Somebody very smart once said that “All of life boils down to perspective,” and I have to agree that the biggest reason that we truly do get better as we get older is the broadening of our perspective. In the November issue of Financial Planning magazine, Bob Veres relied upon his vast industry perspective to write an insightful piece called “The FPA’s Dilemma,” in which he voices his disappointment about how the FPA has turned out since the merger between the IAFP and the ICFP in 2000. With the debate still raging in Washington about the future of retail financial advice in America, it does seem a good time to ponder how the “profession” of financial planning has fared in its little corner of the financial services world. (The FPA leadership wrote an exclusive rejoinder to its critics on AdvisorOne on Nov. 8; read it here.)
I have to admit to feeling a sense of deja vu myself reading Bob describing how he felt while walking through the exhibit hall at the FPA Experience in September—being transported back to the old tax shelter days by the annuity and REIT sales folks. While I didn’t go to San Diego, I’ve had similar feelings at recent FPA conferences. At least part of the reason for this notable shift away from a predominance of mutual funds in exhibit halls across the country is the dramatic reversal of the markets themselves.
When Bob and I started covering financial planners, a “prudently allocated” client portfolio contained real estate, gold, and oil and gas. This made a certain amount of sense because inflation was at double digits while the stock market had been flat for 17 years. Then oil prices plummeted, Fed Chairman Paul Volcker got inflation under control, President Reagan lowered the income tax rates and the markets took off on what was essentially a 27-year bull market (with a few “adjustments” along the way).
It was the Golden Age of financial planning, during which the emergence of fee compensation on allocated portfolios of no-load equity mutual funds enabled virtually anyone who could fog a mirror to make fortunes for their clients, provided that they didn’t panic and sell. But while independent planners and their clients prospered, the financial planning associations didn’t fare so well. The mutual fund companies were more established investment businesses, declining to pay the lavish sponsorship fees that had been doled out by tax shelter and limited partnership sponsors. And association economics suffered.
Hardest hit was the ICFP, with membership restricted to CFPs, and which carefully limited its sponsorship support of conferences and publications in the best of times. At the same time, the majority of financial planners had become fee compensated and was moving toward creating a true profession. Merging the more professional ICFP into the larger, better-funded trade association that was the IAFP appeared to be a win-win-win for both organizations, and for the whole of financial planning.