Are You a Professional?

Ever notice how some people look down their noses at financial advisors?  Accountants, lawyers and doctors consider themselves professionals.  Sometimes they will describe financial advisors as salespeople, as if they are on a lower rung of the social order.  You can make the case you are a professional.

Could This Be the Difference?

Looking back over the past couple of centuries, one of the distinctions of “the professional classes” is they didn’t need to make the effort to find clients.  Clients came to them.  I have even heard this mentioned about independent financial advisors in the UK.  An editor once explained the entire marketing plan for some advisors can be explained as: “If someone wants to do business, they will walk through my door and ask.”

Fast forward to today and the picture has changed dramatically.  Boston Legal, the 2004 TV series introduced the concept of lawyers asking, “How much business are they bringing into the firm?”  Accountants are expanding their range of advisory services and explaining to clients why they need those services.  

Twelve Characteristics That Define a Professional

What characteristics define a field as a profession instead of simply a job or a business?

1. It requires a specific education.  Doctors need to attend medical school.  Attorneys attend law school.  Clients are expecting you to have completed training.

Financial advisors:  People don’t leave one job and suddenly become financial advisors, investing other people’s money.  They must work at a firm and be trained before they are allowed to offer advice.  Verdict:  FAs measure up.

2. You must pass an exam from a regulatory body to practice.  Lawyers must pass the bar exam specific to their state.  Then they are “admitted to the bar” and allowed to practice.  Accountants become CPAs or Certified public accountants.  Someone certifies them.

Financial advisors:  You are licensed by your specific state.  You must complete and pass your Series 7 and other relevant examinations.  Verdict:  FAs measure up.

3. Credentials matter.  Although there are generalists, lawyers and physicians often specialize.  They study to become experts in criminal law or cardiology.

Financial advisors:  Advisors first pass a series of general exams.  Next, they move to the next threshold, earning their CFP (Certified Financial, Planner) or CFA (Certified Financial Analyst) designations.  There are many others indicating specialties.  Verdict:  FAs measure up.

4. The field is regulated by the government or an outside body.  Oversight is provided by professional associations or government agencies.  Clients who have a grievance can bring their complaint to the next level.

Financial advisors:  If an advisor has done something wrong, they can be censured.  They can lose their license.  They can be brought to arbitration.  They are liable for misdeeds.  Verdict:  FAs measure up.

5. Practitioners work on behalf of the client.  The word “fiduciary” is used a lot.  In practical terms, the professional is giving advice best suited to the client’s situation.  They are not choosing products based on how much they will earn.

Financial advisors:  There has been debate about the fiduciary standard vs. the suitability standard for years.  The industry has standardized pricing in many cases to align to the fiduciary standard.  In practice, advisors seek long-term relationships.  Clients will leave if they feel the advisor is not putting the client’s interests ahead of their own.  Verdict:  FAs measure up.

6. The relationship is confidential.  TV crime dramas often talk about the attorney-client privilege regarding secrecy.  Medical records are considered confidential.  Accountants don’t talk about their clients.

Financial advisors:  The financial services profession is also bound by confidentiality.  In all cases this doesn’t hold if the professional feels the client is violating the law.  Verdict:  FAs measure up.

7. Services are based on fees, not products sold.  Although some law firms take on cases with the understanding the firm will be paid a portion of the settlement or judgment, generally speaking professional bill for their services on a hourly basis.  They aren’t selling cars and earning a commission.  They are selling their expertise.

Financial advisors:  Years ago, the industry moved to an asset-based pricing model.  This moves advisors away from the transaction-based way business used to be done.    Verdict:  FAs measure up.

8. You are paid on effort, not necessarily results.  That might seem incorrect.  Doctors do the best job them can on behalf of the patient, but sometimes the patient dies.  Lawyers represent both the prosecution in deference in jury trials.  One side wins, the other doesn’t.  The professionals still get paid.

Financial advisors:  Sometimes, making money is not an option.  There can be times when both bonds and stocks move in the same direction.  Advisors still deserve to be paid, even when the markets don’t cooperate.  Sometimes success is “losing less.”  Verdict:  FAs measure up.

9. Business often comes to you.  Doctors generally don’t prospect for clients.  Traditionally, neither did accountants and attorneys.  The business is gradually changing.  Referrals are still an integral part of growing and sustaining a business.

Financial advisors.  Prospecting is part of the business.  Advisors seek new clients, encourage referrals and try to earn a larger share of wallet when it comes to delivering services used by clients.  Verdict:  There is a difference.

10. Professions don’t advertise.  This was the case many years ago, but it’s changing today.  Personal injury lawyers advertise, but not many other branches of the profession.  Doctors generally don’t advertise, but hospitals and health plans do.

Financial advisors:  Generally speaking, the big firms don’t run big ad campaigns.  Advisors do advertise in local newspapers and publications.  New clients often come through referrals on 1:1 engagements.  Verdict:  There is a difference.

11. Professionals often organize as partnerships.  Law firms have partners.  Accounting firms follow a similar structure.  Doctors often gather together in medical practices.  Few if any are listed public companies or major corporations.

Financial Advisors:  RIAs tend to be smaller firms, often with partners.  Major financial services firms are often owned by banks.  They are listed public companies, not partnerships.  Verdict:  There is a difference.

12. Continuing education.  People in the field are never expected to stop learning.  Often continuing ed is a license renewal requirement.  The client wants to know the professional they hired is familiar with the latest developments in the field.

Financial advisors:  Continuing ed is usually a requirement, especially with specialty designations.  Verdict:  FAs measure up.

If these were the twelve tests to determine what constitutes a profession, financial advisors qualify in almost every category.

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