Posted on August 29, 2014 by Don Shaughnessy
2 Comments
Governments seem intent on regulating financial services.
There are unaddressed issues. Among them, who needs financial help and who will provide it?
Those are not trivial questions. The regulatory authority will affect everyone. That may be adverse for far more people than it helps.
The regulation of financial products cannot work for the consumers, because a competent financial plan is much more than a collection of products and containers.
Here is the paradox. Regulation increases the risk to consumers.
Holistic financial planning is difficult both to do and to communicate. It covers a long time, potentially the rest of life and beyond. The margin for error from today forward increases as you look farther into the future. It is like looking at a funnel from the narrow end. At first the walls are quite close to the center line but far away as you look ahead. More variables with wider ranges of outcome. Navigation is difficult. Experience and skill matters.
Disciplined approaches, not in huge supply for the uninformed, require review and revision regularly. The future will not be as people expect it to be although it will contain easily overlooked tendencies. Holistic plans are about direction and destination. They are not about precision
A key point. Maintain flexibility. You will need to change your method of attack. You cannot fall in love with your first decisions. Plans that you can discontinue or reverse are not risky. Ones that you cannot reverse are very risky. Be sure you know what you have and that is unlikely the first time you try it.
Know who you are and who your team members are? What will you do and not do to achieve your goals? Do you know your goals? Have you communicated them to all who are involved? Could you?
Avoid tactical (methods) research. Tactics, the how part of a plan, are complicated and ever-changing. Specialists deal with insurance, investments and portfolios, laws relating to estates, taxation and family law. You cannot know enough to give yourself good advice. Surround yourself with helpers. If you are short in know-how, be long in know-who. The uninformed see only tactics. That is what people advertise.
Here is where regulation breaks down. As they become more regulated, advisers become more fussy about what they do and who they serve. If overhead, including the PITA part, goes up, revenue per transaction must necessarily rise.
Some product will become commoditized. People will buy it on the internet without assistance. They will buy based on price alone because the 50-page policy or prospectus is outside their range of knowledge. Buying on price alone is beyond dumb.
Eventually people may discover that helpers help. They will not easily find one. The skilled advisers will have a full appointment book and unless you are big enough to get their attention, you will do without. There are already investment advisors who deal with no one with a portfolio under $1,000,000. Soon that will be even higher. Not a lot of hope for those just beginning.
Financial planning is like education. The beginning matters. If you have poor primary teachers you don’t do very well. Advisers have only one urgent purpose with young people. Help them become realistic about how finance works, the timing, the risks and the value of advice. Financial Literacy 101.
For a person just beginning, an adviser cannot earn much for their best advice. Advisers make little on debt reduction advice or the course fees to enhance your skills. Someday, maybe, investments will pay, but why wait twenty years?
The person with average resources must, by absence of an alternative, find their own way. Probably with difficulty and certainly sub-optimally. Not exactly the protect everyone idea that the regulators would have us believe.
I think regulation is fine, even excellent. Most of what they want, we already do. But, I can assure you, we are not looking for young people with $100 per month to spend on a combination of advice about strategy and tactics, life insurance and retirement income.
The people who need advice most will be unable to find it. Who can afford to invest in them? What then?
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Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: don@moneyfyi.com
Category: Personal FinanceTags: decision making, Don Shaughnessy, education, holistic financial planning, Planning, strategy, tactics
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2 Comments on “How Does Regulation Affect Holistic FinancialPlanning?”
I think regulation has its place but unfortunately it can be a burden to the already conscientious financial planner and, at worst, be ignored by the unscrupulous one.
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A bit like gun control, with more delayed consequences.
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