Some may wonder what it means to combine theory and clinical application. It may help to look at the question in relation to practice standards. How, for instance, does the average practitioner approach a client situation? Is there a common methodology used that is known to generate consistent results? It is safe to assume that the answer to these two questions is negative. Certainly, practitioners have been trained in a process of counseling and planning. However, it is critically important to recognize that process is not theory. Building a house uses a process for construction. The process itself must rely on a theoretical basis-what building materials can be used in certain situations to support loads, pressures, etc.? So what is the theory underlying the counseling and planning process? The answer is disconcerting. No theory unique to financial planning has yet been identified!
Origins of the Practice
According to most observers in the field, financial planning originated in the late 1960s. The individuals responsible for identifying the occupational domain were not theoreticians. They were practitioners. Thus, the process of financial planning emerged from the observation of successful practice. Here is what these practitioners saw:
Successful planners first gather information about their clients. They then examine the data and develop a plan. Recommendations are then made, and if the client approves, recommendations are implemented and monitored over time.
How, one might ask, is the six-step process to be mastered? This has always been the defining question in the field. The answer, to date, has been a simple one, namely that practitioners need to gain occupational experience over time to gain the expertise to practice at the highest level. This, unfortunately, was the same model used by engineers hundreds of years ago. Inexperienced builders were left to learn by focusing on small projects. Some of these projects worked; others failed. Over time, if the builder could last long enough without causing more harm than good, he or she would become a master. Only at that point would the engineer be allowed to construct meaningful structures for clients. Can anyone sensibly imagine the same process being used today to train engineers? How would the public react if this approach were used to prepare physicians for professional practice? The public outcry would be deafening.
However, this is the current state of the financial planning "profession." It is widely assumed that the process of financial planning is an effective method for working with clients. This is only an assumption. The assumption is based on one form of evidence, which is that financial planners who have achieved financial success in their practices are the ones who use a common systematic process. But the correlation is fuzzily unclear. The thought goes like this: Practitioners who use the six-step process seem to gain financial success, so they might be lulled into the conclusion that the process must be effective.
But does correlation imply causation? Absolutely not. It is equally possible that others tried to apply this process and failed. Because they did, their experience is not recognized. This is called survivorship bias-that only the successful planners remain for the correlation analysis. Further, the outcome assessment-the financial success of the planner- may be inappropriate. Isn't it more reasonable to ask how much personal and financial gain clients have achieved when the process has been applied to their situation? Of course, the answer is yes.
Here is the dilemma. Because the financial planning process was developed by observing how experts practiced, and because the only systematic measures of outcomes have been tied to the success of practitioners, it is nearly impossible to document if it is the process or the person that is generating observed positive outcomes. This is the fundamental reason why financial planners ought to reflect on the role academicians can play in advancing the field from an occupation to a profession. Specifically, isn't it time to submit the counseling and planning process to clinical trials?
The answer is yes. It is time to determine if there is a fundamental theory of practice that exists to guide the advancement of financial planning. This does not mean borrowing theory and models from affiliated fields (e.g., economics, corporate finance, sociology, etc.). What this calls for is a fundamental assessment of the processes, methods, approaches and systems of financial planning-and for establishing a unique theoretical baseline for financial planning practitioners and researchers.
In effect, what is needed today is the ultimate answer to the practitioner question: "What works?" The only way to know the real answer and move beyond applying products and materials as stopgap measures for client situations is to systematically test theoretical constructs related to financial planning. Some of this work must be done in a pure research environment. Other work must be conducted in clinical settings. Clinical work, for example, might employ experimental methods where certain individuals receive traditional counseling and planning using existing products and materials while others receive alternative "treatments." Outcomes could then be compared. It is reasonable to envision a unifying approach emerging from such research. For instance, few practitioners today use clinical assessments in their practice. Those that do use assessment instruments beyond cash flow, net worth and risk-tolerance evaluations seldom use the same tools or techniques as their colleagues. Each practitioner is, in essence, learning from experience in order to increase his or her own expertise. This is akin to physicians experimenting on their own clients in order to find cures to diseases that plague all of mankind. That model was once used, but thankfully no more.
The Future
So, what can the future hold? This question does not have to imply gloom for the practice of financial planning; rather, it could be the starting point for those who want to advance the occupation of planning and make it into a profession. Such an agenda could be kick-started at a national symposium that comprises practitioners, researchers and policy-makers. The group need not be large. But it must be committed to defining the profession and setting a research agenda that will ultimately lead to a distinct theoretical and conceptual basis for the practice of financial planning. This will invariably mean that certain groups of academicians, theoreticians and practitioners will choose not to participate for one reason or another.
It is likely, for example, that some would argue that counseling and planning are not, and cannot be, anything more than a subdiscipline of economics or finance. Others will find the challenge of defining the movement to be too complex, time consuming and/or personally unrewarding. These individuals, too, will leave the discussion. Those who remain, however, are likely to be the ones who see that today provides a unique time in history to push financial planning into the realm of a true profession based on the dualities of academic inquiry and practice.
To build something that can change the way financial planning topics are viewed, studied and applied in the modern world is an exciting challenge. The outcomes associated with such an endeavor are potentially tremendous. Imagine a common definition used by researchers, practitioners and policy-makers to describe what occurs between clients and practitioners on a daily basis. Imagine the improved level of national well-being that can be achieved when clinically tested intervention techniques are widely used and measured. Imagine being recognized as a professional rather than being a person who occupies a job. Imagine research reaching the broadest possible audience. Imagine establishing standards of practice. Imagine accrediting academic programs to teach the art and science of financial planning. But maybe now is the time to move beyond imagination and follow the lead of every other profession the exists today. Again, using the context of engineering, now is the time to more closely link practice with theory.