What does it mean to be a fiduciary in the financial planning profession? This is a complex question with no uniform answer.
For me, being a trustee involves a holistic style planning approach. You examine clients’ situations, goals, needs, assets and cash flow to create a framework and provide recommendations that are in their best interest.
At the same time, trustees can and should limit their scope of engagement. This prevents you from swimming outside your depth. But if the scope is too narrow, it’s probably not real financial planning.
For example, if I’m a financial planner and don’t look at stocks, bonds, tax rates, or savings, that limited scope makes me something different from a financial planner (e.g. pension plan specialist, insurance product specialist, etc.).
But to deliver quality financial planning and recommendations, you need to see a wide range of assets, goals, strategies, and client needs. A football coach cannot make the right choice of play in a match if he does not know the outfit, distance, score and time on the clock.
Often the most important assets and liabilities of customers are ignored at the expense of limiting the scope. But making decisions without perspective leads to ineffective and sometimes harmful results. And giving advice in a vacuum diminishes its power and impact.
If you are a trustee, home equity and insurance are two priorities that you will include in the planning process, regardless of the scope of your commitment.
I believe that not including home equity in the financial planning process is one of the biggest failures of the financial services industry and of a financial trust advisor.
In a recent study published by the Academy For Home Equity In Financial Planning at the University of Illinois at Urbana-Champaign, many financial advisers interviewed said they were prohibited from making mortgage recommendations out of compliance, but a handful said they still make recommendations. Other survey respondents who said they were unsure whether they were banned by compliance also made recommendations. How is this in the best interest of a client?
You could limit the scope of your commitment to mortgage, reverse mortgage, and home equity review and education, and forgo making recommendations. But when you step back and think about how important a financial decision to buy, rent, or refinance a home for a family is for a family, I personally want my financial fiduciary advisor to be a part of the process and help me. guide in this decision.
For many Americans, their home is their greatest asset and liability. If you can’t plan for it or build it into the planning process, how can you say you’re working in the best interests of the client?
The other important asset and liability that trustees should include in the planning process, regardless of the scope of their engagement, is insurance. Like home equity, insurance is fundamental to wealth and financial security in the United States. Helping clients with all areas of insurance – disability, health care, property and casualty, life insurance and annuities – helps create better plans.
You can get into an endless and more detailed discussion of insurance compensation models. But at a basic level, compensation needs to be straightforward, understood by the customer, and completely transparent. The Value of an Advisor research results published in 2020 showed that clients are more satisfied with transparent compensation models.
Compensation models have unique advantages and disadvantages, biases and conflicts. Some compensation models cause problems with fiduciary planning because the conflict of interest is real and can lead an advisor to make recommendations in their own best interest rather than that of a client. As a fiduciary financial planner, you need to limit, avoid, and eliminate conflicts to put clients’ interests first.
Fiduciary financial planning requires that you understand your customers, get the big picture, and help them through the planning spectrum, not just in ways that bring together assets, sell products, or earn money. money. Mortgages, home equity, annuities, and insurance are all critical parts of anyone’s financial situation. To ignore a client’s most important assets is to ignore their best interests.
[More: Increase client satisfaction through planning]
Jamie Hopkins is Director of Retirement Research for Carson Group and Managing Director of Carson Coaching.