Family Business Succession Planning

Understanding Standards of Service


A financial advisor, an insurance agent and an investment manager are sitting in a bar…

The bartender says, “I have a phone call for a financial planner.”

All three answer, “That’s me.”

In this segment we’d like to share with you the issue of industry standards of service. In many respects this is an even bigger issue than designations and titles because it’s not talked about and the average consumer doesn’t know how to discern what the practice standards should be as it applies to their family.

The CERTIFIED FINANCIAL PLANNER(TM) certification is typically touted as the standard of all of the financial services industry designations. It would stand to reason that their financial planning practice standards would be the place to start.

You can look at these standards by clicking here.

The following are the highlights from their website and our insights:

  • The standards set forth are generic in nature. The standards are straight forward and would be considered good common sense for problem solving in most any field. The issue for us is the lack of specificity. Consumers and advisors should have a clearer understanding of the scope of work that should be expected and more importantly the impact that the work would have on the client’s situation.
  • We believe the 100 Series of the practice standards sets the consumer up for potential issues from the beginning. By mutually defining the scope of the engagement consumers may unintentionally be limiting the engagement to areas with which they are familiar. The problem here is that every area of financial planning has interactions with all of the other areas. When planning takes place then, it’s our opinion that the financial planning engagement should always be comprehensive in nature. This would help to ensure that consumers are informed of the pros and cons of each new decision on the consumer's other areas of their financial situation.
  • The 100 Series may unintentionally allow the planner to serve their best interest and not the consumers'. There are “adhered” to ethical standards within the industry. Yet, if the scope of the engagement is too narrowly focused then based on Series 100 the advisor would still be within the ethical guidelines as long as the engagement was mutually agreed upon. The issue for us is that the consumer doesn’t know what they don’t know. If the mutually agreed upon engagement is to help a client with their investment portfolio, is the financial advisor responsible to ensure that the recommendations are coordinated with the estate, business and retirement income needs of the client? We believe they should be responsible but how could they be if they haven’t looked at the data or analyzed and evaluated the rest of the client’s financial situation. But, it was mutually agreed upon…

Keep in mind that most financial advisors work for a company. The training at said company will most likely be driven by the products and services they offer. So, if the advisor works for a wire house the odds are they will be heavily trained on investment advice and their compensation may be investment focused as well. If the advisor works for an insurance company there could be a focus on insurance based products. Fee only advisors are compensated only by the fees on the investments they manage. We have found pros and cons to every advisory business model. What we have learned is that it truly depends on the individual advisor and not their designation, not their title, where they work doesn’t matter and nor does it matter how they are compensated. There are great advisors everywhere. There are also advisors that believe they are doing a great service but have no clue and advisors that leverage compensation regardless of what ethical commitment they say they adhere to for their clients.

Regardless of all of this, you need to know how to hire a great financial advisor and we are going to share our strategy in the next section.