‘Mohels’ & Assets Under Management ‘Personal Financial Planners

‘Mohels’ & Assets Under Management ‘Personal Financial Planners’

Know before whom you stand

Talmud

Assets under Management (AUM)  is an increasing annuity for my practice and the monetization metric (for the valuation) and sale of my practice.

Anonymous AUM ‘Fee Only’ Planner

            In the beginning (Genesis), personal financial planning was concerned as a distribution system for otherwise the sale of product by commissioned (‘fill or kill’ aka ‘you only eat what you kill’) salespeople in ‘personal financial planner’ clothing.

            Though still commission driven, this so called personal financial planning distribution system created another variation – fee and commission (later renamed by some Lanny Davis spin concocter to fee based planning to try to hide the transaction nature of the compensation making it more objective). Some ‘so called’ fee and commission planners tried to pitch the objectivity of their advice by having two separate entities: one to solely give advice – and the other typically their broker dealer arrangement where they would receive commissions to give the appearance of a Chinese Wall. (Not Chinese Walls never stopped an invader).

            Fee and commission or the euphemized fee based compensation is akin to being a little pregnant – and worse by a control brother and sister arrangement of two ‘independent entities.’

            When fee only personal financial planning came on the scene, various compensation arrangements offered:

• Hourly
• Retainer
• Assets Under Management

            (AUM is the predominant mode of compensation of 'fee only planners' (though some also charge an additional fee)

Don’t sacrifice what you need for what you don’t need.

Stipulating to there are difficulties with all the above methods of compensation and therefore each type requires full and timely disclosure upfront of type and estimated amounts, ASSets under Management’s (AUM)(2) inherent in conflict of interest is a dagger at the heart – the very essence of the reason for personal financial planning – managing goals and their attainment. By its very nature, AUM, is externally comparative focusing on relative comparisons to indices rather than the client’s goals (despite assertions otherwise as the planner is inherently incentivized and thus take higher risk (for ‘more’) than necessary to meet the personal goals of the client. Two examples:

1.      Seeking assets growth at the expense of lifetime income for the retiree

2.     Unlocking ‘equity from the home’ – increasing the mortgage (leverage) to put into the market for “higher” returns on investment..

As the 2008 meltdown in housing and the market aside proved, ‘unlocking’ that equity not only lost money/equity (though there was that higher amount of assets under management for the planner to be compensated on) but increased the amount of the goal necessary for lifetime income (versus lowering the need if the mortgage would be paid off).

AUM, regardless of conflicted self serving AUM planners writers bloggers apologists’ beta, gamma, alphas – Omaha Omaha hike hike hike long winded audibles eerily reminded one of the same justifications by the blue suede shoe fill or kill commission planners and only a little pregnant fee based ‘planners’ audibles in the 70’s and 80’s. The difference – AUMers are woofs in fee only personal financial planner clothing woofing down the reduced rates of returns  – and now having the audacity to be pitching ‘goals based planning.’ The only thing missing is the Bris and or Baptisms.

Where is the CFP Board, The CPA Financial Planners (loving their AUM), or sadly NAPFA which I co-founded (which has become a marketing trade association in professional organization clothing).?

There is no personal financial planning Messiah to call upon but maybe Personal Financial Planning Mohel(3) will come to the fore-skin of AUM to cut to the chase?

It couldn’t hoit!

.

Know Before Whom You Stand

& Stand Corrected

1.- Notice AUM contains AU – the periodic symbol for Gold or in this context Planner’s Gold

2- Font and bolding deliberate.

3.- A mohel is a Jewish person (usually a Rabbi) trained in the practice of the covenantal

circumcision. It is not unusual for the Mohel to also be a jeweler by trade given he works with The Family JEWels.

PS: Yes, there are conflicts with hourly and retainer compensation methods but the comparison is akin to making going 60 mph in a 55 mph zone morally equivalent to 120 mph in the same zone. Hourly conflict – an invitation to inefficiency as 1 planner’s hour is another planner’s month. Retainer conflict –if subject to annual review – over utilization (to the planner’s time detriment) or under utilization (to the planner’s benefit) can be addressed

Please no ‘you’re make a mountain out of Mohels’ rebuttals.