There’s lots of industry discussion these days about the Certified Financial Planner Board of Standards’ proposed changes to its practice standards, including the expansion of a “fiduciary” duty to “financial” advice, Knut Rostad’s concerns about the implied acceptance of conflicts of interest, and widespread concerns about the Board’s ability and/or willingness to enforce these new standards.
I was talking to a financial advisor who is a CFP about this the other day, and he raised a concern is that has been the elephant in the room for all discussions about financial planning since its inception in the early 1970s: “Financial planning,” he said, “will never be a profession or even a business until clients will actually pay for it directly.”
On its face, this concern has indeed been part of financial planning since its beginnings. Originally, financial planning was invented to sell mutual funds during the down stock markets of the late 1960s and early ’70s, tax shelters in the late ’70s and early ’80s, and variable annuities in the later 1980s.
At that time, the stock market was once again booming, but financial planners had found a new business model: managing client investment portfolios for a fee. While some advisors considered dropping their financial planning services, the independent industry soon realized that client relationships were stronger — and client assets stickier — if they continued to offer financial planning.
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The point of this history lesson is that very, very (did I mention very) few financial planners have ever made a go out charging directly for financial planning. Over the years, I’ve met a few advisors who charged hourly for just creating financial plans. But as I understand it, even today’s Garrett Planning Network folks, and the new wave of “flat-fee” charging advisors, include portfolio management or portfolio advice in their services.
So, financial planning has been almost always tied together at no additional cost with some other service that the clients pay for; and for many financial planners the service du jour is asset management. The question on the table: Is this really a bad thing for financial planners?