Although the public comments on the financial planner who found the best way to lose his home are mostly negative, it’s the opposite in the financial advisors circle.
Michael Kitces asked his financial advisors audience Which Is More Important In Your Trust Equation: Credibility, Or Authenticity? He alluded to the worry that by admitting mistakes in personal finance, financial advisors will lose creditability from the public who already don’t trust financial advisors that much, but at the same time, by showing the human side, financial advisors will gain trust with authenticity.
The comments from financial advisors to Michael Kitces’ article are mostly supportive of Carl Richards’ heroic act of confessing personal mistakes. Carl Richards himself reported in the comments:
"The response to me personally has been OVERWHELMINGLY positive! My inbox, voicemail, and now my home mailbox have been filled with thank you letters.
The feedback from those in the planning community that cared to reach out to me personally has also been overwhelmingly positive."
This shows that when it comes to personal finance, financial advisors are still steps ahead of the general public. The public are driven by emotion. They only see this financial advisor lost his home due to poor decisions. Financial advisors are driven by logic. At the very least, they are able to tell what’s a true mistake and what’s not. The confession also helps bring home the message that everybody needs a financial advisor — "See, even a financial pro makes terrible mistakes. You definitely need a financial advisor."
Allan Roth, a financial advisor I like, confessed in unity three money mistakes of his own in his blog at CBS News. Allan bought gold at a high price in 1979 when he graduated college. He bought more house than he needed when he moved from a high-price area to a low-price area because the price in the new area was less than 1/10th of what he was used to in the high-price area. Allan also bought stuff rather than experiences.
I don’t see any negative reaction from the general public to Allan Roth’s confession. It’s not just because more people read New York Times than CBS News. Allan’s mistakes are completely different from Carl’s for several reasons:
(1) The time. If the mistake was made before Allan became a financial advisor, it’s not so bad. I can relate to the inexperience of a new college grad.
(2) The magnitude. Even if Allan tells us he bought a small amount of gold today, I wouldn’t care or necessarily call it a mistake. For all we know gold price may continue to go up. Who says it has to be a mistake? If gold price crashes, it’s his money he can afford to lose.
If instead we are told that Allan actually invests 100% of his money in gold while telling the rest of us the merit of asset allocation and diversification, then it would be an inexcusable mistake.
(3) Message consistency. Allan bought a larger house than he needed. Allan bought tangible stuff instead of intangible experiences (vacation, sports event tickets, …). So? As long as he can afford it, I don’t care how he spends his own money.
Allan Roth isn’t a frugality coach. He’s not teaching us how to pinch every penny. If he enjoys a bigger house or stuff over experience and it doesn’t affect his long-term saving and investing, it’s none of my business. On the other hand if Allan is telling us the importance of saving for the long term and then he confesses he has no savings himself and that he spends all he earns plus some more on credit cards, he would lose creditability really fast.
(4) Who pays the price. If you make a mistake and you pay the price for it, and now you are telling others how not to make the same mistake, I will appreciate the learning opportunity. If you make a mistake and you let others pay the price for it, I don’t know what I’m supposed to learn. Is it how to maximize your gain and protect yourself from losses in a potential bubble?
Sorry Allan, try as you may, you are no match for Carl Richards. You made a mistake when you were a young college grad. Carl did it while advising clients — was he already a CFP at that time? You lost some of your own money you can afford to lose. Carl made money. Beat that!
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I had preordered Carl’s book from Amazon, but canceled after learning more about him.
TFB, I agree everybody makes mistakes. Even financial planners. I think Michael Kitces’ financial planner audience again seem to be tone deaf to the negative comments. What Carl did was not just a mistake, rather he profited from the transaction. Therefore, to a lay man the so called coming clean is no longer coming clean at all. It raised important ethical questions like – Carl built his business on the back of that “unpaid” borrowed money so should the CFP board let its members do that or should they kick him out for building his business unethically?
You are right that financial planners are one step ahead. But at fooling their clients. “See, even a financial pro makes terrible mistakes. You definitely need a financial advisor.” This is a very valid statement. But to use Carl as an example would be a travesty of the highest order!
The financial planning field is a mystery to me. The more you hear/read, especially comments on Kitces.com’s forum, the more turned off I am. This coming from someone who wants in. It’s a complete turnoff that someone like this is taking a spot from someone like myself. He admits he failed and he isn’t lowered in standing, but elevated?
As a CFP who can’t sniff the “industry” unless I want to sell Ameriprise, Met Life, Axa Equitable or other such crap, you simply can’t make it unless you are a seedy scum bag salesman. Period. I had visions of charging $100/hour as a fee-only planner who would save people/families THOUSANDS of dollars over the course of their investing careers and to provide solid advice, but those people out there want to be sold by a guy that short sells his house. What an oddity.
You can’t make a living off honesty unless you admit you failed in your own finances? I thought this might even be grounds to lose your CFP.
The industry doesn’t want an honest, professional who keeps his nose clean and practices what he preaches. Who recommends index funds and term insurance. No, no, no. They want a loud mouth selling books and doing the ole’ mea culpa.
The industry wants a salesman in a off-fitting suit for the cover of their magazines. I wouldn’t go to this guy to invest pocket change! He’s selling a book? What is going on here? Might be a great guy, but offering financial advice shouldn’t be a position he occupies.
Dr. David Edward Marcinko MBA says
I am a doctor and was a CFP for more than a decade. I quit because there is no fiduciary accountability, and until 2008, only a HS diploma was needed. A CFP can do nothing that a non-CFP can do, or any other FA, wealth manager, stock-broker, etc. It is a license to use a mark [strange]; salesmen most all – sans the RIAs.
Dr. David Edward Marcinko FACFAS, MBA, CMP™
[CEO and Founder]