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January 20, 2012

“Most advisers overstate their expertise”

Jeff Benjamin of “Investment News” discussed a recent survey by Scott Smith
of Cerulli Associates Inc.  Following is a portion of the article:

‘ “We found that 59% of respondents were calling themselves full-scale financial planners, when it fact many of them were actually investment planners,” he said.

In Cerulli’s parlance, which divides the overall financial intermediary universe into four broad categories, there are subtle yet distinct differences between an investment planner and a more comprehensive financial planner.

Even though 59% of respondents identified themselves as financial planners, Cerulli calculated that only 30% actually fit the definition of being better qualified and certified, working with clients to build comprehensive plans that include insurance and estate planning.

Investment planners, by comparison, focus on asset management, retirement and college savings plans but tend to offer more-modular-style plans.

According to Mr. Smith, only 22% of the 1,500 respondents identified themselves as investment planners. But when he went over the details of each respondent’s business, Mr. Smith realized that 56% of respondents are actually investment planners.

Mr. Smith said much of the discrepancy could be attributed to that fact a lot of advisers view themselves as being more comprehensive than they actually are, simply because they believe they have the potential to be more comprehensive.

“Firms have encouraged their advisers to expand their advice relationships with clients; however, advisers tend to overstate the degree to which they are involved in the planning process,” he said. “The movement to extend advice services is likely being accelerated by turbulent markets, as advisers who base their value to investors on investment performance have suffered more than those with broad advice relationships.”

In the two remaining categories — money manager and wealth manager — Cerulli found that advisers have a more realistic perspective on the services they are providing.

Money managers, defined as mostly managing and building portfolios, were identified by Cerulli as representing 9% of the total universe, which was in line what survey respondents indicated.’

The above illustrates why consumers need to understand the different type of financial and investment services that are available.  Then they need to identify which type of service they need.  There are resources on line that can help identify the background and experience of the person they think may be appropriate.  Several people should be interviewed before retaining their services.  

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