technical definition includes the word trust. My favorite analogy comes from one of my industry hero’s, Michael Kitces. He talks about it like this; “Suitability means selling a suit that fits you. Fiduciary duty means it actually has to look good on you too.” Anecdotally, I hear professionals recommending things that, in their minds, can make a case that they fit this description. Then when the consumer actually figures out the recommendation, some amount of time later, they see that they do not like what they got. Stop mixing suitability and Fiduciary Duty. They are different, very different. I like to use the phrase “a true fiduciary relationship.” Why? Because I know in the end the only thing I have to sell is a relationship. Yes, we benefit the longer the client stays with us, but then again, we both do.

Comprehensive Wealth Management. Used in pieces or all together, it is often used wrong. Maybe vainly, I will quote a blog I wrote a few years back called “What is CWM?”

“We find that this is more than the returns in our portfolios and cutting edge tax strategies. It is about the decision making that goes into creating a path for us that leads to comfort and peace of mind. It’s about protecting that for which we have worked so hard. It is about optimizing what we have and what we will build. It does not mean getting the most, but making the most of what we get and making decisions that are suitable for what we are hoping to achieve.
Some companies will say they offer this approach. If you come across them, I ask that you dig in and understand what they are offering. Is the first thing they ask for your account balances or what insurance policies you own? Or do they ask about you, and what is important and valuable to you? Do they run all sorts of fancy calculations and hand you a big binder and send you on your way? Or, do they partner with you to implement the decisions you have made after discussing various options and providing education on the pros and cons.”

And I continue…

“Wealth denotes how we hope to help our children in various phases of their life be it education, embarking on a career, or starting a family. Wealth refers to peace of mind knowing our aging parents are well taken care of as they move into their “golden years.” As you can see, Wealth is not just about our account balances; it is about the things we have a high value for and obtaining peace of mind around them.”

For a bonus round, I will attack cost or pricing. First, most consumers don’t know or don’t understand the full cost of their financial relationships. Do your research and ask your questions. Second, I don’t think anyone would choose a surgeon based on how low the cost might be.

Why do we do this with our financial matters? I have a colleague that puts it in a “digestible” way (pun totally intended). “We can eat the low cost food from a fast food chain for every meal, but we know that is not healthy for us.”

Rant over. Don’t expect financial services firms to change their ways, you as consumers need to change yours. Your personal financial well-being is important. Stop making choices based on buzz words and cut rate pricing. Stop chasing more return and fancy schemes. Find a partner that understands protecting what you have built is more important than growing it. You can’t grow what isn’t there. Find someone that understands that financial freedom is about choice of how we spend our time and not dollar signs and investment returns. Take back the power of choice, especially in your financial relationships.