We have noticed, despite all the efforts our industry is making, that there is a misconception between financial planning and investment management. With that said, it is our industry that has created this misconception.
Many decades ago, you went to a stockbroker if you wanted to invest money in the stock market. You went to a bank for banking products i.e. checking, savings, CD’s etc. You went to an insurance agent or broker for insurance products. This was a result of the Glass-Steagall Act that was passed in 1933. Let’s take a glance at this significant piece of legislation so we have a frame of reference for this piece.
Glass-Steagall Act of 19331
Aimed at reforming the banking industry as a response to the Great Depression, this act had several key points. These include (but aren’t limited to):
- The separation of commercial banks and investment banks, and restrictions on how they could engage each other. This reduced the risk of bank failures and protected consumers from financial market excesses.
- The Federal Deposit Insurance Corporation (FDIC) was created to provide federal insurance for bank deposits.
- Restrictions on Affiliations prevented banks from holding interests in securities firms and restricted their ability to partake in financial actions that could be risky for depositors.
- Regulations were imposed to reduce speculative practices by banks. This change was meant to stabilize the financial system and protect depositors.
The Financial Services Modernization Act of 19992
Also known as the Gramm-Leach-Bliley Act, this repealed many parts of the Glass-Steagall Act. Here are the main highlights:
- The barriers that separated commercial banking, investment banking, and insurance services were removed, allowing for comprehensive service packages to be offered.
- Affiliations were allowed, permitting holding companies to acquire insurance companies and securities firms.
- Competition increased due to the diversification of services that was now possible.
- New privacy regulations were introduced that required financial institutions to notify customers of how their information was shared.
- The merging and acquisition processes were simplified between different types of financial institutions.
As a result of this act, the lines became blurred because you could provide all the aforementioned products and services from any of these institutions.
Invest in Yourself
The truth is that financial planning is not a synonym for investment management. Investment management as a service is a model in the financial industry that offers comprehensive investment management solutions through a service-based approach. This model leverages technology and outsourcing to provide investment management services which typically involves buying, selling, and trading securities in a scalable, cost-effective, and customizable manner.
Financial planning refers to the process of creating and managing a financial plan for personal or business goals. Plans should include detailed explanations of goals, risk tolerance, timeline and expected return. Delivery of financial planning services can be through a technology-driven platform or as an outsourced solution. It includes a range of services which include investment management, cash flow planning, business succession planning, retirement planning, tax strategies, and estate planning, typically delivered through a digital or semi-digital platform.
The key takeaway is that you should choose a service that aligns with your needs and expectations. Do not hesitate to ask how your advisor is compensated for the services they are providing.
1 Maues, Julia. “Banking Act of 1933 (Glass-Steagall).” Federal Reserve History, 13 Nov. 2013, www.federalreservehistory.org/essays/glass-steagall-act.
2 Mahon, Joe. “Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley).” Federal Reserve History, 22 Nov. 2013, www.federalreservehistory.org/essays/gramm-leach-bliley-act.
The views and opinions expressed are those of Michael Cammarata only. Any examples used are generic, hypothetical and for illustration purposes only. Investing involves risks, and past performance is not indicative of future results. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Tide Creek Financial Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. Supervisory Address: 11350 McCormick Rd., Executive Plaza IV, Ste 200, Hunt Valley, MD 21031. 410-785-7654. CRN202709-7154516