The History of Financial Planning

Who would have guessed that when Loren Dunton set up the Society for Financial Counselling Ethics in 1969 that it would evolve into the financial planning profession we know and love today? According to the Certified Financial Planner Board of Standards in Denver, there are more than 94,000 CFP certificants worldwide, including over 48,000 in the U.S. The revolution that Dutton started with a meeting of 13 individuals at Chicago’s O’Hare Airport in 1969 continues to gain momentum, and to serve more investors who need complex advice than ever before. With all that has happened in the economic and financial markets since those prescient first steps, IA thought it would be interesting to take a look at the history of financial planning on the occasion of the magazine’s 25th anniversary.

There is such a strong interest in the various disciplines and means of financial planning that a number of organizations have developed to support those interests, including the Financial Planning Association (FPA), with 29,000 members; the National Association of Personal Financial Advisors, (NAPFA), with 1,300 members; the Personal Financial Planning division of the American Institute of Certified Public Accountants with 7,400 members; and the independent broker/dealer group, the Financial Services Institute (FSI), with 2,000 individual and more than 100 firm members.

Some advisors will remember the years leading up to the first graduating class of the College of Financial Planning in 1973 as relatively placid ones for the financial markets in the U.S. compared to the chaotic years that followed. Political and economic pressures converged in the early 1970s to deeply affect the markets. The decade opened in recession, while the grinding bear market continued its 15-year reign, lasting from 1967 to 1982. The formation of OPEC led to oil price shocks starting in 1973, which in turn led to double-digit inflation in 1974, and another recession in 1973-1975. The wind-up to the Watergate hearings, a wage and price freeze, the resignations of President Nixon and Vice President Agnew, and the wind-down of the Vietnam War did not help economic matters. ERISA, the Employee Retirement Income Security Act, was signed into law. We added a new word, “stagflation,” that defined a time of stagnant wages and continued inflation that curtailed buying power. By 1980, in economic and markets terms, U.S. investors were reeling from the bear market, an inflation rate of 13.5%, and interest rates at their highest levels ever. The country was suffering through a double-dip recession that would last until 1982. This was the turbulent environment into which the first group of Certified Financial Planners was born and cut its teeth.

“The first graduating class year, 1973, was the beginning of the first energy problems,” says Colin “Ben” Coombs, a member of that inaugural class, and an elder statesman of the profession. Coombs has been a governor of the CFP Board and chairman of the Institute of Certified Financial Planners (ICFP), the industry group that merged with the International Association for Financial Planning (IAFP) in 2000 to form the FPA. More recently, he was the recipient of the FPA’s 2005

P. Kemp Fain, Jr. Award, selected for his “outstanding contributions to the financial planning profession,” according to the FPA.

“In 1973, ’74, and ’75, I was trying to distribute tax shelters, annuities, and real estate limited partnerships. It was a particularly good time for those things because of runaway inflation and very high taxation and interest rates,” says Coombs. Investors were looking for tax shelters and inflation protection. Coombs set up his business, Petra Financial Advisors, Inc., in Colorado Springs in early 1976, and registered as an investment advisor in 1979. The stock market in the U.S. was emerging from a particularly sharp ’73 to’74 drop. “Nobody paid any attention to the stock market because it had been so bearish–you could hardly talk to anybody unless you talked taxes.”

“Financial planning, in its infancy, seemed to be hooked to limited partnerships,” says Richard Averitt III, chairman and CEO of Raymond James Financial Services in St. Petersburg, Florida. Averitt became a CFP in 1979. “Many people who did financial planning did tax planning, which meant they sold limited partnerships, which came to an ill end after the Tax Reform Act of 1986 made tax deductions for the business illegal, retroactively. Financial planning stumbled.”

“When Reagan changed the tax code, they talked about leveling the playing field, but they forgot to take all the players off the field,” says Coombs, “and the IAFP dropped from 25,000 members to 10,000.” Those were dark days for the nascent planning profession. “Volcker and Reagan breaking the back of inflation, and changing the tax code environment,” notes Coombs, was pivotal in the changes in financial planning that followed. Retirement plan rules were changing as well. Between the adoption of individual retirement accounts in 1974 and the 401(k) in 1981, the way people planned and invested for retirement began to change. Faced with selecting investments for retirement accounts, the changes caused by the Tax Reform Act in 1986, and a stock market that began to take off in 1982, more people realized they needed help with their financial lives.

A Turning Point

The way people looked at investing, estate planning, retirement planning, and tax planning was turned on its head. The investment business started to change, too. Early in his career, Richard Averitt III learned about investing at a wirehouse where the focus was on “investment-opportunity-driven” sales–when a new bond or other product came to market, representatives made a list of clients and other prospective buyers and called to talk to them about the product. On the flip side of this is the financial planning movement that Averitt describes as “oriented around a methodology that asks, ‘Who is my client and what are his or her needs?’ Financial planning began to develop a new image, not associated with a failed investment, but with a valid methodology.” Averitt credits Tony Greene, former president, CEO, and chairman of Raymond James Financial Services, with leading the IAFP out of that dark time, and into financial planning as we know it today, and says Greene was instrumental in combining the ICFP and IAFP into one organization which became the FPA in 2000.