DISQUS

LS · 9 months ago

I'd rather have my head caved in with a hammer than be a financial planner.

Jason · 9 months ago

In my eyes all financial planners are dubious when they make their living through commissions. The interest of most financial planners are at odds with the client when the pay is anything but a fixed up front fee.

My mother was told by her financial planner before the dot com bubble burst to leverage her home and invest heavily in mutual funds which undoubtedly paid a handsome commission. What kind of advice is this for a widow with two children? The adviser was eventually taken to court and shown to have given irresponsible advice and a large portion of the money was repayed.

Everyone who wants unbiased advice should pay an up front cost for services like you would an accountant or other professional. All other "advisers" are salesmen.

J. Buck · 9 months ago

Although what Jeff has brought up has its truths... in defense of financial planners, the big picture IMO is that just seeing a financial planner will help to get you involved and on track toward saving and investing for retirement. It's a behavioral thing... most people are not going to invest on their own..they're reluctant..unless they have the (sometimes) gentle prodding of a financial advisor trying to point them in the right direction. I can think of my own parents as an example.

Again, the big picture being that just by having a financial planner there, it can help to get people to at least THINK about the fact that they should save and invest for their retirement so that something can be done about it.

Jeff Rose · 9 months ago

@LS Hmmm. I assure you my job is not that bad. I hope you're planning on wearing a helmet first.

@Jason. I can strongly relate to your situation. One downside with my profession is that there are so many crooks in the industry. Why that's good for me is that people that get to work with me enjoy the working relationship and that goes for every good and decent advisor out there.

@J. Buck. Absolutly right. I've ran into several people that don't have a financial planner, especially the younger generation. But I've noticed as people get older and need help constructing an income plan, that's where a planner is instrumental in guiding them through retirement.

Ryan · 9 months ago

Jason - "...pay an up front cost for services... "?

Think about motivation that is solely compensation driven. If you get paid up front, what incentive do you have to perform well? Accountants and many other professionals are engaged to perform specific services which are in conformance with rules backed by a governing body (e.g. the AICPA has strict rules regarding what constitutes a proper audit). These rules ensure that there is limited ambiguity on what constitutes a job well done.

Unfortunately, it doesn't work this way for financial advisors. Frankly, I'm not sure how it could work this way (except in cases of criminal or grossly negligent behavior). So, the best alternatives are commissions and pay-for-performance (the private equity/hedge fund model). But both of these have their drawbacks.

Any suggestions to improving the system would be very beneficial to the financial services industry as this has been a very hot topic lately.

Mrs. Micah · 9 months ago

@Ryan, IMO commissions based on selling you stuff are NOT the best compensation because they make giving bad advice more tempting. They create a bad situation for both parties because the client is suspecting that maybe the advice is based on what it'll earn the planner and the planner may be tempted to make a particular recommendation which is about as good but not as good because it's better for them.

I agree that there's always the possibility of a fee-only adviser neglecting you after the fee's paid, but I believe they have certain ethical guidelines too, if they're part of an organization (name I can't remember right now, Jeff?). That doesn't mean commissions are any better of a model, in fact they probably provide greater ethical quandaries for honest people trying to make a living.

PT Money · 9 months ago

Great interview, Jeff. Good to learn a little more about the profession.

Ryan · 9 months ago

@Mrs. Micah - I am not suggesting that commissions are without flaws (brokers can be heavily incentived to push certain products that may not be best for a client). But it is better than a single up front fee, on which I'm assuming the arrangement is Investor pays Manager a fee and Manager is tasked with managing money on Investor's behalf. In this case, the fee is probably much larger than a single commission. So, if the Investor is dissatisfied (note it's dissatisfied, not that the Manager has acted maliciously) the Investor is out a much larger fee than a single or even a few commissions.

The reality is that all compensation methods have their flaws. Even a pay-for-performance model with an advisor who co-invests has flaws (I referred to this above as the private equity/hedge fund model). In this case the Manager is heavily motivated to make riskier bets to reach a loftier payout but the Investor bears a disproportionate share of risk.

No "good" system has been found yet so we've been forced to live with the best alternatives until a better system is discovered.

G Monk · 9 months ago

Since when is financial planning a manly activity? Phhhhht!

Jeff Rose · 9 months ago

@ G Monk

Apparently, you've never seen Office Space. Have you ever had a run in with a copier that's on the frits? It's not a pretty sight my friend. Don't even let me begin with the paper cut incidents. Or the time we ran out of regular coffee. The natives were mighty restless that day.....

Rob · 9 months ago

This 'interview' could have done without the copyright and trademark bugging for the professional designations. All right, we get it that you jumped through all the hoops to get the CFP. Well done. Spare us the branding assault. Manly men don't let their credentials do their talking for them.

Jeff Rose · 9 months ago

@ Rob

Sorry for the technicalities. As part of the exam and one of the requirements of the Financial Planning board is to utilize the correct trademark and copyright designations. So in essence, I'm letting the financial planning board ,who allow me to use the proper credentials, do the talking.

Matthew · 9 months ago

I am currently a college student majoring in Agricultural Consumer Economics with a concentration in financial planning at the University of Illinois at Urbana-Champaign. I am mainly interested in financial planning because I have a knack for finance and I really enjoy helping people. I am currently working at the UIUC IT Help Desk as a consultant. We provide IT support for various computer-related issues. I know it isn't personal finance oriented, but I have to assess situations and provide solutions to a client base that includes all of UIUC's students, staff, and alumni.

@Jeff
First of all, thanks for the awesome information in the interview. Do you think my Help Desk job is something that would actually help me in my job search after graduating college or should I look for something more finance-related? After graduation, would I want to look for a position with a large firm so I can learn what I like/dislike and can go from there? I know larger firms push certain investments and have quotas for consultants to reach. That's why I'd like to end up being part of a smaller firm eventually.
Any advice would be greatly appreciated.