Financial Freedom Evolves with Professional Advice
“The most radical thing that could happen is we’ll become a nation of financial literates. It’s within the realm of possibility.” — Don Phillips
Phillips’ dream motivates all my writing and professional career; but is it the end of history? Financial life planning evolved over time with increased wealth, better technology and greater deregulation in a professional society that values the CFP’s education, testing, expertise, and fiduciary integrity. Planner pay merits separate discussion and the growth and politics of the financial planning profession, essentially started in 1969, has been covered well in Dr. David Yeske’s “Concise History of the Financial Planning Profession” and Denby and Oliver’s History of Financial Planning. By 1995, the CFP Board became a “professional regulatory organization” which elaborated “practice standards” for today’s 100,000 advisors. Yet Denby and Oliver refocus: “The financial planning movement started with a clear purpose: to help ordinary Americans gain control over their financial lives.”
In 1934, FDR had forced companies to publish accounting that made Benjamin Graham’s fundamental analysis of Investments possible. Roosevelt raised retirement issues with a shaky Social Security system that finances retirement so inadequately that most need supplementary income and planning. After World War II, defined benefit pensions, whole life insurance, stock brokering, lawyering for estates and CPA taxes were disparate services requiring diverse licenses, none comprehensive or personal enough to advise solid life planning choices. Chronicler Rich White wrote: “As late as 1960, life insurance was the substance of financial planning. … By definition, a financial planner was an insurance man who offered the public more than money-if-you-die.”
The Investment Advisers Act of 1940 manifested federal regulation, required education and basic ethical standards which led to the1989 Series 65 exam, which most CFPs take to legally advise clients. CFP designations awarded after challenging exams and master’s degree programs like mine at GGU entrenched a synchronizing profession modeled on law and accounting with an ethos of “competence, integrity, relationships, and stewardship.” The Chartered Financial Consultant and Personal Financial Specialist designations, oriented towards life insurance agents and CPA’s, compete less successfully with CFP credentials trademarked in 2002. After 1981, computer technology improved significantly enough to enable solo financial practitioners to work faster without pen and paper or even Excel—thereafter competing with wire houses and big insurance–and to immediately download portfolio information and tax law.
Philadelphia created America’s first stock exchange in 1790, where Ben Franklin was instrumental in bringing life insurance to America. In 1924, Massachusetts Investors trust created the first open ended mutual fund with daily settlements but, following the stock market crash of 1929, it took Vanguard’s 1970s leadership in index funds and rockstar investors like Peter Lynch and Warren Buffett to give middling investors diversified stock ownership. In 1952 Harry Markowitz established the theory of “Portfolio Selection” embodied in most financial plans today.
Congress introduced IRAs (1974) and Roth IRAs (1997) with increasing tax benefits and investment choices; roughly 37% of Americans own IRAs. In 1978, Congress created 401k’s to defer salaried compensation from taxation employer contributions and Roth 401(k)s followed. CFPs can and do give investment advice for the multiplicities of choices retirement plans offer. Reagan, Obama and Trump tax reforms complicated tax preparation, so planners learned more tax. Rising markets, a “Buy Term and Invest the Difference” movement and TEFRAs rules limiting tax breaks on cash value increased demand for planning.
“Internal finance” and personalized service seems like the best answer to robo-advisors and planners who really are investment managers. Mark Tibergien prophesied “While today’s adviser is “investment-centric,” according to the Pershing report, tomorrow’s will need to be “client-centric.” Managing risk will take the place of managing money. Generating return will shift to balancing cash flows.” In 1989, Richard Wagner and George Kinder had formed the Nazrudin Project to explore aspects of what is popularly known as life planning. This connects finance to psychology as clients learn more about themselves before bringing numbers into planning equations.
Entrepreneurs, licensed to exclude charlatans, enabled consumer choice made responsible with expertise. They benefitted from deregulation and evaded corporate control. Locally, the FPA of Northern California helps the public “recognize the value of the financial planning process as a way to achieve their goals and dreams.”
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. He serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals.