“Our thinking is to approach this legislatively,” Mahoney told Financial Advisor. “But we’re not touching licensing, we’re not touching regulation, per se. This is just documenting, wherever we need to, the phrase ‘financial planner’ and giving it the title and protection it deserves. … I will run into [members] and they’ll say, ‘I do everything I’m supposed to do. I adhere to all the ethics requirements. I adhere to good standards, I keep up to date on my competencies. … I do a good job for my clients, and that person down the street doesn’t do any of that and they still call themselves a financial planner. Help me protect my ability to make a living as a planner.’ This has been brewing for a long time.”
Michael Kitces, a co-founder of the XY Planning Network and a frequent FPA critic, said in a series of Twitter posts on the day of the announcement that it was good news. However, he noted the lack of specificity about who the FPA was going to lobby and who it was going to lobby for—as well as when and how and what yardsticks the group would be using to bestow the name “financial planner” on any given professional—left many unanswered questions.
The XY Planning Network itself notably took the battle to the SEC in a petition last year. In September 2021, the network filed two petitions asking the SEC to reconsider a rule it proposed in 2007 about financial planning titles and the automatic triggering of fiduciary investment adviser registration. The network also called on regulators “to modernize Section 208(c) of the Advisers Act and better define in today’s environment what constitutes ‘investment counsel’ services that would necessitate not just registration as an investment advisor but a requirement to principally be in the business of advice in order to market one’s services as such.”
Kitces noted on Twitter: “In the end ‘title protection’ almost inevitably requires some regulator to license the term (so those not eligible are restricted from using it), and some regulator to enforce it (so standards and their regulatory burden are inevitable).”
He also noted that the FPA was silent about making the CFP marks the benchmark for the “financial planner” title, even though the association is a membership for CFPs. “Is FPA really considering some other/additional designation to rally around?”
Youth And Its Discontents
Thompson, the former FPA lobbyist (and now a senior policy analyst at Fi360 and president at Potomac Strategies) says the youth of the industry is part of the problem. Financial planning as a profession emerged from a welter of different talents and professions once governed under different regulatory regimes, when people of diverse backgrounds, including insurance agents and stockbrokers, melted out of the woods to form a new profession in the ’80s and ’90s. (He notes that a lot of the profession’s creation had to do with the fallout of the 1986 tax reform, when a lot of newly useless tax shelters had to be scuttled and clients sought help and answers from their “financial counsel.”)
“Financial planners were Johnny-come-latelies,” Thompson says, “after most of what services they provide were regulated under other regulatory silos. A lot of them came out of the insurance industry because their clients had sophisticated questions that kind of bridged the area between estate planning and investment planning and insurance issues.”
Existing laws on the books didn’t seem to address this new type of pro, Thompson says. The name “stockbroker” fell out of vogue, and more generic names popped up, he says, while professionals settled on “financial advisor” and “financial planner.”
The Advisers Act of 1940 was specific in describing only the phrase “investment counsel.” The law on the books says, “It shall be unlawful for any person registered under section 203 of this title to represent that he is an investment counselor to use the name ‘investment counsel’ as descriptive of his business unless (1) his or its principal business consists of acting as investment adviser, and (2) a substantial part of his or its business consists of rendering investment supervisory services.”
By “investment adviser,” the law “means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, , or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities … .”
Unfortunately, Thompson says, the English language is so robust that new phrases often pop up when the old ones get stale. That’s going to make the FPA’s task more daunting, he says—because if the title “financial planning” gets regulated like “investment counselor,” people in other industries might coalesce around something else that’s official-sounding.
The end goal is crystal clear. “What you’re trying to do here is build barriers to entry,” he says. Even if the FPA is successful in getting federal or state laws enacted that said you could only practice with the title “financial planner,” that still requires you to define it.
There have been various thoughts on the matter. Does it include accountants and lawyers? The SEC released one note in 1987 that said even pension consultants and advisors to entertainers and athletes were doing work that often fell under the heading of “investment advisor.”
In 1990, Rick Boucher, a Virginia Democrat in the House of Representatives, tried to pass legislation that would require anyone offering investment advice to pay to register with the SEC. Boucher and other legislators sought to address the problem after millions of Americans had seen their life savings decimated by tax reform, which had eliminated tax breaks for many limited partnerships, and the savings and loan crisis. Various requirements were debated but the so-called Boucher Bill never gained traction.