Professional Courtesy

Will financial planning ever become a profession? I’ve been asking myself that question for 20 years. On good days, I look back and see how far planning has come and think it’s getting pretty close. On not-so-good days, I’ll read about another misstep by one of the industry’s organizations, or hear some shortsighted comments from an industry leader, and wonder if creating a profession of financial advisors is a goal for anyone but me. So this 25th anniversary issue of Investment Advisor seems the right place to make an honest assessment of where the planning movement is today, and its prospects of becoming a profession.

It’s hard to argue that financial planning hasn’t come a long way in the last 25 years. When I became a freelance writer at Financial Planning magazine in 1984, it was the heyday of the tax-shelter limited partnership years. The mammoth industry conferences would have given a Tyco party a run for its money. Back then, a CFP could be obtained only from a mail-order college that also owned the mark. Fresh in everyone’s memory were IAFP board members–and even a few chairs–whom had run afoul of the law.

Against that backdrop, the current state of financial planning looks pretty good. There are over 300 financial planning programs at accredited U.S. colleges and universities; the CFP Board is a standalone regulatory body; the product of choice for most planners are heavily regulated mutual funds; there is virtually one financial planning organization; the vast majority of planners’ compensation comes from one fee or another; and the biggest parties at the FPA convention are now thrown by magazines.

Taken as a whole, it’s not bad progress in a short quarter-century. The problem is that if you drill down on any of the “progressive” fronts, you often find more fluff than substance. For instance, while having one organization is essential to a vibrant profession, the FPA still appears unclear whether it wants to be an association of professionals or a more lucrative–and less effective–big tent for everyone who wants to call himself a financial planner or market through one. As for compensation, introduction of the alphabet soup of mutual fund shares has made it virtually impossible for laypeople to determine whether their “advisor” is being paid for just this transaction or for ongoing service.

What’s more, in anticipation of the baby boom generation retiring, the financial planning community seems to be gearing up for a shift back to touting the same high-priced annuities that gave planners their second (or was it the third?) black eye back in the early ’90s. And while the number of CFPs continues to skyrocket–currently 49,000–one has to look at the Board’s increasingly close ties to brokerage firms at all levels and wonder whether the Board is still more interested in expanding its market share or identifying even wannabe professionals.

At the root of my dissatisfaction with the current state of financial planning lies a perhaps not-so-hidden agenda. For many years, I have believed that personal financial matters have become so complex in the United States and other economically developed countries that most people can benefit from professional, independent, objective advice to help them identify their goals and navigate through the financial services minefield to reach them. Further, I believe that financial planners represent the best hope of creating such a profession.

I suppose that means we ought to briefly explore what such a profession would entail. These days, the word professional has myriad meanings. We call someone a professional when they get paid for what they do, as opposed to an amateur who does it as a hobby. Often the term is applied to some vocation in an attempt to attach some of the credibility and respect of the larger meaning.

According to Edmund Pellegrino, MD, Professor of Medicine and Medical Ethics at Georgetown University Medical Center, these days a profession typically possesses “a body of special knowledge, practice within some ethical framework, fulfillment of some broad societal need, and a social mandate which permits a significant discretionary latitude in setting standards for the education and performance of its members.” Most people would agree that standard casts a pretty wide net.

But in his paper, “Professionalism, Profession and the Virtues of the Good Physician,” presented at the Issues in Medical Ethics 2000 Conference at Mt. Sinai School of Medicine in New York in November 2000, Dr. Pellegrino went on to point out that what we mean by “a profession” at the highest level are the standards that have historically been upheld by the so-called “learned” professions: The law, medicine, the clergy, and teaching.

“In its etymological roots,” he writes, “‘Profession’ means to declare aloud, to proclaim something publicly. On this view, professionals make a “profession” of a specific kind of activity and conduct to which they commit themselves and to which they can be expected to conform.” He goes on to explain that what they profess is a “certain degree of altruism, or suppression of self-interest when the welfare of those they serve requires it. This is the distinguishing feature of medicine, ministry, law, and teaching that sets them apart. They are in this sense ‘professed,’ i.e., publicly committed to the welfare of those who seek their help. They thereby become ethical enterprises…”

Ethical enterprises. That’s what I’m talking about: Financial planners professing publicly to put the welfare of their clients above their own. Why is this important? Society has long recognized that when people are in situations where they need the help of people who know more about things than they do, there’s potential for abuse. I’m convinced that the position of a financial advisor is every bit as influential as medicine or any of those other professions. That’s why the big financial institutions spend billions of dollars every year trying to convince people that their representatives are on the clients’ side, when in most cases they have no such duty. While sound financial principles don’t sound like rocket science to most of us, they are off the radar screen of even some of the most educated consumers.