Can banks make it as financial planners? Richard Wagner, chairman and past president the Denver-based Institute of Certified Financial Planners, has his doubts.
Banks are too bureaucratic to build relationships efficiently, and yet relationship-building is the backbone of the financial planning business, Mr. Wagner said in a recent interview.
In addition to heading the institute, an 8,000-member organization that sets standards for financial planners, Mr. Wagner is a principal in the Denver financial planning firm of Sharkey, Howes, Wagner & Javer Inc.
Q.: Tell us about the financial planning approach. How is it different from the way banks deal with customers?
WAGNER: We spend a lot more time on all the different issues facing an individual. Financial planning is an ultimate liberal arts profession. We work with everything about an individual. The investment portion is the last 10% of a successful financial plan.
The first 90% involves getting the client's act together. Having money to invest is the result of other good habits. That would include developing the skills to obtain quality employment, successful budgeting, and spending habits. And of course, savings habits. Savings are the part that drive everything else necessary for your financial well-being.
Q.: Is there any synergy between certified financial planners and financial institutions?
WAGNER: At this point in time, very little. I think banks are used to customer relationships and don't understand client relationships.
Q.: What's the difference?
WAGNER: Banks do a superb job of clean, efficient service, but the banking structure is bureaucratic in nature and bureaucracy and client relationships don't work very well.
Q.: For example?
WAGNER: I don't know of any successful financial planning operation in a bank, with the possible exception of Fleet Bank in New England, and they lost their person who ran that a few years ago. I've seen several attempts, such as First Interstate Bank in the '80s, but they either move people too fast [into other positions], they fail to support their own people, or don't give them time to develop.
A client relationship requires someone they can come to who is their person, like a doctor.
If banks really want to succeed in using principles of financial planning they should seek relationships like hospitals have with medical practices. They should establish relationships with financial planning practices.
Q.: What do you think of banks getting into the mutual fund business?
WAGNER: It's a free country. Some of them have done real well. But I'm glad I'm not a bank right now. They've got a lot of weight on them and a lot of competition.
Banks are doing a "Field of Dreams" approach. If we build it, they will come. I'd rather meet clients one on one. Banks make a goal of focusing on the customer's needs. They put that out in advertising, but they don't produce.
Q.: Why not?
WAGNER: Controlling the ego of the producer is high on the list. An organization requires uniformity. A personal service by definition requires an eclectic approach. At a large bank, there are certain inherent barriers. For example, you walk into a bank and they say they have money to lend. You try to get that money, and you find quickly it's not a real personal experience.
Q.: Some say financial planning is a natural for banks.
WAGNER: I wish them luck. It seems that it ought to work. If it is going to work, I suggest they pay attention to the institutional flaws. I mentioned bureaucracy. There's also confidentiality. It's an important part of what we do. That's hard when you have employees running all over the place and universal computer systems.
The bank trust departments were the first legitimate financial planning approach, but they were inefficient. I would establish referral relationships with an array of certified financial planners whom I trusted.
Q.: So why should banks do it? What's in it for them?
WAGNER: In a strong referral relationship, when a client needs a loan, safety deposit box, trust services, checking accounts, a planner can bring them to the bank. There are things we have control over that are noncommission items. If banks want us to sell their funds, they're in a conflict of interest. We have to work with the whole universe of mutual funds.