Michael Goodman’s financial planning practice is on level 16 of 60 East 42nd Street, in New York City. The building, also known as One Grand Central Place for its proximity to the city’s major railway station, is part of the Empire State Realty Trust. It’s as immaculately maintained as all of that might suggest.
As is typical for commercial properties in this town, there are security checks to negotiate before being allowed into the lifts. A NSW driver’s licence offered as photo ID raises the eyebrows of the security staff. Every one of the 150 or so clients that visits Wealthstream must think it’s worth the time and inconvenience to get in. Most of the firm’s 150 or so clients live or work in the New York City metropolitan area. Wealthstream Advisors, established in 1994, charges a minimum $US20,000 ($22,700) a year fee.
Goodman is well qualified to be a financial planner. He’s a Certified Public Accountant (CPA) licenced in the state of New York, and he’s a Certified Financial Planner (CFP). He’s active within the American Institute of CPAs (AICPA), and is a member of its Personal Financial Planning section. And the AICPA recently issued its own standards for members who provide financial planning services, as well as a new designation, the Personal Financial Specialist (PFS), which has examination and experience requirements. Goodman is a PFS, too.
Even so, Goodman says an issue for financial planning in the US is that despite all of the various qualifications and designations and credentials that are available, an individual can still describe himself or herself as a financial planner without having even one of them.
The regulation of financial planners in the US is sometimes achieved more effectively but slightly obliquely by regulating advice on investment and on investment products.
“If you’re going to manage money, you have to go one of two routes,” Goodman says.
The first is to become a registered investment adviser (RIA) under the Advisers Act 1940 and if the firm manages more than $US100 million of client funds – as Wealthstream does – it is overseen by the Securities and Exchange Commission (SEC). This regulation demands that the adviser act as a fiduciary, and at all times place the client’s interests ahead of the firm or the individual advising them.
The second route is to go the broker/dealer route, regulated by the Financial Industry Regulatory Authority (FINRA), where regulation doesn’t place a fiduciary obligation on the individual but focuses instead on the suitability of an investment at the point of sale.
To call oneself a financial planner, “other than filling out a form, and getting registered, there’s no real requirements”, Goodman says.
“But the irony is, if you do that [RIA] registration, the standards are higher. The standards are, in effect, to be a fiduciary to your clients. You must put all the client’s interests ahead of yours. Full disclosure, on everything. Transparency is premium.”
To be authorised by FINRA, an adviser must take a test – the so-called Series 7 exam being the most onerous.
“It’s not an easy test but it is not a hard test compared to some of the things I’ve done over the years,” Goodman says.
The issue of standards is “something that’s being grappled with right now”.
“The government is trying to figure out how to reshuffle all that – there’s a lot of competing interests on how that will all shake out,” he says.
Goodman says that in the absence of formal standards to differentiate those who are committed to professionalism and high standards from those who are not, financial planners rely on profession-based credentials. But even then, none of them are compulsory.
“There are these markers,” he says. “There’s how you might be registered; another marker might be your credentials, so the CPA to me is an ideal credential to use. It’s an over-100-year-old credential, and CPAs have been giving advice and have been the ‘most trusted’ advisers for a century.
“There’s education associated with it, getting your accounting degree, a couple of years’ experience and then passing this very comprehensive exam. I think that’s a great way to go.
“Another popular credential that is well known is the CFP
“That is something that actually says ‘financial planning’ in it. There are a lot of people who are not CPAs out there doing financial planning, so they’re going to jump on the CFP credential because that’s the only one they’re going to be able to get.
“So as far as credentials go there’s CPAs and CFPs; there’s registration techniques. But still, you don’t need to be any of that to do financial planning.”
Goodman says that the AICPA financial planning standards are “the only standards that actually have some teeth to them, in the sense that there are licences attached to that, and there’s state law”.
“In the US, every state handles their registration for CPAs – my CPA licence is with New York State, for example – and New York State will adopt the AICPA standards, and the reality is that if I’m found to be not in compliance with these standards now I can lose my CA licence,” he says.
“That’s a pretty big deal. Those are the best standards that I know of that exist out there. They’re still pretty new, but they’re the best ones I know of.”
The struggle to secure public recognition of financial planning as a profession and of financial planners as highly skilled, competent professionals is only one similarity that can be drawn between the US and Australia.
Another is the satisfaction that practitioners gain from the job they do. Fundamentally, financial planners are the same wherever you find them, anywhere in the world: driven by a desire to make a meaningful difference in the lives of their clients.
“The idea that I have helped people or families navigate the financial decisions and hurdles and accumulations and anything else that’s come in and out of their lives, to help them get to a place where they want to go – and now having done that so many years – and seeing them achieve, for me has been amazing,” Goodman says.
“When I meet somebody for the first time and they come into the office – even though they’re strangers, they’ve been referred, so there’s some connection there, but at the end of the day I don’t know them – we sit down and I come to the meeting with nothing more than a blank paper and a pen.
“I ask them a lot of open-ended questions…and in those meetings I have to be a great listener. I have to be comfortable with shutting up, and letting them talk.
“For me there’s nothing more exciting at the end of the meeting them saying: ‘I want to attach my wagon to your business; I feel like I am comfortable with you; I trust you; I think that you get what I’m saying; I think you understand what my needs and goals are; I think you’re a smart guy and you’re credible; and I want to work with you’.
“To me, it’s an unbelievable feeling that someone is willing – there’s always that realisation that ‘oh my god, now I’m responsible for that’ – but at the end of the day, the charge is wonderful. It’s a great charge. That’s one of the things that gets me happy.”
Simon Hoyle is in the United States attending and reporting the Fiduciary Investors Symposium (FIS) at Harvard University. FIS is an event produced and hosted by the publisher of Professional Planner, Conexus Financial.