The PHONY RESURRECTION of Goals Based Personal Financial Planning

The PHONY RESURRECTION of Goals Based Personal Financial Planning

            Years ago, Hugh, a commission based ‘financial’ planner,’ visited me in Colorado with the purpose of how to transition to a fee only practice without losing all his customers.

            Besides consulting on the process of fee only planning, I suggested two options relative to his predicament (changing his commission clients to fee only without decimating his practice) stating to his customers:

1. In 1 year, my practice will be completely a fee only personal financial planning practice. I am okay continuing our commission compensation until the 1 year is up or we can go fee only as to my compensation from you now – it your choice.
2. I’m going fee only compensation in my personal financial planning process now, I’m sorry I’ve been screwing you previously

Of course, #2 was facetious.

But facetious and disingenuous is what is occurring with the current resurrection of so- called goal based personal financial planning.

Inherent to the definition of planning – let alone personal financial planning – is that planning is ‘goals based.’ So if goals based planning is being resurrected by so called personal financial planners now – what were they doing before that was held out as personal financial planning?

This previous ‘so called personal financial planning’ was a masquerade, a Trojan Horse, a ruse, camouflaging  for getting assets under management and its typical 1% of assets under management compensation. Thus, the title personal financial planner was a disguise for really being just an asset manager..

And yet, the roots, the history of personal financial planning was goals based – be it Connecticut General’s Life Planning in the ‘70’s or Oakland Financial’s pioneering (or at least being one of the pioneers) of fee only planning back then.

So what happened? Why the resurgence of ‘goals based planning? And will these assets managers wolfs in personal financial planner clothing resurrect admit to their clients, ‘I’m a goal based planner now sorry I was screwing you all these years?

My theory (the real reasons) about the ‘resurrection’ of these ‘born again goals based planners’:

1. The 1% asset under management compensation is being compressed due to robo advisers disruptive distribution in charging for assets under management (see Betterment, Vanguard, Schwab) often less than 35 basis points versus 100 basis points (1%) or a 60% decrease in fees
2. Unless we have real growth oriented tax reform, given the demographics of the aging of the population which withdraws money from the markets – the growth rate if lucky over the next decade of the market be 6% -8% at best or worse. (However, my wiggle room -  the impact of 3 D printing could be like the Guttenberg Press giving a boost.) Still 1% fee on 6% rate of return or 8% return even is giving up 12.5%- 16%+ of the rate of return versus 1% on 12% being 8.3%. And .35% on 6% , 8% or 12% is 5.8%, 4.3%, or 2.9% of the return respectively with a Robo Adviser. (1)

Thus, these asset under management in personal financial planner clothing have to give value added to maintain their 1% fee. Viola – the resurrection of goals based planning as the value added spin, sanitization, HYPE – when it should have been goals based planning to begin with (which is an indictment of how these assets managers held themselves out to begin with).

Goals based planning or just protectionist spin to keep the 1% asset under management compensation.

On Passover, as a Jew and Jews around the world ask the question, ‘why is this night different than all other nights?’ You might consider asking your born again ‘Goals Based Planner’ why is this planning different than all the other planning you were doing before?’ And if you get a song and dance consider ‘Passing Over.’

(1) Of course, maybe these asset under management in personal financial planner clothing phonies will support Donald Trump in return asking him to place a 45% tariff on Rob Advisers – to maintain their asset under management compensation ‘wall’ against ‘illegal undocumented robo advisors’ (even though they are legal and documented).