There’s a lot of terms within the financial planning profession and today’s episode looks to bring clarity to some commonly misunderstood terms. From the difference between an RIA and a Broker Dealer, to the different fee structures and even understanding what it means to be an investor, there are so many different terms thrown around. These terms can be confusing, but it’s critical that planners understand what each of them mean as they navigate the profession, their careers and most importantly capture who they are and what they do.

In this episode, Dan Moisand, former President of the FPA, sits down with your host Hannah Moore to talk through the technical definitions that comprise this profession. We’re really getting in the weeds with it here – and this episode will act as a primer for all new planners entering the financial services industry.

Dan also guides new planners in how they can move beyond these technical definitions to move our wonderful profession forward.

This is a must-listen for all new planners who are looking to decipher the difference between marketing terms and ways that the financial planning profession is actually regulated by our governing bodies!

hannah's signature

 

What You’ll Learn:

  • The difference between a RIA and a Broker Dealer  
  • What a “Wirehouse” is – and what you need to know about them as a new planner
  • What a “Custodian” is
  • The difference between a Financial Planner and an Advisor
  • The difference between an Agent and a Broker
  • Why “Wealth Management” is technically a marketing term
  • What “Financial Planning” actually is
  • The difference between Discretion and  Non-Discretion
  • What the Fiduciary vs. Suitability debate is all about, and what the difference is for consumers and planners
  • What the different career paths for new planners are (paraplanner vs. associate planner vs. junior planner), and how to know what you’re applying for
  • What the SEC proposed versus DOL fiduciary rules
  • What it means to be an investor
  • What the difference between a trader and a speculator is
  • How you, as a new planner, can help to move the profession forward in spite of the technical jargon
  • How to communicate with clients about the technical titles in the profession
  • Why you need to know these technical terms

 

Show Transcript

Ep104 Transcript


Hannah: Well, thanks for being here Dan.

Dan: Thanks for having me.

Hannah: I am so excited for this podcast because there are so many terms that get thrown around the financial planning profession that I’m just not sure everybody has a really clear understanding of what they mean. That’s why we brought you in.

Dan: Dan the answer man, great. I’ll do my best.

Hannah: No pressure right?

Dan: Right.

Hannah: Let’s start out with one of the big, everybody’s heard these terms, an RAA versus a broker-dealer. What are they and what the heck is the difference?

Dan: Well, RAA actually has a legal definition. Some of the things that I know we’re going to talk don’t, it’s just kind of an understanding but RAA is one that is actually defined in the law, the Investment Investor Act of 1940. It defined an advisement advisor as any person or firm that for compensation is engaged in the business of providing advice to others or issuing reports or analysis regarding securities.

Dan: There was a few terms in there that need further definition, and the Securities Exchange Commission has commented on it a number of times. One of the determinants for whether you’re engaged in the business of advice regarding securities is whether you’re holding yourself out as an investment advisor. That makes perfect sense to me. The staff has talked about what is advice about securities.

Dan: They’ve stated, this was just a few years ago, longtime staff member named Bob Plaze put out a thing about the SEC’s view of regulation of investment advisors. This is post 2008, Dodd–Frank, all that kind of stuff. The SEC staff has stated in this regard, that advise about market trends is advice about securities. Advice about the selection and retention of other advisors is advice about securities. Advice about the advantages of investing in securities versus other types of investments is advice about securities. Providing a selective list of securities is advice about securities, even if no advice is provided to any one security. And, asset allocation advice is advice about securities.

Dan: So, pretty clear. If you’re telling people what they should be in, you should be an investment advisor, which gets a little money because it seems like everybody in financial services is doing this.

Dan: A broker-dealer, a broker is basically an intermediary between a buyer and a seller. A dealer is acting as a principal in the securities transaction., so they are the sell side. Broker-dealers, therefore are int he business of transacting securities. They are either selling directly the securities or the products, or they’re acting as the intermediary between some other seller and a buyer. It’s a transactional thing.

Dan: The reason the broker-dealers are not investment advisors is because there’s a specific exemption under the law in the Securities Exchange Act of 1934. They’re excluded from the 40 Act, the Advisor Act if the advice given is solely incidental to the conduct of its business as a broker-dealer and it does not receive any special compensation for providing the investment advice.

Dan: Broker-dealers have been hanging their hat on not being regulated as advisors on this incidental advice exemption. That’s why there’s been great debate about what’s been from a regulatory structure between advisors and broker-dealer worlds. When this whole thing was set up in the 1934, 1940 Acts, the broker-dealers was a transactional based business, investment advisors was the advice business.

Dan: So, the broker-dealers were facilitating the transaction, the advisors were figuring out what transactions needed to be facilitated. That’s the more plain English way to explain what’s supposed to be a difference between an RAA and a broker-dealer.

Hannah: We might need to dive into this a little bit more.

Dan: Sure, there might be a few wrinkles on there.

Hannah: I know right? You made it seems so black and white.

Dan: Ironically Hannah, it is black and white. It’s in print. It’s in these laws. Now, what has happened over the years is the brokerage firms have figured out quite clearly that people aren’t that interested in just facilitating transactions. They’re interested in what those transactions should be for themselves.

Dan: So over time, the broker-dealer registered representatives who were the ones going out, finding buyers to buy things from sellers, maybe even their own firm as a dealer, the registered representatives have gotten more and more into advice that in a lot of people’s opinion is not incidental to those transactions. And, as the SEC did not enforce in a hard line way that very clear distinction in my mind, it’s gotten more and more muddied and that’s why we’re where we are today.

Dan: It is in the best interest of the public that they get advice about securities, but the fight’s more about what standard needs to apply because there aren’t any brokers. Do you run into brokers anymore? Very rare, they’re all financial advisors.

Hannah: I know a lot of financial planners who call other people brokers, who don’t call themselves brokers, but … As you were talking through this, I was thinking back to when I took all of the regulatory exams. I took my Series 7 exam and then my 66 and the CFP, maybe not even in that order. Just how different that Series 7 exam was from the CFP exam. The Series 7 was very focused on options trading, what does the transaction of a bond look like? Who are the different players in having that bond issued? I’m seeing some correlation with just the exams that are required for the broker-dealer versus the RAA.

Dan: Right, now if you were a CFP you may not have sat for the Series 65, investment advisor representative exam. That materials about the rules and regulations that apply to investment advisors. It’s a very different exam than the Series 7 and it should be. Broker-dealers are supposed to be doing something very different from what investment advisors are doing.

Hannah: At the broker-dealer, I was listed as an IAR. It was an investment advisor representative.

Dan: Correct.

Hannah: How does that fit in with, because I was under a broker-dealer providing investment advice so therefore I was an IAR.

Dan: Yeah, and in fact today, most people who would describe themselves as a financial advisor are in fact operating in a world where they’re involved in a little bit of both broker-dealer activity and RIA activity. They’re either dually registered, which means that they’re operating under the … They’re working for the broker-dealer, and then they work for an RAA also set up by the broker-dealer or the ultimate entity there. It’s all FINRA regulated.

Dan: Then some are hybrids where they have a Series 7 license, they do the brokerage, and then they also have an RAA on their own as a separate entity away from the broker-dealer registered with the state or the SEC. It’s a hybrid. Most people who are involved in financial advice these days do have ability to be in both worlds, which is nice on the one end and it’s very confusing for consumers on the other if people aren’t careful or nefarious.

Hannah: For the people listening here who are part of a broker-dealer and they’re like, “Hey now, I have my friends in the RAA space. I know what they’re doing with clients, I know what we’re doing with clients and it actually is really similar.” Is that possible to have it be very similar?

Dan: Well, yeah. That’s pretty much the way it is these days. It wasn’t originally conceived to be that way in the long, but it has evolved that way. Particularly in the FPA community where people are in the same room because financial planning is important to them, you’re going to run into a lot of people who have brokerage licenses either as an employee with a wirehouse or they’re affiliated with an independent broker-dealer. They do wonderful financial planning for their clients, they behave as fiduciaries even in the circumstances where they wouldn’t be held to that standard if there was an issue. You’ll see that all over the FPA.

Dan: It’s certainly not anything evil by any stretch of the imagination to be a brokerage license. It’s just confusing to the public and the securities regulators have not done a very good job of making the people in the financial services business clear about their roles.

Hannah: It’s interesting, I hear this debate going on a lot with new planners about fee only, fee based, RAA, broker-dealer. All of this is going on and really the root of everything is coming down to regulation. Is that what I’m hearing?

Dan: Regulation’s important for a lot of reasons. To some degree, regulations can flat out prevent bad things from happening because good people don’t want to be in violation of the law. But the bigger reason that we need good regulations and we need them enforced properly is when the bad people, the bad guys do something.

Dan: Imagine that if drunk driving were not illegal. Personally I wouldn’t be driving drunk anyway, but if drunk driving weren’t illegal, the guy who does drive drunk, you can’t do anything about it. So regulation, it does have a certain preventive quality to it but the main thing is, it gives a mechanism to deal with behavior that’s not appropriate. It’s a huge deal, setting the standards of how we in the financial advice arena are supposed to behave.

Dan: It started with an erosion of the distinction, the blurring of the line, you’ll hear it called that often. Late 90s, the thing called the Tully Report came out. Tully was the chairman of Merrill Lynch. Shockingly it said if people aren’t paid strictly on transactions, they might not transact quite as much so they lobbied the SEC to put in a rule that allowed the brokerage services to be provided for a fee instead of a commission, an asset based fee, which on one level makes perfect sense.

Dan: The problem of course was that there was no fiduciary standard attached to that. It was the presentation of these fee based trading programs as advice that was particularly troublesome. Schwab had a version of it they actually called Advised Investing. The small print said it wasn’t investment advice, it was just brokerage, that the advice was incidental, which is kind of hard to understand when it’s called advised investing.

Dan: So, after a number of years and going back and forth, the FPA actually sued the Securities Exchange Commission and they ended up winning that suit. That really gave a big swift kick to the debate about fiduciary and shortly after that case result came down, we ended up with the financial crisis of ’08 and out of that Dodd–Frank. Part of that was the SEC’s ability to “harmonize broker and advisor regulation and post fiduciary duties” and all this other stuff.

Dan: The DOL decided it didn’t want to wait for the Securities Exchange Commission, so it came out with its rule, which just recently, yesterday I guess or a day before, deadline passed there so that thing looks dead. Now we have a new proposal from the Securities Exchange Commission. So, the regulation has devolved into something that’s not in my opinion helpful to the public, but the debate about what to do about it is definitely raging more so now than it has at any point on my 28 years.

Hannah: It’s very interesting just the context that you just gave of this idea of a fiduciary. This has been decades long. We’re not new to this fight. This has been going on for a long time.

Dan: Right, and most people in the FPA community and listeners to this podcast, which I assume are mostly FPA members, it almost induces an eye roll and a shrug because it’s such a basic underpinning of any profession that there be a fiduciary duty. Most of the dual registrants and hybrid folks out there that are involved with financial planning, they don’t have any problem being held to a fiduciary standard. They conduct themselves as if they’re going to be held to that standard every day. It’s just the proper way to deal with clients.

Dan: It’s a very good way to conduct your business. You don’t get into a whole lot of hassle if you’re constantly focused on what’s in the best interest of the client and act accordingly. From my perspective, it’s not a boots on the ground problem, it comes from a much higher level within the organizations that are lobbying to keep the waters as muddy as possible. That line as blurred as possible and it’s a shame.

Hannah: Let me see if I can summarize this. I may need help with doing this because there’s so much here. So, we have the registered investment advisors, and that is if you’re in the act of providing really any investment advice.

Dan: Yup.

Hannah: Then you have the broker-dealers who on the broker-dealer … The broker-dealer company is responsible for actually transacting buys and sells on investments. That could be individual stocks and bonds, it could be private placements, it could be a lot of things. For both of these, these are investment advisors that work for them and they can do a lot of the same things, it’s just really muddy to the public as to who does what because there is so much crossover between you can have a great financial planner in a broker-dealer and in an RAA. Or on the reverse side, you could have an RAA who does no financial planning.

Dan: Of course, absolutely. I mean, RAA in its purest form has nothing to do with financial planning at all. It’s simply investment advice.

Hannah: That was one of my questions when you gave that definition. I was like, “Where is financial planning in there?”

Dan: Yeah, it’s not in there at all. But financial planning as a pursuit is much younger than the Advisor Act of 1940. You’re talking about Loren Dunton and those guys, 1969 was really the genesis of it all. College of Financial Planning, that’s the early 70s. You did a wonderful, wonderful job at retreat talking to Ben Coombs and Mr. Blankenship and Mr. Hughes and Mr. Walker. I encourage all your listeners to go back and listen to that if they haven’t. It’s fascinating stuff.

Hannah: Let’s talk about another term that gets thrown out, wirehouses. How are wirehouses different than RAA or broker-dealers?

Dan: Originally wirehouses, they were national broker-dealer organizations that were linked together through dedicated phone and telegraph lines, thus the wirehouse, national organization. Today the main distinction between a wirehouse and other broker-dealer organizations, most of the time people will draw the line based on the type of employment that their representatives are involved in.

Dan: Wirehouse typically has W-2 statutory employees. Independent broker-dealers are typically employing registered representatives that are independent contractors who can very easily leave and go work for another independent contract or organization. That’s probably the leading definition.

Dan: If there was going to be another one somebody might talk about, it would be the scope and size of the organizations. Wirehouses, there’s only, I can’t remember, I think there’s maybe three or four left; Merrill Lynch, UBS, Morgan Stanley, those groups. They also nowadays have more of a global presence than a typical broker-dealer would. That would be a distinguishing factor as well. At its core, wirehouse is a broker-dealer organization first and foremost.

Hannah: Another term, custodian. Can you say what a custodian is?

Dan: A custodian is just somebody that hangs on to somebody else’s stuff. In a financial planning world, that’s almost always a, from investment accounts, it’s a broker-dealer firm; Schwab, Fidelity, TD Ameritrade, Shareholder Services. They’re broker-dealer organizations. A custodian could be a bank, it could be an insurance company, but a custodian is basically an organization that holds on to somebody else’s belongings. They have custody of such.

Hannah: I always tell my clients whenever they write a check out for their accounts, I’m like, “You always write it to the custodian, never me.” It’s always very important who actually is responsible for holding that money.

Dan: I saw a thing somewhere, and it does happen every now and then somebody starts asking questions about making checks out to Charles Schwab.

Hannah: That’s funny. Another distinction or term that I hear thrown around if financial planner versus financial advisor. What’s the difference between these two terms?

Dan: Well, one way I describe the problem with titles, financial advisor in particular is when I come across somebody, meet somebody for the first time and they say, “Oh, my brother-in-law is a financial advisor.” I’ve been in the business for 28 years. I’ve been around a little bit. I don’t know what the person does for a little bit. I have my suspicions and I know the questions to ask to figure it out, but they could be working for a bank, brokerage, insurance company, a combination of those, all these different places.

Dan: So, financial advisor for most people doesn’t necessarily mean anything specific. It just has something to do with money. CFP Board’s been kind enough to change their definitions of things in their new standards and update of those. I’ll read those to you real quick. We joke that a financial planner is somebody that does financial planning, but what’s the definition of financial planning? It’s what a financial planner does. It’s kind of circular, doesn’t really get you anywhere.

Hannah: That’s not helpful.

Dan: Right. I am willing to use the CFP Board’s definition. It seems very reasonable that planning is a collaborative process that helps maximize the client’s potential for meeting life goals through in advice that integrates relevant elements of the client’s personal and financial circumstances. They are making a distinction here between planning and advice.

Dan: Then they actually talk about advice being a communication that based on its context and presentation would reasonably be viewed as a recommendation that the client take or refrain from taking a particular course of action with respect to the development or implementation of a plan, value of or the advice ability to invest in purchasing, holding or selling financial assets, investments policies, strategies, portfolio composition, management of assets or other financial matters. The selection and retention of other persons to provide financial or professional services to the client, or the exercise of discretionary authority over the financial assets of a client.

Dan: To put that more in plain English, some of the different factors between advice and planning is the scope. Planning is much broader. Planning relates to the integration of different elements of a family’s finances. Coordination of those interests, whereas financial advice is much more narrow.

Dan: My favorite definition though that I’ve ever heard, which doesn’t really explaining it to clients very well, but for people who have been involved with financial planning it resonates pretty well. That comes from my good friend Elissa Buie who says, “Financial advice is nice, but financial planning is magical.”

Hannah: You know, it’s so funny. I always say once people really experience financial planning, you can’t go back.

Dan: No, you can’t. One thing financial planning is not is, it’s not charts and graphs. It’s not a thing, it is a process. It is a decision making process that things in all of the relevant aspects of whatever’s going on in a person’s finances. It’s not a thing. It is a process. It’s the essential process to making decisions. If you want to make the best decisions you can, you do that with a competent and ethical financial planner.

Hannah: How do you identify yourself?

Dan: Our firm, underneath the name of the firm on the website it says financial planning and wealth management. Then under our names on the bios it says financial advisor. That’s a deliberate cop-out. To avoid having to explain to people why we’re this, that or the other, we just use all three. We’re not real proud of that, we just haven’t figured out what to do about it exactly. 99% of the time though I will describe myself as a financial planner. It’s at the core of what I do every day.

Hannah: The next term or terms that I’ve heard people throw out that there’s confusion around, what’s the difference between an agent and a broker?

Dan: In most venues, an agent is somebody that represents the seller. A broker can either represent a buyer or can serve as a middleman between seller and buyer. So, brokering a deal between two parties, you’re in the middle person, an agent though, almost every place I’ve ever heard that term used, agent represents the seller. Insurance is where you hear it most frequently.

Hannah: I was going to say most frequently hear like insurance agent. We’ve talked about RAAs, broker-dealers, wirehouse, can they sell insurance? Can they be an insurance agent on top of each one of those other elements?

Dan: Can who? An RAA or a broker-dealer? Sure, absolutely. Get licensed and go for it. Most states you have to get your insurance license, and then you also have to be appointed with the insurance companies or work through a general agent that has appointments with the insurance companies to sell their products. You’re an insurance agent of the selling companies.

Dan: Some states now have a thing called Unaffiliated Insurance License, where you can get licensed to give very specific advice about insurance without having to be in a sales position. There aren’t many of them. We do have that here in Florida. It’s a 215 Unaffiliated License because very similar to investment advice, as soon as you start getting very specific about the workings of a particular insurance policy, you’re probably crossing into the area of insurance advice, where a state regulator might want you to be appropriately licensed.

Dan: That doesn’t usually cover things like … You need insurance, if you need any more life insurance, you should probably get $2 or $3 million of it, that typically does not cross over into insurance advice. In fact in Florida, the needs assessment for how much life insurance a person needs isn’t even a part of the exam license to get licensed as an insurance agent, so it’s hard for a regulator to say that’s insurance advice when it’s not on the exam.

Hannah: Another term that we’ve already talked about a little bit is wealth management versus financial planning.

Dan: From what I see, most of the rimes there’s no difference whatsoever. Wealth management is just a term used to make it sound like it’s a higher net worth deal, but financial planning is a process. Start with the end in mind, what are the goals, what’s going on, analyze what’s going on, figure out what to do. Show up the weaknesses without undoing the strengths as much as possible. How does this integrate? What are the tradeoffs, all that. That all applies to wealth management as well, but it’s typically a higher net worth deal and sometimes it’s not.

Dan: Sometimes it just sounds cool so they use it for marketing. To me there’s no real … From what I can see functionally, the people who claim to be wealth managers have the same basic process as people who claim to be financial planners. Or there are people like me that claim to be both.

Hannah: Whatever you want, the marketing side of it. Another term that I hear thrown out a lot is discretion versus non-discretion, or discretion versus solicited. What is the difference between those terms?

Dan: That has to do with permission-ing to transact on a client’s behalf. If I have discretion over an account and I think that it’s time to sell X, Y, Z and buy A, B, C, I just do it. I’ve been granted the discretion to do that by the client. If it’s a non-discretionary relationship, I’ve got to call a client and get permission to make that change.

Dan: So, it’s really about where the permission comes to facilitate the transactions. Discretionary is going to be always, or should always be, at least that’s the SEC’s interpretation and that’s what’s pretty clear in the law to. Discretionary arrangement’s going to be an advisory arrangement, not a brokerage. Non-discretionary can be either.

Hannah: That can fit again, if you’re an RAA you can have discretion or non-discretion, if you’re in the broker-dealer, you can have discretion or non-discretion.

Dan: If you’re a broker-dealer and you have discretion, that account is going to be deemed advisory by the Securities Exchange Commission and should be operated under the advisory rules.

Hannah: Another two terms that we hear thrown out quite a bit lately are, and we’ve already talked about one of them, fiduciary versus suitability.

Dan: The way I explain that is somebody who is under a suitability standard, which I don’t have the exact definition in front of me. I can’t believe I didn’t write that down. But, it’s one of those circular definitions, the financial planner, financial planner thing that I was joking about earlier. Suitability is almost equally a joke. It basically says you have to … The definition is suitability is you have to provide recommendations that are suitable. It’s silly.

Dan: The way I try to describe it to people that they grasp pretty easy is, if I’m under a suitability standard, I’m allowed to recommend something that’s good enough. If I’m under a fiduciary standard, I have an obligation to at least seek what’s best.

Hannah: I like that definition.

Dan: If I’m working for a brokerage firm and they’ve come up with a list of 10 large cap value funds, this is a really simplistic example and we’ve determined that the client should have certain amount of money in large cap value, I can pick any of those 10 funds, including the one that pays me more because it’s suitable, it’s good enough. If I’m working for an RAA and they present to me, “These are the 10 large value finds that you could use,” I’m supposed to try to figure out which one’s actually best. Not that that’s necessarily easy.

Dan: That’s not a great example because a lot of large cap value funds look like other large cap value funds. It may not be anything that jumps out as a distinguishing feature, but there are differences and they need to be looked at and there needs to be a process to go through to try to assess what that is. It’s the difference between being able to just go with good enough and having some responsibility to at least seek what’s best.

Hannah: After leaving the broker-dealer, there was … On the new account applications there was a section of suitability that we had to fill out and it was like 12 to 15 questions. I know a couple of years ago more were added into that. I always tell clients suitability, we just had to check all these boxes and then if something bad happened with the investment, all they had to do was say, were these boxes … Did those boxes correspond with what this investment should be, yes or no? And if it was yes, I’m off the hook instead of that fiduciary standard of saying, was this the best option for the client?

Dan: I first got the Series 7 back in 1990, suitability was basically income and net worth. Those were the only two boxes you had to check. What’s the income? What’s their net worth? And if there was high enough on those things, it was deemed suitable. I guess that’s evolved now if you had 15 boxes to check instead of just two.

Hannah: You had to do account. Was it income? Was it growth? Time horizon, other outside assets, liquid net worth.

Dan: Yeah, and the suitability standard isn’t horrible.

Hannah: It’s something.

Dan: It should be suitable, it’s just not what I think people really are expecting when they hire a “advisor” or any type. Certainly not as sophisticated enough as it should be for a true fiduciary.

Hannah: Yeah, and the question comes down for the suitability. It seems to me to be, the advisor, the planner’s CYA versus the fiduciary, which is the client’s CYA. The focus is different like, who are you protecting?

Dan: Yeah, absolutely. That’s the fundamental difference between being a true fiduciary or not.

Hannah: Let’s jump into some other terms here. Specifically as it relates around career paths, especially for newer planners. We have a lot of different terms that get thrown around. paraplanner, associate planner, junior planner, what do those mean?

Dan: I don’t know.

Hannah: Touché. Who does know?

Dan: Unlike the definition of investment advice which is in the law somewhere if you dig it out, it seems to vary from firm to firm. The associate advisor., associate planner, junior planner, junior advisor, nine times out of 10 … That’s just a number I made up, but it’s a significant majority if the time when I see those types of titles. These are people who are supporting a lead planner, person responsible for the relationship with the client on behalf of that firm and they are on a career path to move into a lead role with clients at some point in time.

Dan: Paraplanner, sometimes that is true, it is the same, and sometimes the position remains more of administrative career path and job duties. All of those are extremely valuable to any firm but the of those three, the associate, the junior and the para, the one that is most likely not to be on a career track for being a lead planner from what I can see is the paraplanner.

Hannah: This just gets down to … If you’re interviewing, you need to be interviewing the firm that you’re applying for just as much as they need to be interviewing you.

Dan: Absolutely, it’s tough though, because I’m a dad and my daughter just graduated. She’s starting grad school for physical therapy. She just started up in Boston at Massachusetts General and my son is finishing his second year. As a dad, you want your kid to graduate and get a job right? So, there’s this whole interesting dance out there when looking for employment and as an employer, I’m on the other side of it.

Dan: I’m talking to Megan’s friends about what do I do at an interview? You hire people. What do I say, what do I do? You want to be authentic and you want to be genuine, but you also want to jump and as an employer, you want to be authentic and you want to be genuine because you want it to be a good fit and sometimes you’re not sure if you’re getting authenticity on the other side. You’re wondering if the person, are they after this job or are they after a job? There’s a big difference.

Dan: Luckily with people like Kayla Brown and other folks out there that have really ramped up the financial planning community’s ability to conduct thorough hiring and processes, I think we’re doing much better on that. But you do need to interview the firm that you’re applying to because if it’s not a good fit, it’s not going to be good for anybody.

Hannah: And it’s expensive for firms to go through people, I mean to have high turnover.

Dan: It is and it’s scary on our end as employers to. Our newest employee here with me here in Melbourne came out of the Western Kentucky Program run by Ryan Rhodes, a former advisor and another regulatory junky out there, a friend of mine. Ryan’s a great guy, but you got to worry about, is life in Melbourne, Florida going to be very different than life in Bowling Green, Kentucky? And it is.

Dan: It was pretty clear after enough conversation that that’s what he wants, he wants something different. He wants to live and work and develop in a new area. So, there’s a lot of risk on the employee side as well.

Hannah: Thanks for making these distinctions with these terms. We’ve talked about both of these. We have the DOL Fiduciary Rule versus the proposed SEC Fiduciary. I don’t even know if you call it SEC Fiduciary Rule, but the SEC’s-

Dan: Oh no, no Hanna, no. You can’t call it the Fiduciary Rule. The DOL Rule basically is dead from what I can see.

Hannah: And that was through the Department of Labor, so that was specifically for retirement accounts and only spoke to those.

Dan: Correct, correct. The SEC’s new proposal, it’s not a fiduciary rule. They went to great lengths not to call it that. Instead, the call it the Best interest Rule, or Regulation Best Interest. On one hand, they’re purporting to be raising these standards for advice given by broker-dealers, which is a fine thing I guess to be trying to do. But, they’re defining that new rule as … They’re not calling it suitability anymore, they’re calling it best interest.

Dan: I am not a big fan of it at all for a lot of reasons. Number one is, if you were to pull somebody off the street and ask them, “What’s the definition of fiduciary?” If they had an answer, it would probably be acting in somebody’s best interest. That’s the shortcut for what a fiduciary duty is. So, calling a non-fiduciary duty best interest and not fiduciary because you specifically don’t want it to be fiduciary seems a little confusing to me. I’m confused just saying it right now here I this podcast. I can only imagine what that does to the public.

Dan: Then you look at the samples they have for the customer relationship summary, their new form, a four pager that they’re proposing you give clients. It’s just loaded with weird stuff. There are statements in there that I can’t say because they’re simply not true. It goes to great length to present a brokerage account as very close to on par with an advisory account as far as the level of responsibility that the people have involved.

Dan: You have the fiduciary and then suitability, which are different, now renaming suitability best interest and they’re talking about it as if it’s very fiduciary-like. I think it’s extremely misleading. I think it’s going to be more confusing than anything rather than clarifying, so I’m working on it.

Dan: I’m working on it. I’d like a dutiful, I don’t want to complain without trying to help the situation and the SEC’s been kind enough to ask for our opinions about these things through August 9th or something like that so I will be working on my comment letter to them, to share that with them. But, it’s a proposed rule. It could take a long time for anything to become final. Who knows where it’ll go? But it’s the next iteration of this whole discussion about this whole discussion about fiduciary responsibility and regulation of financial services in general.

Hannah: I just want to make note, you are as Dan Moisand, CFP are writing a comment letter to the SEC about this rule?

Dan: Yes, anybody can. It’s public comment, you should to if you have an opinion about it. They’ve asked you for your opinion Hannah, give it to them.

Hannah: I’m pretty good at throwing my opinion out, but I think that’s really powerful. I’ve been talking with all these young advisors and Dan, we’re going to be together at the young gathering later this month. This-

Dan: Yes, can’t wait.

Hannah: It’s going to be so good. The topic has come up about, how do young planners become leaders in the field? This is such a great way to do it. Like you said, every person listening to this podcast, the SEC has asked for your opinion so you can give it.

Dan: That is correct.

Hannah: That’s really powerful.

Dan: Yes, and one of the great values of being involved with an association is advocacy. An association of any significant size is going to have members that disagree about a lot of subjects. From time to time the association may put out a position that a members disagrees with. The associations have put out positions on various things that I wasn’t really quite sure about, but you should never let that stop you from being involved with the association and active in formulating those policies.

Dan: If you have not already, there will be or is somewhere out there from FPA … I think I just saw the survey a couple weeks ago now that I think about it. What is your opinion about this SEC thing? What should we be telling the SEC? So, if you don’t want to take the time to craft your own comment letter, participate in that process and help the association do it. It’s one of the things that we simply can’t do on our own, which is come together as a group to advocate and Financial Planning Association is the one organization that is solely focused on financial planning as a protection and its advocacy. CFP Board does a little of that, but CFP Board’s a quasi-regulator. They’re not a membership organization.

Hannah: And if we’re really bought into this idea of financial planning as a profession, that’s what the FPA’s about. How can you be for the financial planning profession and not be a part of FPA? I just don’t … There’s a disconnect somewhere in there for me.

Dan: Yeah, I agree. For those non-members, I’m not saying you’re not part of the profession if you’re not a member. I’m just saying you should be a member, that’s all. Hannah, I have a hard time with this one because it never in 1 million years occurred to me not to join the association. Now, there was no FPA at the time. Another great podcast that you just did was about the merger of the ICFP and the IAFP. That was wonderful.

Dan: I got my CFP in ’94, so I immediately joined the ICFP. It wasn’t because I did any kind of analysis of ICFP versus IAFP, it was because I was a CFP and there was an institute for certified financial planners, so I’m going to join that. I didn’t even think about it. I kind of have a hard time sometimes relating to people that put a little bit too much thought into it. For me it’s not expensive, there’s so many ways to get many multiples of that little membership fee.

Dan: I started out with very little business and a lot of expenses and there’s a lot of members out there who don’t have a whole lot of money to throw around. I understand that. I don’t want to poo-poo the membership fee too much, but of all the things that you can spend money on, you should very easily with a little effort and a little bit of diligence get far more out of an FPA membership than what you’re paying in dues. There’s just a million ways to do it between the networking. The advocacy alone would keep me a member even if I never went to a meeting and talked to another member about anything in any way, shape, or form. That would be enough for me.

Hannah: It’s just like you said earlier in this podcast. You talked about there’s a lot of really good advisors that are working at broker-dealers and RAAs. It’s the next level up. It’s that higher level that’s really making things money for their consumers and that’s where the FPA’s advocacy is, “how do we make this clear? How do we advocate for the consumers? How do we advocate for the financial planning profession?”

Hannah: Because like you said, the FPA’s the only group where the end goal is financial planning. Everybody else has a different thing that they’re advocating for. There has to be a group advocating for financial planning and if you’re not part of the FPA, you’re not part of that larger conversation, things like the SEC proposal and things like that. It really does matter that you’re part of the group that’s advocating for financial planning.

Dan: Absolutely.

Hannah: One of the questions that we had come up with is, what does it mean to be an investor?

Dan: I guess that’s the one that we run into this definitional thing a lot with clients because they’re used to picking up the [inaudible 00:46:20] to the extent that anybody reads a newspaper any more. I’m going online or something and the headline will be: Investors Flee Market on … What’s the latest thing? Trade war, that’s a good one, trade war fears and the DOW’s down like 112 points or something, which is what? point nothing right?

Dan: But, investors are fleeing because they’re nervous today and then tomorrow tensions ease and they’re flooding back into the market. The media is really famous for using the term investor for anybody that owns a security or is thinking about it. You look up definitions in the dictionary, Merriam-Webster and all that kind of thing and you get things like long term, commitment, that kind of thing versus shorter term or quick profits, high risk. That’s all more speculative.

Dan: So, really what the media’s talking about more often than not are not investors. They’re talking about traders, which is to me a form of speculating, actively trading. It’s a common point of confusion for a lot of people when they first start to explore working with somebody to help them in financial planning that they don’t actually need to worry about whether some group of traders has fled the market today because of trader war fears and then flooded back in the next day.

Dan: There’s a difference between information and knowledge and wisdom, what’s relevant, what’s practical. That’s a part of what we do as financial planners, is help sift through all that to what’s really important to that particular client. I’m still amazed at how many people just almost audible sigh with relief that they don’t have to follow financial news to be financially successful. There is other ways to do it. They don’t need to torture themselves with not understanding why things are happening on a day-to-day basis.

Hannah: Well, it’s exhausting.

Dan: Yeah, we call it noise. Our firm motto, which we’ve federally registered trademark, a sanctuary from the noise. We git that from talking to clients and asking them, “What are the things that you find most valuable?” This is an example of where value comes from. You’ve had Vanguard and Morningstar with its Advisor Gamma. Advisors can add X percent by doing these different things and all that.

Dan: That’s true, we can add value there, but one of my favorite sayings I credit Elizabeth Jetton for. She got it from somebody, but she’s the one that said it over and over to me and God bless her, I repeat it all the time, which is not everything that counts can be counted and not everything that could be counted counts.

Dan: Our clients told us one thing they really appreciate is we don’t fill their inboxes with a lot of junk. It’s relevant, it’s timely. If you send it to us, we know it’s important. So, most of them actually read our stuff. It’s nice. But there’s a lot of noise out there and part of our role is sifting through that and focusing on what’s actually important to this particular family and their particular circumstances. That’s where that magic Elissa talks about really comes out.

Hannah: You know, as financial planners, we’ve talked about this idea of fiduciary being who are we protecting? we’re protecting the client. Are we always doing what’s in the best interest of the client? What do we as a profession need to do to make this clear for the client? What as a profession, our next steps?

Dan: I think it’s a continuation of what we’ve been doing, which is first and foremost, the true financial planning profession continues to actually deliver financial planning and we keep working to get better, and better, and better at that. I think that’s key to that continuing. You don’t need the lobbyist to of this. Each listener to this podcast in their own little corner of the world, in their cave sitting across table or the couch or whatever you’re doing, your beanbag chair, it’s likely that’s popular to do now, whatever.

Dan: Wherever you’re set up talking with your clients or online like we are now, that interaction, getting that family in a better financial situation where they know that they’re organized and they’re doing things to achieve their goals based on their resources, so very focused on them. By providing that service, you’re doing a wonderful, wonderful thing. That alone is very helpful to the development of the profession because that’s what the profession is all about. We have to deliver the goods. That’s all of us little foot soldiers out there with the boots on the ground. Got to produce there.

Dan: The second thing we have to do is, we have to continue to preach the importance of living by, and being accountable to a fiduciary standard. A value proposition that ends with, “But don’t hold me to that,” is not a value proposition, it has no value at all and so much of the financial services industry does that. “Come see us, trust us, we’re your advisor, we’re your helper. We’re going to help you build your plan,” all this kind of stuff and then the fine print is, but it’s just buyer beware or suitability, or some lower standard. We need to keep pressing that.

Dan: And, we need to keep pressing with the regulators that financial planning is in fact than investment advice, different than brokerage, different than insurance sales, different than banking, different than all that. It’s its own process. It’s its own profession. It is distinct.

Dan: What’s going to happen, which has happened over the last several decades and continues to happen, people will vote with their feet. I think ultimately that what changes the tide. The larger firms that are the corporate powers that be, as that business model continues to erode, they’ll adjust. I think they’ll eventually come around. Either that or some powerful center, his mom gets screwed over y somebody, it’s going to get personal and then you’ll see something happen.

Dan: But I think it’s more likely that the general erosion of the market place will ultimately be the arbiter of all these debates and the trend will continue. The people will be seeking true fiduciaries and real planning and all that type of stuff. But it all falls apart if we’re not doing a good job.

Hide Transcript