Catch of the Day: The Demise of the Financial Planner has been Greatly Exaggerated

This column is dedicated to demonstrating how the biggest financial planning mistakes and oversights often have nothing to do with investment selection.

"I was driving down south in an unfamiliar area when my GPS told me to make a right turn. I was on a bridge." - Reader's Digest

Scarcely a day goes by when I don’t see a headline in the mainstream news about the threat of technology to the jobs of American workers. To be sure, advancements in automation and artificial intelligence are disrupting industries from fast food to financial services. The rise of automated investment platforms - so-called “Robo-Advisors” – has caused some observers to ponder whether the financial planning profession may be headed toward extinction too.

While I can definitely see how Robo-platforms may be potentially disruptive to certain segments of the investment management marketplace, to the extent that technology enables people to invest more efficiently and at lower cost, I believe that it should be embraced rather than feared by the planning community. I also find it difficult to envision how technology could ever truly replace a good planner because financial planning is one profession where consumers seem to actually be increasing the value they place on personal guidance and service.

This month’s Catch of the Day features three recent, real-life examples of planning experiences that would be difficult to duplicate through automation or artificial intelligence.

Example 1
A long-time client recently tried to obtain a home equity loan on her own and was frustrated by misinformation, jargon, and bank bureaucracy. I ultimately, shopped various banks for her, accompanied her to the meetings with the loan officers, and was included on all correspondence with the bank that was ultimately chosen. The end result was a HELOC with a great 3-year rate lock that was in line with her objectives and that minimized her upfront costs.

Example 2
A client who is over age 70 ½ and maintains a 403(b) plan from a former employer with an insurance company was advised by a customer service rep for the 403(b) that she could take her RMD from her IRA instead.

While it is true that IRS permits IRA holders to take RMDs from one or any combinations of IRAs, the same flexibility does not apply to qualified retirement plan accounts, including 403(b)s, 401(k)s, and 457 plans. I obviously caught the mistake, but, had she taken the phone rep's advice, she could have been subject to a 50% excise tax penalty for failing to take her 403(b) RMD.

Example 3
A 65-year-old client who is still working, wanted to transfer a portion of his 401(k) plan to a traditional IRA to gain access to a broader range of investments and to reduce investment costs.

The HR director of his company informed him that he could not withdraw money (except as a loan) from his 401(k) plan until he was officially retired or separated from service. However, when I reviewed the Summary Plan Description, I discovered that the plan explicitly permits in-service distributions for employees over age 60.

To the extent that big insurance companies, banks, brokerage firms, credit card companies, government agencies and the like are increasingly inclined to employ either automated response platforms or under-trained phone reps, demand is on the rise for independent, knowledgeable, experienced financial planners who can cut through frustrating institutional bureaucracy, spot mistakes/misinformation and provide reliable, personal guidance. In my albeit biased opinion, this is the dawn of a golden age in financial planning.

See Also:
Robo-Advisors and the Future of Financial Planning(Benefits Pro)