Articles About The Financial Planning Profession

Professional service industries tend to evolve over time as the regulatory environment evolves and new technologies emerge. For instance, the financial advice industry has seen many changes to regulations (for both advisors and their clients), advisor business models, and the advisor technology landscape. These changes all have the potential to change the industry by shifting the current focus on selling financial products (including financial plans themselves) to providing a more in-depth and personalized experience that helps anticipate future issues in a client's life and better help them identify the goals that will help them thrive. And the wide scope of technology tools supporting advisors to shift into providing more client-centric services makes this new era in the future of financial advice possible!

The changing patterns in how financial advice is delivered can be compared to the similar trends seen in the evolution of medicine. Dr. Peter Attia, author of the book Outlive: The Science & Art of Longevity, describes the trajectory of medicine in 3 stages: Medicine 1.0 represents the time in history when healers believed that illness was attributed mainly to supernatural forces, Medicine 2.0 represents our current state of healthcare, in which genetic makeup and the environment play a major role in illness and disease, and where the focus of doctors lies primarily on the administration of treatments to cure and mitigate human ailments; and Medicine 3.0 is the projected future direction of medical care, where, instead of taking a reactive approach to disease and illness, healthcare practitioners instead invest more energy focusing on preventing illness and maintaining good health in the first place through more personalized plans for patients.

In the context of the financial planning industry, whereas Financial Advice 1.0 and 2.0 represent our past and present industry's reactive focus on coming up with solutions to address client problems, Financial Advice 3.0 offers an optimistic future glimpse of financial planning where advisors offer deeply tailored planning experiences, pairing human advice with digital service and support to fully engage clients in a more proactive approach to financial planning. Specifically, Financial Advice 3.0 improves on the previous iterations of planning by involving a more thorough technical analysis of a client's unique situation than it did before and drilling deeper to reveal more planning opportunities to present to clients.

Furthermore, with the efficiencies built-in to emerging technology (ranging from tax planning software that helps with the tactical aspects of executing tax planning strategies, to estate planning software that helps clients better understand their estate plan, to specialized planning software that lets advisors go deeper into various planning areas important to their clients, and even to advice engagement software that engages clients with the advice provided), advisors can focus more of their time on enhancing the 'softer' side of providing advice to clients and not just implementing a relatively static financial plan. And by building more empathetic relationships and having deeper conversations with clients, advisors who implement Financial Advice 3.0 build the trust needed to fully understand the client's unique situation and concerns while creating a highly engaging client experience.

Ultimately, the key point is that financial advisors have new technologies and approaches that increasingly support a shift into a more proactive, interactive, and dynamically engaging version of planning for clients – Financial Advice 3.0. This approach comes with a new generation of tools and resources that allow advisors to focus on building stronger client relationships and providing clients with a more meaningful planning experience. Which could lead not only to better planning outcomes for clients, but also to new opportunities for advisors to grow their firms!

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In the mid-20th century, the first phone call for a person who needed guidance on saving or planning for retirement was likely to be to a stockbroker or a mutual fund or insurance salesperson. But while some of these salespeople may have certainly been able to provide sound advice, there was really no way at that time for a consumer to know which among the many brokers and agents out there were actually capable of giving true and sound advice that would help them reach their goals. So, in the late 1960s, a movement began to organize and promote best practices that would establish financial planning as a true profession. As a result, in 1973, a group of 35 planners became the inaugural recipients of the CFP marks.

In this guest post, CFP Board Chair Dan Moisand reflects on lessons learned on the 50th Anniversary of the first class of CFP certificants (which has seen the number of certificants grow from that initial 35 to approximately 97,000 active CFP professionals today), assesses the current state of CFP Board and its multipronged approach towards both serving the public and promoting the financial planning profession, and lays out what's needed for financial planning to continue its evolution towards becoming a 'true' profession on the same levels as law and medicine.

The rising popularity of CFP certification was thanks in large part to CFP Board's setting of rigorous educational and examination requirements that established a high bar of competency for those who wished to use the CFP marks. Gradually, CFP Board also raised the ethical standards for CFP professionals, introducing a fiduciary standard on financial planning in 2008 and, in 2020, an expanded fiduciary standard that applies whenever the certificant is giving financial advice. And despite occasional setbacks (such as the 1999 introduction of an "Associate CFP" designation, which was poorly received because it was seen as lowering the standards applicable to those who called themselves CFP certificants) and a highly publicized 2019 Wall Street Journal article that found numerous CFP certificants with undisclosed disciplinary histories (which exposed the limitations of allowing certificants to self-report their own disciplinary events, leading to an overhaul of how CFP Board oversees the investigation and enforcement of disciplinary cases), CFP Board's efforts to expand public awareness has led to widespread recognition of and preference for CFP certification among the audience of potential consumers.

Looking ahead, CFP Board's main challenge involves balancing the need to maintain (and, where necessary, raise) the competency and ethical standards for CFP certificants against the urgent demand for more financial planners, and also to increase diversity within the profession to serve a wide range of financial planning needs among the general public. Which has led the CFP Board not only to review various standards that relate to obtaining and maintaining the right to use the marks, but also to split itself into a new 501(c)(6) entity (that can more directly promote the financial planning profession itself – both to consumers and potential CFP certificants) alongside its existing 501(c)(3) entity (that will continue to serve for the public benefit).

Ultimately, as the number of CFP professionals projects to surpass 100,000 in the next 12–18 months, CFP Board will inevitably encounter challenges in upholding its standards among an ever-widening base of certificants – made more complicated by the fact that, as a non-regulatory authority, its ability to enforce its standards is essentially limited to being able to prevent someone from using the CFP marks if they violate the standards. However, as CFP certification and public awareness continue to grow, the value of certification will grow in kind, which serves as its own motivation to continue to serve the public well for CFP certificants – which, in turn, will continue to help financial planning move towards an 'established' profession that benefits both the general public and CFP certificants themselves!

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Traditionally, financial planning internship programs have offered students who are aspiring financial planners a way to prepare for entering the workforce by gaining real-world experience in advisory firm settings (as well as a way to get their foot in the door with prospective employers). But when the COVID-19 pandemic arrived in 2020, many firms shut their offices and went fully remote, which forced them to either rapidly reconfigure their internship programs or – as was more commonly the case – to suspend their internships or end them entirely.

Recognizing the potential impact that a lack of internships for a generation of planners could have on the industry, in 2020 the Financial Planning Association (FPA) launched  "The Externship", a virtual program that provided participants with access to mentorships with financial planning practitioners, technology commonly used in financial planning, and the opportunity to apply hours from the program towards the experience requirement for CFP certification. And while the original vision for The Externship was to provide a 1-year stopgap solution for a few hundred attendees, ultimately over a thousand students signed up in 2020 – because as it turned out, the virtual structure of The Externship opened up opportunities to participate not only for students whose internship opportunities had been disrupted by the pandemic, but also for those who (due to working, caretaking, and other commitments) would have never had the ability to participate in a traditional internship in the first place!

In this Guest Post, Hannah Moore, the creator of The Externship, offers her perspective on how lessons learned from The Externship (which is now entering its 4th year) can inform advisory firm leaders on how they structure and implement their own internship programs to create potentially better outcomes for interns, employees, the firms themselves, and the industry as a whole.

In the wake of the pandemic, many advisory firms have adopted a ‘new normal’ of either hybrid or fully-remote work, providing an opportunity for them to rethink how they conduct their internship programs. While adopting a ‘business-as-usual’ mindset towards internships makes little sense when business as usual has changed so dramatically since 2020, the success and growing popularity of The Externship has suggested that even before the pandemic, the traditional internship model wasn’t working as well as it could have, either for interns or the firms they worked for.

For interns, a good internship can increase the chances of getting a job offer, from either the firm that they interned with or other firms who value the experience that the intern received from the program. But firms benefit as well, with the opportunity to thoroughly vet and observe potential employees and to showcase themselves to prospective talent. And there are even advantages for the firm’s existing employees who mentor the interns: the opportunity to train, teach, and manage interns can provide valuable leadership experience to benefit their own career development.

Ultimately, the key point is that today’s interns – whether they participate in industrywide programs like The Externship or in internships at the individual firm level – represent future generations of leaders in the financial planning industry. The ways that firms implement their financial planning internship programs not only influence the financial planning philosophies and practices that interns develop throughout their careers, but can also impact how diverse and equitable the profession will be in the future. Which means that internships play an instrumental role in moving the profession forward, and by creating internships that are better, more intentional, and more accessible, firms can make for a more productive outlook not just for the benefit of their own businesses and employees, but also for students and the industry at large!

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Financial advisors are generally required to abide by ethical standards, such as the duty to act in a client’s best interests when giving financial advice. Advisors who attain the CFP marks are held to even higher standards, though, with all CFP certificants required to adopt CFP Board’s own more-stringent Code of Ethics and Standards of Conduct. It would stand to reason, then, that advisors who are CFP certificants would be less likely to engage in professional misconduct than their non-CFP counterparts, since they voluntarily adopt this higher standard of ethical conduct in order to use the CFP mark.

A forthcoming study by Jeff Camarda et al. in Journal of Financial Regulation, however, concludes the opposite. The paper’s authors state that based on their review of publicly available data, CFP certificants had higher levels of advisor-related misconduct than non-CFPs. Which, if true, would be a surprising and concerning revelation, particularly for CFP certificant advisors (as well as for CFP Board itself) who view the CFP marks as the ‘gold standard’ of financial planning – in large part because of the higher standards of conduct required – because of the risk to their reputation should those marks instead be associated with a higher likelihood of misconduct.

But a closer look at the data used in the study reveals issues with the authors’ conclusions. The paper examines advisory-related misconduct data for more than 625,000 FINRA-registered individuals (specifically those who have filed Form U4) and compares the rates of misconduct between CFP and non-CFP certificants. The issue, however, is that not everyone who files Form U4 is an advisor – many assistants, executives, researchers, traders, and other types of professionals are also required to register with FINRA. In fact, according to industry research, there were only about 292,000 financial advisors in total as of 2020, meaning it’s possible that less than half of the individuals used in the study were actually financial advisors. Meanwhile, the vast majority of CFP certificants are financial advisors – meaning it's hardly surprising that CFP certificants were found to be more likely to have histories of advisory-related misconduct than other U4 filers, simply because they were much more likely to be financial advisors in the first place!

Previous research by Derek Tharp et al. attempted to identify actual financial advisors and control for other non-certification-related factors, and found (among a smaller sample size) that CFP certificants were actually less likely to have engaged in advisory-related misconduct than non-CFP professionals. Which highlights a key issue in misconduct-related research, which is that researchers’ conclusions are only as trustworthy as the data that goes into the study. Because when similar research attempts to explore rates of misconduct using other variables – such as firm size, fee models, client types, etc. – without being careful to search for unrelated factors in the data that could inadvertently skew the outcome, it can result in similarly ‘surprising’ conclusions that are really just a reflection of spurious relationships based on poor data quality rather than reality.

The key point is that even – or especially – when looking at research based on big data, it’s still important to rely on logic when interpreting the results. Sound research may certainly produce conclusions that go against intuition, but when such surprising results do occur – such as finding that CFP certificants commit misconduct at higher rates despite voluntarily adopting a higher standard of conduct than non-CFPs – it’s often the case (after a closer look at the data) that the more logical conclusion is the correct one.

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This summer, the Financial Planning Association (FPA) announced a new multi-year advocacy goal to pursue legal recognition for the title of "Financial Planner", as a means for bona fide financial planners to distinguish themselves and their services from others (who may use the title but don't actually do financial planning), to help consumers understand who is qualified to provide financial planning advice, and to raise standards for the financial planning profession by tying competency and ethics standards directly to the determination of who can hold out to the public using the title in the first place.

Yet the irony of FPA's new initiative for Title Protection is that "Financial Planner" actually did have protected status as a title all the way back in 2005, when the SEC issued a rule that would allow broker-dealers to offer fee-based brokerage accounts without being required to register as investment advisers and be a fiduciary… and as a part of the rule, stipulated that anyone who held out to the public as a financial planner, delivered a financial plan to a client, or represented that they were providing financial planning advice, would still have to be an RIA fiduciary. But a lawsuit to block the rule ultimately led to it (and the associated Title Protection for "financial planner") being vacated… by the FPA.

In fact, the reality is that in the 15 years since this Title Protection was struck down in the FPA's lawsuit, the organization has actively pursued the opposite strategy of advocating for a uniform fiduciary standard – one that would not separate "financial planners" from others who don't meet the standards to use the title, but instead would simply subject all RIAs and broker-dealers to a single standard. Except in practice, there are many important functions that broker-dealers fulfill that truly are not fiduciary or advice-oriented, such that a uniform standard just isn't feasible. Which has led to both the Department of Labor and Massachusetts implementing uniform fiduciary standards that were both ultimately struck down in court, and the SEC simply refusing to implement a uniform standard at all. Making the FPA's shift to now suddenly advocate for Title Protection a logical – albeit head-spinning – about-face from its position for the past two decades.

At the same time, questions abound as to how the FPA realistically plans to pursue Title Protection, and its noticeable abstention from mentioning the CFP marks anywhere in its discussion of its new advocacy agency, despite the fact that the FPA is the membership association for CFP professionals. The organization's own Bylaws even state that its messaging to the public and the industry should be that "when seeking the advice of a financial planner, the planner should be a CFP professional", and that "anyone holding themselves out as a financial planner should seek the attainment of the CFP mark." Raising the question of whether the FPA is also considering an about-face on its CFP-centricity, too... even as the CFP Board has announced its own Competency Standards Commission to raise their own standards regarding who can use the Certified Financial Planner title?

Ultimately, the FPA has stated that it intentionally has only set a high-level strategic advocacy goal to pursue Title Protection, and that it will spend the next 12-18 months engaging with stakeholders to determine a specific course of action, with no expectation of any legislative efforts earlier than 2024. Which means there is still ample time for the FPA to clarify its intentions and any further swings in its advocacy views. Yet at the same time, the organization's withdrawal from the Financial Planning Coalition, its noticeable exclusion of the CFP marks from its initial positioning statement on Title Protection, its unwillingness to support XY Planning Network's 2021 petition for Title Protection (ironically to reinstate the Title Protection rule that FPA vacated), and its declaration that it intends to enact Title Protection without licensing or regulation (raising the question of how the title could be protected, if no regulator or licensing agency is granted the authority to protect the title?), all suggest that the FPA may already have some plans in place… that it just isn't ready to share yet?

In the end, Title Protection is clearly a laudable goal – one that has been pursued by many industry organizations for years, even if the FPA has only recently arrived at a similar conclusion – and the FPA's willingness to take up the issue is a positive sign, serving as a potential fulfillment of P. Kemp Fain, Jr.'s famous "One Profession, One Designation" call to action. Still, though, the question remains: What exactly is the FPA's plan to pursue Title Protection, will it be able to effectively engage with stakeholders and other organizations that already have established efforts and a vested interest in the outcome, and will it be able to maintain the effort through to fruition in the midst of making 1 and perhaps 2 major about-faces in its advocacy approach?

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In a now-famous 1970 paper, economist George Akerlof used the market for used cars to demonstrate the negative effects that can occur when there are significant information asymmetries between buyers and sellers of a good or service. He highlighted the market for used cars at the time, where, because consumers could not be sure of the quality of a used car they were offered, they were only willing to pay the price of a car in average condition, driving out sellers of high-quality used cars (“peaches”), who were not willing to accept the average price for their above-average product. At the same time, sellers of low-quality cars (“lemons”) were incentivized to enter the market, as they could receive a price greater than the actual value of their used car. This information asymmetry led to a negative cycle where more low-quality cars would enter the market, driving down consumer trust (and the price they were willing to pay) and even leading to a market of lower-quality cars.

The financial advisory industry is not immune to the same problems faced in Akerlof’s used-car market. Given the wide range of professionals who can call themselves ‘financial advisors’ – from someone whose business is selling insurance policies to a financial planner who sells financial advice itself – consumers can have difficulty understanding the type and quality of service they will receive from a given ‘advisor’. And just as the uncertainty of quality reduced the car buyers’ willingness to pay for high-quality cars in Akerlof’s analysis, the wide variance in advisor quality can also be likely to lead to a lack of trust among consumers.

But this also suggests that if standards in the market for advisors were raised (thereby increasing consumer trust), exceptional advisors could spend less money on differentiating themselves from advisors with lower standards, creating the opportunity for reduced marketing and business expenses that could be passed along in the form of lower costs for consumers (potentially opening up advice to a wider pool of clients!) and even allow for higher-quality advisors to enter the market. In fact, even a relatively modest shift to a higher-trust environment (which may be achieved by enacting higher standards) that just partially reduces the incredibly high client acquisition costs of financial advisors could more than offset the entire cost of fiduciary liability insurance from those higher standards!

In his paper, Akerlof suggests three strategies that could be used to counteract the effects of quality uncertainty and increase consumer confidence: licensing, quality guarantees, and branding. Accordingly, advisor licensing could mean establishing a requirement involving a professional designation like the CFP certification for those who provide financial advice. A quality guarantee could be implemented through a broad-based fiduciary standard (as advisors are understandably unable to offer outright performance guarantees), which can increase trust among consumers. And when it comes to branding, limiting the use of the title “financial advisor” and “financial planner” to those who are solely in the business of providing advice (rather than primarily selling products) and who meet certain competence and ethical standards would increase consumer confidence as well.

Ultimately, the key point is that information asymmetries that reduce consumer trust are common in the financial advisory marketplace, and raising industry standards of conduct could not only improve consumer confidence in advisors, but also reduce marketing costs for advisors trying to gain consumer trust. Because, in the end, helping consumers differentiate between advisor ‘peaches’ and ‘lemons’ can improve the public’s experience with financial advice and, at the same time, reduce marketing expenses for advisors, which in turn can reduce the total cost of advice and attract prospective clients from a broader pool willing and able to work with an advisor, as access to quality advice increases as well!

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