1969 was a heck of a year. We saw the first moon landing, the peaceful gathering of youth at Woodstock and the birth of the financial planning profession.
According to Denby Brandon and Oliver Welch, authors of The History of Financial Planning (Wiley & Sons, 2009), on December 12, 1969, thirteen men gathered at the O’Hare Hilton in Chicago and declared the task of covering multiple personal financial issues and how those subjects interacted to be a unique service and more effective way to help clients make sound financial decisions.
The next 50 years have seen an evolution of that basic idea and a veritable revolution that has changed how the public interacts with its finances.
It was evident to those at the O’Hare meeting that clients benefit more from professional assistance integrating the various aspects of their finances than trying to address those issues in piecemeal form through product sales.
Since then, we have seen the creation of the International Association for Financial Planners (IAFP), the College for Financial Planning, the CFP designation, the Institute of Certified Financial Planners (ICFP), the International Board of Standards and Practices for Certified Financial Planners Inc. (IBCFP) now known as the CFP Board, NAPFA, the Foundation for Financial Planning and the FPA.
The evolution also saw the creation of a code of ethics, practice standards, disciplinary rules and procedures, the establishment of financial planning education programs in addition to the College, the creation of the International CFP Council and FPSB, the introduction of a comprehensive certification exam, the Journal of Financial Planning and the Center for Financial Planning among other things.
A decade ago, the FPA successfully sued the SEC to maintain the line between advice and sales. Today, the real financial planning profession doesn’t even question the importance of a bona fide fiduciary standard of care.
It wasn’t all smooth sailing. Far from it. During my career, the “CFP Lite” fiasco scarred the profession like no other. The way that was rolled out damaged trust and faith in the body charged with keeping standards high. The series of CEOs at the CFP Board that followed did little to instill confidence and the CFP Board is still feeling the ramifications today as it tries to balance its need for confidentiality in many matters like disciplinary hearings and its need to engage the profession in dialogue on important issues.
Today’s Profession
Clearly, there is a lot for professional financial planners to be proud of today.
There has never been more CFP certificants in the U.S. and abroad. Never more presence in academia with more research into all aspects of financial planning and more registered programs and financial planning degree programs in colleges and universities educating new practitioners. Never more countries affiliated with the FPSB. Never more pricing models and never more clients being served.
The financial planning profession has never been needed more. Personal finance just gets more complex and more responsibility for financial stability falls on the shoulders of the public.
One hallmark of a true profession is addressing a society-wide need. Helped by financial planner advocacy, financial literacy programs are mandated in more school systems in more states than ever. This reflects the importance of financial decision making as a societal issue. More planners are engaged in pro bono efforts, another sign of the professionalization of financial planning.
As more and more consumers understand what professional financial planning is all about, demand is soaring and causing the financial planning profession to innovate more service and pricing models and changing the financial service industry as it attempts to shift to a planning orientation.
There has also never been more responsibility on the shoulders of planners. Those of us who seek to professionalize financial planning have long advocated that a bona fide fiduciary standard was the only standard that makes sense for the profession and that those practitioners that were not under a formal legal fiduciary obligation by virtue of their regulatory status should at a minimum conduct their business as though they would be held to a fiduciary standard anyway.
Today, the CFP Board’s new standards certainly make the statement that they see it that way. Most practitioners I know don’t have a problem with a fiduciary standard, but many have employers that do. Sadly, the Securities and Exchange Commission seems to be focused on helping sales organizations fight the movement toward fiduciary advice.
The SEC’s rewrite of the English language through Reg BS, sorry, Regulation “Best Interest”, is atrocious. The name of the rule itself and the new CRS will cause consumer confusion. Their new videos for consumers do a decent job covering differences between brokers and advisors but they suggest both are held to the same standard of care. Worse, their latest interpretation of solely incidental defies logic, common sense and the intent of Congress when the ’40 Act was passed.
What’s next?
Future: A profession In Peril
We have come a long way, but this is a scary time for the profession. The public needs the profession more than ever but there are forces that can keep the two apart and the profession has some profound needs.
We need more real financial planners from all parts of our populace to serve the growing needs of the public. The diverse potential client base is best served by a diverse array of practitioners. Meeting the public’s need for help starts on campus.
We need more educational institutions to elevate financial planning to an academic major of prominence. That only happens if the programs draw more enrollment and that happens when students get jobs. On most campuses, the dominant presence is not the professional planner, it’s the big financial services companies looking to fuel their sales machines. We need practitioners on campus to boost awareness, educate clients (and parents) about the existence of the profession, about what professional planners actually do, and recruit students.
We also need more planners to grow the profession and improve the succession prospects of true professionals. If we aren’t careful, the VC money and other large organizations buying up practices will take over the delivery of a very personal service and neuter the ability of practitioners to personalize and be as effective. Sound harsh? Take any doctor over age 55 to lunch and ask how medicine has changed in the last 30 years as various groups have bought out private practices. Chances are good, they believe they face impediments to truly caring for patients and delivering the best care, and they are not happy about it.
We need member organizations to become stronger and evolve their services to better serve members as the landscape continues to change. FPA recently set itself back with a bad rollout of a worthy project—revamping its chapter system. I don’t think it will harm the organization as much as CFP Lite hurt the CFP Board but there is damage there that will take time to repair and I fear FPA will spend so much time energy and resources on the chapter issue, other critical issues may be neglected.
FPA once had the means and the will to stand up to the SEC. Who has that now? Is the profession going to let stand the commission's nonsensical interpretation of “solely incidental”? In Release No. IA-5249, the SEC states “…a broker-dealer’s provision of advice … is consistent with the solely incidental prong if the advice is provided in connection with and is reasonably related to the broker-dealer’s primary business of effecting securities transactions.” (emphasis added)
If the advice is coming from a B/D, how can it not be “in connection with and is reasonably related to” the B/D’s primary business? If allowed to stand, there is no advice that can come from a B/D that would be subject to the Advisor Act other than discretionary advisory accounts. The SEC does not have the right to rewrite the law. Who will call them on this?
Many of the pieces of a sound foundation for the establishment of a profession exist today in large part because of the advances the CFP Board has made over the years. We now have an excellent set of high standards for CFP certificants, but the organization is also facing a critical situation after the expose’ in the Wall Street Journal by Jason Zweig.
High standards lose their meaning if we do not have effective enforcement. The WSJ’s high profile exposure of this gap is embarrassing and angers me, frankly. There is too much of a mismatch between what the CFP Board has been saying about how the public can rely on their vetting of CFP certificants and what they have been doing to assure that promise is kept.
Nonetheless, there is another implication of the WSJ piece to note. Assuming the CFP Board tightens things up, the “designation wars” of old are over and the CFP marks have won. The WSJ could have written about any of the other designations, but the author chose to go after CFP, clearly featuring the designation as the leader. To paraphrase Winston Churchill, the CFP marks are the worst thing out there—except for everything else.
I am happy the CFP Board is taking immediate action to get to work on the issue. Their initial steps of adding Broker Check and the IARD links to their online listings and the establishment of a task force seem reasonable. I am still pissed, but also hopeful.
It is critical the CFP Board raise their enforcement game because the biggest missing piece in the quest to professionalize financial planning is a separate regulatory body focused on financial planning. At this juncture planners are regulated based on implementation functions not on the actual financial planning role.
Only the CFP Board is even close to taking on all the tasks a separate regulator would need to perform. Mind you, I have no idea if that is what they aspire to but it’s the best the public has with respect to financial planning and is close to having all the pieces in place.
Financial planning is not a means to facilitate the sale of financial products. It is a professional endeavor that serves clients by helping them make the best decisions possible. Regulators don’t seem to get that.
A proper regulatory regime would require licensees to prove competence, maintain competence, adhere to procedural standards, adhere to ethical standards at a bona fide fiduciary level, and enforce those standards with punishments commensurate with the offense.
The CFP Board looks pretty good on most of these items. This WSJ fiasco has cast doubt on how well the CFP Board can provide the enforcement needed. Time will tell. I believe they can tighten up their enforcement functions, but only to a point. The CFP Board will still lack the legal muscle needed to mete out punishments such as fines, payments to victims, disgorgement of ill-gotten gains, suspensions or bans from practice, or imprisonment. Some offenses call for such punishments.
Even after the CFP Board fixes its mess, they will only be able to restrict the use of the marks. Reformation of the CFP Board enforcement will further solidify the marks as the marks of the profession but there is farther to go to ensconce financial planning as a true profession.
While there are a number of forces that can swamp the ship, I remain optimistic. The strongest force affecting us is consumer demand and no amount of faux planning supported by regulatory BS can stop it. People will see through the ruse as they have more and more over the last couple of decades and vote with their feet. Taking their hopes, dreams and hard-earned assets to where they are best served. It will just be harder for them to see the facts.
If you fancy yourself a professional financial planner, the profession needs you to stave off the challenges and move the profession forward. If you haven’t already, earn the right to use the CFP marks and volunteer to be subject to their rules, even if you think you don’t need the marks or found the WSJ piece disturbing.
Whether you are a CFP licensee or not, join the FPA (and NAPFA if fee-only), regardless if you like or don’t like your local chapter or what national has done or not done. These coalition partners are the only organizations that will advocate for the financial planning profession specifically. If that were the only service provided, it would be well worth your licensing fees and dues.
Those 13 men that met in Chicago in 1969 were right. Financial planning is different and makes all the difference. If we professional planners don’t continue to fight for our ideals, the movement to professionalization could get squashed by the monied forces of the financial services industry and the public will continue to get less than they need and deserve.
Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected].