WCI #380: Michael Kitces on the State of Financial Planning
Aug 15, 2024
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Michael Kitces, a CFP and creator of the popular blog Nerds Eye View, shares his deep insights into the financial planning industry. He discusses how to find trustworthy advisors and explores the gender gap in the profession, revealing why only 23% of CFPs are women. Kitces emphasizes the importance of relationship dynamics in financial advising, suggesting therapy training for advisors. The conversation also touches on how consumer protection and coaching can enhance the advisory experience, making financial wellness accessible for everyone.
Effective financial planning enhances life quality, supporting personal goals rather than merely accumulating wealth for its sake.
Educating oneself about financial advisor qualifications is crucial for discerning genuine professionals from those prioritizing sales over advice.
The financial advisory industry faces challenges with the underrepresentation of women, highlighting the need for systemic changes to promote inclusivity.
Deep dives
The Purpose of Financial Management for Doctors
Financial management is critical for doctors aiming for lasting wealth and financial stability. Emphasizing the importance of enjoyment in wealth, the discussion highlights that simply accumulating wealth without enjoying it can lead to regret. The goal is not to be the richest person at the end of life, but rather to ensure money is managed effectively to support life goals. Taking control of finances allows for spending in ways that enhance life quality without jeopardizing future financial security.
Advisory Services and Professional Designations
The podcast stresses the distinction between qualified financial advisors and salespeople, emphasizing the need for clarity in the financial services industry. Advisors who provide genuine financial planning services should have relevant certifications, such as Certified Financial Planner (CFP), to demonstrate their expertise. The conversation critiques the confusion created by salespeople misrepresenting themselves as financial advisors, which complicates consumer trust and decision-making. It urges consumers to educate themselves about the qualifications of an advisor to ensure they receive competent guidance.
The Challenge of Consumer Trust
A significant challenge identified is the erosion of consumer trust in financial advisors due to past misrepresentations. The discussion reveals how consumers find it difficult to differentiate between genuine advisors and those who prioritize sales over advice. Examples of detrimental financial advice, including high commission products that harm consumers, further underscore the necessity of regulatory clarity. This scenario mirrors the healthcare industry, where consumers must discern the true professionals from those selling products under misleading titles.
Financial Advisory Fees and Structures
The podcast delves into the various fee structures in the financial advisory industry, comparing them to legal and accounting professions. It highlights that most advisors earn between $250 to $300 an hour, which aligns with many professional service fees. AUM (Assets Under Management) models remain prevalent but raise questions of fairness, particularly for high-net-worth clients. The discussion encourages consumers to understand how these fees relate to the level of service provided, avoiding models that may not suit their specific needs.
The Importance of Advisor-Consumer Relationships
A key theme is the significance of building a strong relationship between clients and their financial advisors. The podcast suggests that clients should seek advisors who understand their unique situations and can provide tailored guidance. Effective communication and personal connection are emphasized as essential for successful advisory relationships. This mutual understanding fosters an environment where clients feel comfortable discussing financial matters, leading to more informed decision-making.
The Future of Women in Financial Advisory
The conversation addresses the underrepresentation of women in the financial advisory field, noting systemic barriers that discourage female participation. Despite efforts to improve diversity, the podcast acknowledges slow progress in increasing the percentage of women CFP professionals. It projects a gradual shift as the industry emphasizes advice-based services over sales, creating a more conducive environment for women. The discussion underscores the necessity for continued efforts to promote inclusivity and representation in financial professions.
Today Dr. Dahle talks with Michael Kitces, creator of the popular blog Nerds Eye View. He is a CFP (along with many other designations) who has a passion for educating. His platform is huge and he knows more about financial planning and the financial planning industry than just about anyone out there. Today they tackle a range of topics with the higher level focus on the state of the financial planning industry. Michael shares valuable insight on how to find a trust worthy advisor, why he thinks there are so many fewer women working in the financial advising industry, if therapy training should be required for financial advisors and if the good guys in the industry are winning in the court of public opinion. We know you will love those topics and so many others from todays conversation.
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The White Coat Investor has been helping doctors with their money since 2011. Our free financial planning resource covers a variety of topics from doctor mortgage loans and refinancing medical school loans to physician disability insurance and malpractice insurance. Learn about loan refinancing or consolidation, explore new investment strategies, and discover loan programs specifically aimed at helping doctors. If you're a high-income professional and ready to get a "fair shake" on Wall Street, The White Coat Investor is for you!
