Follow the Money

I greatly appreciate John Lefferts's comments regarding my last blog , and agree with most of his points. But I have to respectfully disagree with his assertion that separating financial planning from investment management will solve the problem. History, economics, client demand, and common sense beg to differ.

It's a clich? for sure, but when Willie Sutton said that he robbed banks because "that's where the money is" he may have said it best. Perhaps the clearest lesson of the nearly 40-year history of financial planning is that charging fees for managing client assets is the least conflicted, most practical, most marketable, and most economically sound business model for delivering financial advice.

Why do you think the old Wall Street commission model as all but disappeared in favor of fees? Those guys may not be the most client-oriented bunch on the planet, but they aren't dumb. The introduction of deducting fees from client accounts by Schwab Advisor Services in 1987 took financial planning out of the Dark Ages of tax shelter/limited partnership/annuity/mutual fund product sales, and toward a profession paid directly by its clients. Fees on AUM put planners on the same side of the table as their clients, and provide the best practice economics in the history of financial planning: steady cash flow, steady growth, low overhead, and great equity value. Without fees from AUM, financial planning is just a mid-level job.