If you love someone, set them free.

If they come back they’re yours;

If they don’t they never were. 

—Richard Bach

The financial services industry is vital to financial planning in many ways. It provides financial products that meet the needs of the public, including our clients. 

Unfortunately, the industry has not recognized its limitations or worked to put itself in an effective position with respect to the financial planning profession. It treats planners like tenant farmers; it ought to be treating us like partners. In any event, the relationships between profession and industry need to be properly addressed and clarified.

Financial planning should be unique and unto itself. It ought not be the property or playground of others. It is unique, singular. An authentic profession in the making. 

The bad news is that industry continues to aggressively confuse and befuddle the public and employ non-fiduciary products and sales tactics. The good news is we are coming to a historic inflection point likely to generate momentous, seismic shifts in the relationships between these financial services industries and the financial planning profession. 

This has been spurred on by the Department of Labor’s imposition of fiduciary standards for retirement accounts. Weeping and wailing notwithstanding, our relationship with industry will never be the same.

We won’t necessarily be at odds. It means that our respective interests will be properly aligned. That will be a good thing, indeed.

Natural Growth

If financial planning is to reach and fulfill its potential, it must be given every opportunity to seek its own levels, paths and destinies. How else can we explore our possibilities or develop miscellaneous gardens of knowledge? Yet this is made most difficult so long as the financial services industries persist in generating confusion and trespassing on our turf. Moreover, it is demeaning, stultifying and infantilizing. I suggest it is time for industry to back off. With any luck, the changes being generated by the Department of Labor’s fiduciary standards will cause Industry to voluntarily reconsider its working relationships with the financial planning profession and our clients. It would be good for everybody.

This is about more than product sales. 

We all know the facts of life. Whether biological or sociological, lives begin with acts of conception. From there, the generated life forms witness development, then birth, then more development and, finally, maturity. Maturity is then inevitably met with miscellaneous disruptions, aging and eventual obsolescence, then death. So it is with human beings and our undertakings. And so it will likely be with the financial services industries. 

Right now, these industries are in their maturity and disruption phases. IMHO, they generally do a good job, especially in light of sales volumes and uncertainties. Yet, despite the daily realities whereby they are all duly occupied with the care and keeping of profoundly complex financial services industry products, they have all wanted to claim and control a chunk of what we are now calling “financial planning.” 

Shame on them. 

Financial Services Industries

History gives perspective. The “financial services industries” are defined in Wikipedia as follows:

“Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds and some government-sponsored enterprises.”

Today, Industry can be roughly summarized as banking, investments and insurance, plus their offshoots. Each of these sectors has developed in-house sales forces presented to the public under the guise of “financial planning” but actually serving as marketing arms. Note how the Wikipedia definition excludes businesses and professions serving single individuals one-at-a-time—financial planners, lawyers and accountants.

These primary financial services industries have intriguing and admirable histories. For example, banking dates back 4,000 to 5,000 years; investments and insurance are much younger.

In contrast, securities can only be traced back to the 11th century. In 1602, the Dutch East India Company became the world’s first publicly traded company. With greater resemblance to modern times, the 19th century witnessed stock exchanges becoming common throughout the world.

The life span of insurance in history depends on how you count. It is probably fair to credit its start with maritime insurance dating back to the Greek and Roman empires. However, the seeds of modern insurance were basically planted in 1688 with Lloyd’s of London—a coffee shop that became a business center for pooling and allocating the many risks of shipping. In so doing, it became a progenitor of the modern insurance industry. Lloyd’s continues to this day.

It might stretch the point, but the life insurance industry can arguably date itself to the Roman Empire and the burial clubs popular among Roman troops. However, life insurance as we know it today really began in the 18th century with the Presbyterian Synod of Philadelphia offering life insurance to Presbyterian ministers. Other forms of insurance also got their starts in the 18th century. Mutual companies developed in the 19th century.

Nonetheless, it was not until the 20th century that Industry evolved into the powerfully moneyed behemoth we have come to know and love. During this time, the financial services industries evolved new and effective risk management tools. Along the way, their actuaries, lawyers and sales forces generated some amazing products designed to help folks meet the financial demands, risks and opportunities of their lives. Notably, they developed enormous menus of insurance options, banking services and investment products. By spreading risks, they enabled both functionality and family security while providing cover for immense risks.

In so doing, postwar Industry became big, brawny and immensely powerful. Unfortunately, although it could develop complex products, it was just not very sensitive to the needs of ordinary folks. Each individual sector had its sales forces, but these were not integrated, comprehensive or individualized. Product delivery was anarchic, expensive and inefficient.

Planning Emergence, Industry Conflict 

This state persisted until financial planning emerged from the inspired imaginations of a handful of individuals. Initially, embryonic financial planning brought deliveries of different types of financial products within singular relationships. From there, miscellaneous visionaries foresaw our needs to develop and evolve financial planning into something much more profound and sophisticated than a one-stop financial product delivery system and sales tool. Namely, they foresaw an authentic profession working with individuals, their money and their choices in a world where money had become the most powerful and pervasive secular force on the planet. We still needed our relationships with Industry, but we could see that the implications of our work were so much more profound than just this.

It is worth noting and emphasizing this little unpublicized and unappreciated nugget: Industry did not conceive or create financial planning. Neither has it devoted much effort to planning’s evolution and development, not even to basic planning. It was individuals that did this work. Rather, industry continued to view financial planning as an efficient and productive marketing system, treating financial planners merely as minions. At the same time, either consciously or unconsciously, industry impeded the profession’s development through its emphasis on products at the expense of other issues relevant to people’s financial well-being. Suffice to say, these relationships have not always been virtuous or collaborative.

Let’s face it. Professions and industries do not necessarily play well with others. However, an authentic profession, such as medicine or architecture, has a raison d’être grounded in service and benevolence. In contrast, profit-making and risk management are a manufacturing industry’s primary motivations. Pharmaceuticals and building materials present excellent examples of this phenomenon. Simply put, an industry should not be attempting to circumvent the natural divisions between itself and a related authentic profession.

Unfortunately, this has not been the rule but the exception within financial services. For the most part, Industry has attempted to control the financial planning profession through relationships and agreements designed to give it substantial controls over the profession and its evolution. This has run the gamut from broker-dealer affiliations to such competitive restraints as agency agreements and arbitration clauses.

Although unaffiliated financial planning entered the arena in the 1980s, it is fair to say that there have been severe tensions between the financial planning profession, the financial services industries and those caught betwixt and between. Relationships have tended to resemble 19th century tenant farmer arrangements more than effective collaborations.

Regrettably, Industry has not been satisfied with a basic approach of simply providing products and productive working relationships. Instead, it has devoted substantial energies to confining financial planning to these profound limitations. It has devoted formidable energies to maintaining a legal environment that has protected it for decades: specifically, with arbitration, so-called suitability standards and the laws of agency. Since the interests of individuals constitute the primary concerns of a financial planner, this has been problematic.

Nowhere have the industry’s motivations been more evident than in its resistance to the Department of Labor’s new fiduciary standards. Certain sectors have worked overtime and applied considerable brute force through lobbying and lawsuits.

It is a conundrum. Financial planners need Industry in order to serve their clients effectively. But planners need to serve their clients first and foremost, not the bullying boss men of their product suppliers.

This is where we get to the inflection point. Changes will come. We need to be prepared to meet them head on.

Appropriately Aligned Relationships

I have no doubt the implementation of the DOL rules will serve as a major inflection point to change the relationships between Industry and advice providers. Likewise, I have no doubt that both companies and individuals who cannot adjust will be out of business in a short time. This is as it should be. Financial planners and financial services companies are not dealing in products that people generally understand or should even be expected to understand. Industry has too much power for deception and obfuscation in the process of product creation and delivery, and it needs to stand behind its creations and serve its end users with the utmost integrity or risk both legal penalties and public scorn. By extension, it needs to view its relationships with authentic advisors as both collaborative and virtuous, where the advisors have powerful and unquestioned first loyalties to clients.

It will be a different world, a world that will be built for the 21st century, not the 20th. As has happened with medicine, Industry would serve the profession and the profession would deliver to the public.

Our worlds will never be the same.
 

Richard B. Wagner, JD, CFP, is the principal of WorthLiving LLC, based in Denver. He is the 2003 recipient of the Financial Planning Association’s P. Kemp Fain Jr. Award, which recognizes a member who has made outstanding contributions to the profession. He recently authored Financial Planning 3.0 | Evolving Our Relationships With Money.