Executive Summary
Financial planning has long struggled with the criticism that it serves only a limited subset of the relatively affluent, and has failed to develop business models that deliver financial planning to the wide swath of "average" Americans with more limited income and resources. Yet at the same time, the reality is that our education as financial planners does not really effectively prepare us for the kinds of "financial counseling" knowledge and skills required to serve those with less income and fewer assets. Which raises the question: is that simply because financial planning hasn't grown far enough, or is the reality that the financial planning body of knowledge is separate and distinct from the kind of "counseling" knowledge needed to help people through the basics of navigating our financial system, from credit cards to credit reports to checking accounts to the use of public agencies? Or perhaps stated more broadly, is financial planning for the mass affluent and wealthy a different discipline than financial counseling for those of more limited means?
The inspiration for today's blog post comes from the Financial Planning Association's (FPA) recent announcement that it will be working on joint initiatives with the Association for Financial Counseling and Planning Education (AFCPE) to, amongst other things, "support and develop the complementary disciplines and professional specialties of financial counseling and financial planning" and "provide specially designed options to FPA members who wish to obtain the Accredited Financial Counselor (AFC) and Certified Housing Counselor (CHC) certifications..."
When the announcement came out, my inbox received a flurry of emails asking whether this means the FPA is further diminishing its focus on the CFP certification as the fundamental standard for financial planning. As one person put it to me, "in a world where consumers are so confused by a dizzying number of designations, why is the FPA endorsing several more of them? Is the FPA losing its focus? What happened to 'One Designation, One Profession'?" And apparently, those questions were directed to the FPA as well, forcing FPA CEO Marv Tuttle to issue a follow-up email to members reinforcing that FPA still believes the CFP mark is the standard of excellence for personal financial planning, and that the goal is to help CFP professionals "expand their education and learn from other allied disciplines."
This last sentence to me is the real crux of the issue. Are the AFCPE's financial counselors engaged in an "allied discipline" of financial planning? It would seem that many financial planners believe that what AFCPE's financial counselors doing is financial planning... which in turn raises these issues about whether FPA is encouraging alternative financial planning designations or losing its focus.
Yet as I've written previously, I think if we take a realistic look at the financial planning body of knowledge, there is a wide swath of Americans to whom financial planning as it currently exists doesn't really apply, simply because their income is so low and their assets are so few that our planning strategies are irrelevant. What's the point of "income tax planning" for the 50% of Americans who don't pay any income taxes? How do you make effective recommendations to buy life insurance, or save for retirement, or establish a 529 college savings plan, for the 64% of Americans who don't even have the financial resources to handle a $1,000 unexpected expense? In essence, is there a minimum below which financial planning is not relevant, where the AFCPE's financial counseling is?
Of course, the terms themselves are somewhat squishy - in fact, I recall reading in The History of Financial Planning that the founders of financial planning considered "financial counseling" as an alternative label - but the real point is the intended focus and content of the programs. If you look at the AFCPE's Accredited Financial Counselor (AFC) certification, you see content that includes topic areas like "Credit Cards; Credit Reports; Consumer Fraud; Using Public Agencies to Assist Clients; Child Support, Alimony, and Repossessions; Housing and Student Loan Debt; and Bankruptcy."
Once you look at this content list, some of the conflict begins to fade away (although to be fair, the content also includes areas of basic personal finance that do overlap the core CFP curriculum). The content areas listed above are not topic areas with which the typical financial planning has training or even familiarity (How many planners know anything about using public agencies to assist clients? Are we ever trained in how credit reports and credit scores actually work?). In other words, programs like the AFC certification really do seem to be adding something to the knowledge base that isn't readily available to financial planners, but that could be helpful to them. (In fact, I've seen many planners become uncomfortable doing "pro bono financial planning" work, because in reality so many members of the public need help with these kinds of fundamental financial and debt issues and we as planners really are not well trained to address them!)
Given who the AFCPE's members are trying to serve - the "average" Americans who cannot afford financial planning, nor for whom is much of our financial planning advice even relevant - I have to admit that the financial counselors (as AFCPE has defined them) do begin to feel more like an allied discipline and less like a financial planning competitor. Yes, I'm aware that there are many who would ultimately like to see financial planning expand its scope to reach far more people up and down the income and wealth scale... but if we want to serve more, first we have to learn how to serve them effectively. From that perspective, one can make the case that the FPA/AFCPE joint initiatives may ultimately help bring the financial counseling knowledge into the financial planning fold, leading the profession to reach the point where its body of knowledge expands, its services broaden, and it does become more relevant for a wider base of people. And certainly, I have to have some level of respect for the AFCPE itself - an organization I'm not very familiar with, but which seems from the AFCPE website to be as interested in raising its professional standards in an area where you don't need certification to practice, as much as we in financial planning have the same goal for our profession.
So in the end, I have to admit that that I'm tentatively encouraged by the FPA/AFCPE joint initiative. I think it's sometimes difficult for us as financial planners to swallow our own professional pride and acknowledge that there's knowledge here about how to counsel the average American that we just aren't well trained in, but nonetheless I think that is the reality right now. That being said, however, I also hope that initiatives like this don't distract the FPA from bolstering its membership with and its value proposition to its core constituency - financial planners with the CFP certification - where it seems to be losing ground in recent years.
So what do you think? Will the FPA/AFCPE joint initiatives be a positive step? Would you consider one of the AFCPE's certification programs to round out your own personal knowledge? Is it fair to acknowledge that financial planners are not really well trained on these "financial counseling" issues? Does the joint initiative bolster FPA's value proposition, or is it a distraction?
Chris Brown says
As a CFP® and AFC® professional, the disciplines overlap slightly, but the AFC® curriculum is related to provide basic financial tools to help individuals and families to become financially literate and be more confident in navigating financial products. The AFC® covers basic ideas of investing and some basic tax information, but is not nearly as in depth as the requirements for the CFP® certificate. If you’re interested in creating a strong pro-bono impact I think the AFC® certification would help you develop a robust program that would offer broad appeal. I think this is a promising move to allow the FPA to pursue new public pro-bono initiatives. A large number of other AFC®s I have met work primarily on military bases.
Dick Purcell says
Michael —
I don’t know how you keep on top of everything in this field. You must have a secret source of vitamins.
Since our, er, discussion of months ago, I’ve been looking at the topic of this current Feb.2 blog of yours — financial help for the whole population. I think there’s a huge hole in the middle regarding investment.
The economics of Financial Planning fits the wealthier population — in your prior blog essay on this topic, David Jacobs estimated upper 20%. By sharp contrast, the various services in Financial Literacy are suited for those at the bottom edge, covering real basics such as budgeting and credit card dept — and a visit to the AFCPE website you linked us to suggests that organization too is focused on those near the bottom.
What of the folks in the middle? Those who are doing OK and saving/investing for retirement but with accounts below the range that suits them as clients of Financial Planning? It appears to me they are left in a forest of investment-guidance fragments that are dismally inadequate and to a great extent misleading.
Dick Purcell
The Better Investor says
Hi Dick,
You’re absolutely right. In fact, Merrill Lynch recently changed how it compensates brokers and no longer pays them for new clients that have less than $250,000 in assets. One of the reasons Jemstep was founded was to give access to an intelligent system that can help all investors look after their hard-earned money and achieve their financial goals faster. We believe that everyone has a right to high quality, comprehensive and transparent investment advice they can trust. It’s traditionally been only available to wealthy investors who can afford the high cost of fees.
Glad to say there’s now an option for everyone.
Jean-Luc Bourdon says
Hi Michael – I would question a “blame the client” explanation such as: their resources aren’t sufficient enough for a financial planner to be relevant. Currently, the profession does not and cannot serve the US population (about 300 million). There simply aren’t enough qualified financial planners to serve the public. There aren’t 100k professionals we’d want to call financial planners. By contrast, the US has over 950k doctors (who can serve more patients than we can clients). The economics of the profession lead planners to focus on fewer, wealthier clients. Figure conservatively 100k planners serving 70 average househols (of 2.6) and you get an 18 million capacity. So, capacity and economics would lead the profession to serve the top 6%, or families earning over $200k. Sounds about right? Could it be that we haven’t had a need to make ourselves relevant to the bottom 94%? Aren’t their resources relevant to financial planning? Or just not relevant to financial planners? Do we need new professional designations or new professionals?
I believe financial planning is a universal discipline concerned with helping people make the best money choices to pursue the life they want. The poorer I was, the more critical financial planning has been.
There is one solution: serve over 1,000 households each. So please share your secret source of vitamins 🙂
Another could be to encourage anyone who cannot get a good financial planner to become one.
Anonymous CFPer says
Thanks, Michael, for insightful thoughts. Even if properly trained, FPA cannot muster enough members to do enough pro bono work to make a dent in this demographic, even if 100% of FPA members gave a day of their lives each year. It’s wonderful that AFCPE is addressing that space: that’s good for society. And it fits within the pro bono spirit of FPA to support such endeavors, and AFCPE could be a great leverage tool to more effectively provide pro bono services. It will be interesting to see how the relationship progresses.
Michael Kitces says
Anonymous,
I certainly don’t disagree that FPA members (or CFP certificants at large) don’t have the numbers to serve the wider demographic.
But there still seems to be an issue of who should “own” this space in the first place. Is what AFCPE does a distinct discipline from financial planning? Or a specialized expertise within it?
The distinction matters. For instance, if financial counseling is an extension of financial planning, and if FPA truly believes that the CFP forms the foundation for the delivery of all financial advice and is about advocating on behalf of financial planning with the CFP as a minimum standard, will the FPA tell AFCPE members to get their CFP certification and advocate that the AFCPE should make the CFP a prerequisite for the AFC or CHC certifications?
Conversely, what if FPA took the stance that the best way to help financial planners help the broader public is to refocus efforts on making its members so wildly successful that they have more time to serve in pro bono efforts, have more scale in their business to serve a wider swath of Americans, and make financial planning such a desirable profession that we get the onslaught of new professionals needed to serve a wider public? In other words, why is the best path to bringing financial planning to the public about getting “affiliated professionals” in the door, instead of focusing on making our own core members wildly successful?
To me these are the kinds of truly strategic questions to ask about FPA’s future! The negative member feedback I’m hearing is a direct echo of these concerns.
Respectfully,
– Michael