Everyone has similar, yet distinct, financial planning needs regarding their families’ financial futures.
While more wealthy people (think millions of dollars) have greater complexity to their financial affairs (caused largely by our incredibly convoluted U.S. personal tax codes), everyone needs sophisticated financial lifecycle planning. Whether wealthy or not yet wealthy, families need a personalized way to understand how their current financial behaviors could affect their families in the future.
Few people already own enough assets to justify the high cost of a competent and objective advisor.
Only those who are more wealthy now can afford to pay directly for highly personalized, professional financial planning assistance. Direct client payments help to avoid the conflicts-of-interest that are inherent and pervasive in the structure of the financial services industry.
The financial services and advisory industry is almost exclusively focused on the interests of those who already have substantial financial assets and not on the mass of Americans who were trying to become more secure financially. Using many hundreds of thousands of what the securities industry calls “producer” employees, the brokerage industry sells investment products and services to clients for transactional fees, asset holding charges, and many other more or less visible investment costs. Governed by the Securities and Exchange Act of 1934, as amended, and state laws, the legal standard of client care by these brokers is the “suitability” of an investment to a client. However, there is huge latitude in what a suitable investment is and how much it costs a client.
From the brokerage industry’s perspective, the wealthier the client is the better. Greater assets yield more revenue and high profit per hour spent with clients.
For example, Morgan Stanley’s 2007 compensation plan for their personnel serving retail clients eliminates all compensation for household accounts below $50,000, and it reduces compensation on household accounts under $75,000, unless these client accounts are being charged a percent of assets fee. Clearly, the message to Morgan Stanley sales personnel is to chase wealthier fish. Similar messages are given to broker producer employees in all brokerage firms across the industry.
Another large segment of the financial services industry that serves the public consists of about 100,000 independent planning advisors, who are regulated at the federal and/or state levels. Governed by the Investment Advisers Act of 1940, as amended, and by state laws, these advisors have a seemingly more stringent fiduciary standard of client care. However, [...]