Advisor Forum update: Advisor-author laments lack of professionalism

(November 6, 2003) Professionalism (or a lack thereof) in the financial advice industry can be compared to the emperor’s new clothes: very few would argue with the facts but nobody wants to come out and say what those facts are. And the facts are troubling. The industry cannot agree on any consistent standards unlike the […]

By Deanne N. Gage | November 6, 2003 | Last updated on November 6, 2003
3 min read
  • The case for professionalism: Author/advisor calls for changes in financial services industry
  • Advisor 2010 (from the September 2003 edition of Advisor’s Edge)
  • Compensation conundrum (from the January 2002 edition of Advisor’s Edge)
  • The price they pay (from the June 2003 edition of Advisor’s Edge)

    Not always, it seems. A poll of the audience showed most favoured active management, even though research from the likes of Bill Sharpe from Financial Engines and Nobel Prize winner Harry Markowitz have proven that 90% of active managers lag their benchmark in the long run. But in the investment world, active management pays embedded compensation, while passive management does not.

    When it came to insurance products with an investment component, such as universal life, most of the same audience used passive management. “If you believe in active management, why are you using indexes in the universal life environment? Could it be that with insurance, you get a commission regardless of whether you use active management or passive management?” De Goey asked.

    De Goey urged the audience to figure out how to reconcile what they say with what they do. “Why not unbundle so none [of the products] pay you anything? Your client pays you based on the advice you give and the value you add. That’s the way it works in professions,” he said. “But even as we insist we’re professionals, we are scared out of our wits to have our clients pay us directly.”

    De Goey, who started his career as a commission-based advisor, moved to a fee-based practice three years ago.

    As the fair dealing model document from the Ontario Securities Commission is to be released online on November 12 for public comment, De Goey believes that the road to professionalism will be one step closer to reality. “In the next few years, it will be like one of those killer courses in university, where the professor says, look to your left, look to your right, one of the three of you will be gone before the year [ends].”

    • • •

    Be sure to check back to Advisor.ca in the next few days for more reports from Advisor Forum in Vancouver. For a complete lineup of speakers and presentations or to register for Advisor Forum in Toronto (November 18-19) or Halifax (December 1-2), please click here.

    • • •

    Deanne N. Gage is managing editor of Advisor’s Edge and can be reached at deanne.gage@advisor.rogers.com.

    (11/06/03)

    Deanne N. Gage

    • (November 6, 2003) Professionalism (or a lack thereof) in the financial advice industry can be compared to the emperor’s new clothes: very few would argue with the facts but nobody wants to come out and say what those facts are.

    And the facts are troubling. The industry cannot agree on any consistent standards unlike the legal or accounting professions, says John De Goey, a senior advisor at Assante Capital Management Ltd. in Toronto and author of The Professional Financial Advisor (Insominac Press).

    De Goey, who holds multiple financial designations such as the CFP, CIM, FCSI and TEP, spoke this week about professionalism at Advisor Forum in Vancouver. “The alphabet soup after my name only proves that we’re not a real profession yet,” he said. “What profession can’t even agree among its own practitioners what it takes to be a practitioner?”

    The advice industry often “puts the cart before the horse,” as De Goey put it, by allowing anyone to call themselves advisors when all an advisor may have is a licence to sell a product.

    De Goey said parallels to true professionalism include having a common university education, designation, code of ethics or conduct and peer reviews of the advisor’s work. Professionals also charge fees instead of commissions, offer complete disclosure of how much and how they get paid and make recommendations based on scientific research, he added. “Professionals don’t go around making stuff up as they go along,” De Goey said. “Ask yourself what your recommendations are based on. Are you consistent with your recommendations between insurance and investments?”

    R elated Stories
  • The case for professionalism: Author/advisor calls for changes in financial services industry
  • Advisor 2010 (from the September 2003 edition of Advisor’s Edge)
  • Compensation conundrum (from the January 2002 edition of Advisor’s Edge)
  • The price they pay (from the June 2003 edition of Advisor’s Edge)

    • Not always, it seems. A poll of the audience showed most favoured active management, even though research from the likes of Bill Sharpe from Financial Engines and Nobel Prize winner Harry Markowitz have proven that 90% of active managers lag their benchmark in the long run. But in the investment world, active management pays embedded compensation, while passive management does not.

    When it came to insurance products with an investment component, such as universal life, most of the same audience used passive management. “If you believe in active management, why are you using indexes in the universal life environment? Could it be that with insurance, you get a commission regardless of whether you use active management or passive management?” De Goey asked.

    De Goey urged the audience to figure out how to reconcile what they say with what they do. “Why not unbundle so none [of the products] pay you anything? Your client pays you based on the advice you give and the value you add. That’s the way it works in professions,” he said. “But even as we insist we’re professionals, we are scared out of our wits to have our clients pay us directly.”

    De Goey, who started his career as a commission-based advisor, moved to a fee-based practice three years ago.

    As the fair dealing model document from the Ontario Securities Commission is to be released online on November 12 for public comment, De Goey believes that the road to professionalism will be one step closer to reality. “In the next few years, it will be like one of those killer courses in university, where the professor says, look to your left, look to your right, one of the three of you will be gone before the year [ends].”

    • • •

    Be sure to check back to Advisor.ca in the next few days for more reports from Advisor Forum in Vancouver. For a complete lineup of speakers and presentations or to register for Advisor Forum in Toronto (November 18-19) or Halifax (December 1-2), please click here.

    • • •

    Deanne N. Gage is managing editor of Advisor’s Edge and can be reached at deanne.gage@advisor.rogers.com.

    (11/06/03)

    (November 6, 2003) Professionalism (or a lack thereof) in the financial advice industry can be compared to the emperor’s new clothes: very few would argue with the facts but nobody wants to come out and say what those facts are.

    And the facts are troubling. The industry cannot agree on any consistent standards unlike the legal or accounting professions, says John De Goey, a senior advisor at Assante Capital Management Ltd. in Toronto and author of The Professional Financial Advisor (Insominac Press).

    De Goey, who holds multiple financial designations such as the CFP, CIM, FCSI and TEP, spoke this week about professionalism at Advisor Forum in Vancouver. “The alphabet soup after my name only proves that we’re not a real profession yet,” he said. “What profession can’t even agree among its own practitioners what it takes to be a practitioner?”

    The advice industry often “puts the cart before the horse,” as De Goey put it, by allowing anyone to call themselves advisors when all an advisor may have is a licence to sell a product.

    De Goey said parallels to true professionalism include having a common university education, designation, code of ethics or conduct and peer reviews of the advisor’s work. Professionals also charge fees instead of commissions, offer complete disclosure of how much and how they get paid and make recommendations based on scientific research, he added. “Professionals don’t go around making stuff up as they go along,” De Goey said. “Ask yourself what your recommendations are based on. Are you consistent with your recommendations between insurance and investments?”

    R elated Stories
  • The case for professionalism: Author/advisor calls for changes in financial services industry
  • Advisor 2010 (from the September 2003 edition of Advisor’s Edge)
  • Compensation conundrum (from the January 2002 edition of Advisor’s Edge)
  • The price they pay (from the June 2003 edition of Advisor’s Edge)

    • Not always, it seems. A poll of the audience showed most favoured active management, even though research from the likes of Bill Sharpe from Financial Engines and Nobel Prize winner Harry Markowitz have proven that 90% of active managers lag their benchmark in the long run. But in the investment world, active management pays embedded compensation, while passive management does not.

    When it came to insurance products with an investment component, such as universal life, most of the same audience used passive management. “If you believe in active management, why are you using indexes in the universal life environment? Could it be that with insurance, you get a commission regardless of whether you use active management or passive management?” De Goey asked.

    De Goey urged the audience to figure out how to reconcile what they say with what they do. “Why not unbundle so none [of the products] pay you anything? Your client pays you based on the advice you give and the value you add. That’s the way it works in professions,” he said. “But even as we insist we’re professionals, we are scared out of our wits to have our clients pay us directly.”

    De Goey, who started his career as a commission-based advisor, moved to a fee-based practice three years ago.

    As the fair dealing model document from the Ontario Securities Commission is to be released online on November 12 for public comment, De Goey believes that the road to professionalism will be one step closer to reality. “In the next few years, it will be like one of those killer courses in university, where the professor says, look to your left, look to your right, one of the three of you will be gone before the year [ends].”

    • • •

    Be sure to check back to Advisor.ca in the next few days for more reports from Advisor Forum in Vancouver. For a complete lineup of speakers and presentations or to register for Advisor Forum in Toronto (November 18-19) or Halifax (December 1-2), please click here.

    • • •

    Deanne N. Gage is managing editor of Advisor’s Edge and can be reached at deanne.gage@advisor.rogers.com.

    (11/06/03)