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Raising the Bar
Financial Planning’s Historic Moment
By George D. Kinder, CFP®, RLP®
The investigations and finger-pointing have begun. With markets in tumult, do we have what it takes to abandon old ways of business and elevate our industry to ensure its brightest future? Long-time industry thought-leader and Kinder Institute of Life Planning founder George Kinder has some ideas.
Over the last twelve months I have had the privilege to address financial planners and industry executives all over the world. Wherever I meet with financial planners, I see that they strive to be true professionals and are proud of the strides our profession has made. They know that our customers and clients look to us to guide them through a complex financial landscape. However, the recent severe volatility in markets across the globe is testing our clients’ faith. Distrust of all things financial is at a peak and the finger-pointing has begun. Historically, times of crisis have been the moments of greatest innovation for improved client service in the Financial Planning profession. In the deep crisis we face today, it is fair to ask what extraordinary opportunity lies before us now to fashion the financial profession that consumers will trust and admire decades from now.
To answer this question, we first need a bit of history. My perspective is naturally colored by my U.S. roots but I think it nevertheless has broad applicability to the profession regardless of country or continent.
Where have you gone Merrill Lynch?
When I was a boy, I had a fantasy of earning and saving money, or perhaps getting an inheritance. I had a single image of where I would go with the money: Merrill Lynch. My image was of a pillar of wisdom, financial stability, professional probity, fiduciary care, and accessibility to all. You could find a Merrill office in almost any sizeable town across America. A few months ago, sagging under $26 billion in losses, Merrill stumbled into the waiting arms of Bank of America, a sad example of the excesses of the sales-oriented culture it championed. This failure of trust and others like it will haunt us if we don’t embrace a more customer-oriented business ideal. The financial planning industry should be the standard bearer for this ideal. Indeed we can look back at three great movements in the last 30 years that have positively shaped our profession and continue to exert influence. Looking forward, there are four necessary principles that should guide us if we want to rise out of this crisis as a stronger and more respected industry.
The Three Movements
The initial movement toward greater client orientation was the origination of comprehensive financial planning itself and the creation of the professional designation Certified Financial Planner®. These developments grew out of the rust belt recession of the 1970’s, the last great secular bear market of the 20th century, and the disillusionment investors felt then with Wall Street --an era, like our own, when the talk was of “the end of equities.”
The second major wave of development in the U.S. was the movement from commissions to fees that began in earnest in the early 1980s and continues today. Again, this movement was given great initial impetus by the steep and prolonged U.S. recession of 1981-1982.
The third and final wave is the Financial Life Planning movement that gathered force following the dot.com collapse of 2001-2002. The attack on the World Trade Center of Sept 11th 2001 also brought many a consumer and advisor to question the deeper meaning and purpose of money in our lives. Life Planning represents the full embodiment of a client-centered approach to planning as it recognizes that money is not an end in itself but a means to the realization of someone’s dream for freedom and accomplishment.
Financial Planning’s Historic Moment
The global market downturn we are in the midst of is a time of wrenching readjustment for our industry and our clients. The foundations of our old structures are being shaken. This is the historic moment to discard the failed models of the past and create the new structure that will last for years to come-–the proverbial phoenix rising from the ashes. What does it look like? What are its characteristics?
To me the answer is clear. We must build upon, strengthen and fully establish the three movements of the past, calling advisors toward a professional designation widely respected by all, completing the movement toward fees, and establishing the client-service practices known as Life Planning. In addition we must move forcefully according to four key principles:
- Integrity
- Relationship
- Freedom
- Accessibility.
Integrity
In many ways, financial planners today share kinship with the medical profession of the 1800s, as described by George Eliot in Middlemarch. Then, many physicians acted as both healer and seller of medicines. Finally fed up with being lumped in with snake-oil salesmen, a small-group of physicians led a hard-fought battle to divorce the medical profession from direct drug sales.
The question for us as a profession is more complex than simply separating pharmacists from physicians. A CFP at a global conference recently said to me
“We all know that if we act as a fiduciary and are transparent about fees, a client will get the same results as they would from a fee-only advisor, but when I tell a client I’m not tied to products in any way, they breathe a huge sigh of relief and light up with an enthusiastic ‘at last!’”
We must consider the appearance of integrity to be integral to its practice. What will it take, as a profession, to receive that ‘huge sigh of relief’ and vote of confidence from the consumer and the media. How rapidly can we get there?
Questions of integrity are of course much broader than simply issues of compensation. As a profession we must boldly address all of these questions and lead, not follow, the march to the highest ground.
Relationship
Ask most financial planners if they have a good relationship with their clients and you are likely to get a resounding “yes”. After all, we remember our clients’ birthdays, keep in close touch when the market is in turmoil, send them e-mails when their alma mater’s sports team wins and generally provide good service. As our profession advances, however, will this be enough? After all, these relationships are ultimately about creating plans that deliver the lives our clients long to live.
As so much of financial planning becomes commoditized, the one element that cannot be replaced by a computer program or checklist is a deep, personal relationship. This relationship requires three important skill sets--effective listening, empathy, and the ability to inspire—that need to be employed in each phase of the client interview process. Most CFP® courses offer only an hour or two of training in these critical skills, but they are trainable. Looking forward, the ability to create and leverage such a relationship is an essential differentiator of true financial planners.
Freedom
As most developed countries emerged from the economic and social upheavals of the 1930s and the Second World War, financial freedom was usually envisioned in material terms: a home in a safe neighborhood, an automobile or two, an array of consumer products like TVs and appliances, a pleasant annual vacation. Essentially, the notion that freedom is tied to material things became ingrained in our psyches and that sensibility is naturally reflected in financial planning textbooks today. Coming from the deprivation of the War years, this is understandable, but 60 years on this metric hasn’t changed.
With a Life Planning approach to client engagement, one discovers that freedom is often much simpler, much deeper, much purer and, in many ways, much more easily accomplished than what we or our clients may initially imagine. Life planners find that the most enduring client goals almost always center on meaningful relationships with family and friends, creativity, service to others, spiritual pursuits, and harmony with one’s environment, not simply bigger cars or more lavish vacations.
By applying life planning techniques, one is better able to set the right objectives for clients from the start. Then the technical planning work regarding education, retirement, home purchase and the like is rooted in the proper context and our expertise can have an enormous impact not only for our clients but in our own career satisfaction. When we assist clients in unlocking their true goals, give them permission to pursue them, support their endeavors, and use traditional financial planning skills to deliver on their dreams, we produce extraordinary freedom for the client and forge a nigh unbreakable bond of trust.
Accessibility for All
Is freedom just for those with seven figure account balances? As practice management consultants tell us, we should all raise our minimums to $1 million of assets. The message the financial planning profession appears to be sending to the general public is, “Freedom is only for those that can pay our fees!”
If we focus our efforts just on the well-off, I’m afraid we fail the integrity test and do ourselves and the broader community a great disservice. The freedoms we’re discussing are so powerful and so life-changing that everyone should have access to them. Fortunately, delivering freedom in many cases is not complex and doesn’t require much time or expenditure of resources. Unfortunately, we in the planning community have no real mechanism for broad delivery.
Organizations such as the Garrett Planning Network and the Cambridge Alliance in the U.S. currently provide quality financial planning services to middle income clients and many practitioners provide some pro-bono work, but it’s hardly enough. How will we leverage our substantial skills to lift as many people as possible from financial bondage to financial freedom? What form will that take?
Currently, the way forward isn’t clear and many paths include regulatory hurdles, compensation issues, time and funding obstacles, and responsibility gaps. It is a discussion we must earnestly address as we create the standards for a profession that will last for generations.
Conclusion
We work in an extraordinary profession, one that has the power to transform lives and deliver true freedom to people from all walks of life. We deserve to be honored with the very highest reputation by our communities and should settle for nothing less. I am convinced that if we use the four principles I’ve outlined as our guides, we can build a stronger professional stature, one that can take market upheavals in stride and deliver an outstanding customer experience. We should ask nothing less from ourselves and our colleagues.
George Kinder is founder of the Kinder Institute of Life Planning and author of three books, most notably The 7 Stages of Money Maturity and Lighting the Torch. He leads trainings globally on relationship skills, the client delivery process, and Financial Life Planning. www.kinderinstitute.com.