From the June 2008 issue of Research Magazine • Subscribe!

June 1, 2008

How Will Financial Planning Change?

Within 30 years, financial planning will have largely completed its transition from a sales-based approach to an advice-driven professional service. Decades of commoditization of financial services products will make it increasingly clear that the value of planners is to provide advice and guidance to successfully navigate the financial world, not merely the selection of products. However, this is not to say that financial services products will become irrelevant; instead, as with other professions, specialization will become an absolute necessity for those who wish to focus on implementing solutions with clients.

In a similar manner to the evolution of the medical profession, generalists will provide initial financial solutions and "diagnose" more substantive issues; specialists will have the depth of expertise necessary to implement more advanced recommendations and solutions. In fact, the body of knowledge will have grown so broad and deep that specialization will become a virtual necessity for some areas of planning. Practitioners will either need to have the skill-set to be an effective generalist, or will be forced to define and refine their niches and specialized education, or face the risk of being both ineffective and inferior in the marketplace.

In addition, the increasingly knowledge-based focus of financial planning will make it significantly more difficult to become a financial planner. The necessary key to deliver these services successfully will be the acquisition of the core financial planning body of knowledge through advanced education. This challenging path to entry, as with other professions, will reduce the number of people who become financial planners by setting a high bar on the requisite knowledge base -- with the ultimate benefit of a more educated and technically proficient practitioner delivering services to the public.

However, this is not to suggest that financial planning will become solely about the accumulation and application of technical knowledge. Instead, it will be equally important to have strong communication and sales skills -- not to sell products, per se, but to "sell" a recommended solution and be capable of persuading people to take action steps to better themselves. Just as the doctor's role is not only to explain the risks of obesity and how to diet, but also to help individuals change their behavior for the better, so too must the financial planner learn how to help people take the steps and change the bad habits necessary to achieve financial success. The "softer side" of planning skills will become increasingly crucial to blend in with technical knowledge.

The career paths and compensation of financial planners will also develop further in the coming decades. An apprenticeship-style model will continue to evolve, where new planners develop their skills working under experienced practitioners in highly supervised environments, eventually reaching the point where the new planner can be primarily responsible for his/her own client base. Established career paths following this model will provide more certainty and consistency to the new practitioner -- but only after achieving the requisite body of knowledge through advanced education, culminating in a comprehensive knowledge examination. Consistent career paths will also provide for significantly more stable compensation for planning professionals, in an environment where the initial development of clients is separated from the delivery of financial planning services to that client. Some individuals may still wish to develop new business as well -- and be well rewarded financially for their work -- but it will no longer be a requirement for the majority of rank and file financial planners.

Ultimately, 30 years from now we will reflect back on the key decades when financial planning evolved from a fledging profession into an established one. The increased quality of advice and services delivered to the public -- and the fact that only those who provide such services can hold themselves out as a planner, advisor or consultant -- will serve to enhance the image of the profession in the public eye, making financial planning both supported as a profession and sought out as a service. The path to this ultimate endpoint, though, will inevitably disenfranchise some who do not have the knowledge or skill-set to survive in the fully professional financial planning world of the future. Those who wish to succeed -- and enjoy the recognition and success that comes with being a financial planning professional -- will need to face the challenges head-on to improve themselves, or risk being left behind by others who do.

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Michael E. Kitces, MSFS, MTAX, CFP, CLU, ChFC, RHU, REBC, CASL, CWPP, is Director of Financial Planning for Pinnacle Advisory Group in Columbia, Md., and is the publisher of The Kitces Report and the blog Nerd's Eye View through www.kitces.com.

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