The History of the Financial Planning Profession, Part 1

Two of the oldest professions known to man are taxation and estate planning. In fact, many historians can trace the professions back to ancient Mesopotamia and the 12th century, respectively. So what about financial planning/? 

The field has come a long way in its short history. Let’s take a look at how the profession has evolved so we can better understand where it’s going.

It began in the 1960s when Loren Dunton, a savvy and successful salesman, had an epiphany during a family sabbatical trip. When asked by foreigners why Americans were so dependent on Social Security despite their economic prosperity, Dunton admitted that most Americans were not planning for retirement. 

He also realized that financial professionals had a large impact on millions of families worldwide, but there was no actual profession that specifically addressed the financial needs of consumers. 

Until Dunton’s realization, Americans primarily used broker-dealers, insurance or annuity agents, and registered investment advisors (RIAs) to satisfy their financial needs, with financial planning offered only occasionally by advisors as a “value-add” for their most profitable clients.

Early Years

For historical context, broker-dealers and RIAs were created as a result of three acts of Congress in response to the Wall Street Crash of 1929 and the ensuing Great Depression. These are the Securities Act of 1933, the Securities Act of 1934 and the Investment Advisers Act of 1940. 

The 1933 Act regulated the primary securities markets, while the 1934 Act regulated the secondary market and created the Securities and Exchange Commission. Meanwhile, the 1940 Act established fiduciary standards for RIAs who were providing investment advice to clients and created a clear distinction between broker-dealers and investment advisors. 

Notably, these groups are different in that broker-dealers are in the business of selling investment securities and earning commissions from those sales, while RIAs are paid for independent advice related to investments. 

In addition, broker-dealers and their agents are regulated by the state(s) in which they do business and the Financial Industry Regulatory Authority (FINRA), a private, member-based and self-regulatory organization created in 2007, with nearly 700,000 current members, and falls under the federal jurisdiction of the SEC. 

RIAs, however, are regulated by the SEC (or state(s) in which they do business) if they have greater (or less) than $100 million in assets under management. Last, insurance and annuity salespersons are similar to broker-dealers in that they also earn money through commissions from product sales, but they are primarily regulated at the state level as a result of the 1945 McCarran-Ferguson Act.

While these legislative acts continue to play a major role in the financial services profession, Dunton recognized that there was no profession that holistically addressed a consumer’s financial needs, nor integrated the knowledge and practices of various disciplines across the industry. As such, he advocated a new profession dedicated strictly to personal financial planning.

Furthermore, he called a meeting of 13 leading financial services professionals across the United States on Dec. 12, 1969, at the O’Hare Hotel in Chicago. The purpose of the meeting was to discuss how to help Americans with their financial lives and outline the initial steps and practices needed to create a new profession called financial planning.

Dunton was successful, and this historic moment marked the birth of the financial planning profession. More specifically, this meeting created the Society for Financial Counseling, a financial planning membership organization that was later renamed the International Association for Financial Planners (IAFP).

In addition, it created the College for Financial Planners (CFFP), which in 1972 enrolled its first students into its newly created certified financial planner certification. This five-course program was designed to ensure a minimum of technical and ethical competence among financial advisors in areas such as insurance, investments, taxation, employee benefits and retirement, and estate planning. 

It was a success. Its first class of 35 students graduated in October 1973 and subsequently formed an alumni organization called the Institute of Certified Financial Planners ICFP).

Rapid Growth

By the mid-1970s, there were now three financial planning organizations — the IAFP, ICFP and CFFP. They would be joined, however, by another key player in 1983: the National Association of Personal Financial Advisors (NAPFA), which had a strict goal of supporting, promoting and increasing consumer awareness of the delivery of fee-only financial planning advice.

These organizations paved the way for the profession, but the IAFP and ICFP drifted apart in the late 1970s and early 1980s. A key reason was that the IAFP broadly focused on both CFP and non-CFP members across the industry, while the ICFP narrowed its focus to CFP professionals and promoted the certification to advisors, the public and governmental authorities. 

In 2000, the organizations settled their differences and merged into the Financial Planning Association (FPA).

The FPA was a milestone for the profession because it combined the strengths and viewpoints of both groups, with the IAFP specializing in financial planning and the ICFP promoting competent and ethical advisors through the CFP marks. 

With increased power, the FPA held the primary goal of fostering financial planning, advancing the profession among the public, and supporting the CFP certification. Today, it is based in Denver, has more than 22,000 members worldwide, and is the largest nonprofit association for financial advisors and CFP certificants. They also produce the long-standing and popular Journal of Financial Planning.

As per CFFP, which created and owned the CFP certification, it continued to expand the certification and surpassed 10,000 by the mid-1980s. In 1980, however, CFFP sued Adelphi University for unauthorized granting of CFP marks to graduates of its respective certificate program. Yet despite CFFP’s trademark rights, it was uncertain if they would win the lawsuit. 

Rather than face defeat and threaten the integrity of the certification, CFFP’s then-president, Bill Anthes, decided to settle out of court and proposed the creation of an independent nonprofit organization that would take control of the CFP certification while enforcing ethical standards throughout the profession.

His plan succeeded and led to the creation of the International Board of Standards and Practices for Certified Financial Planners (IBCFP), which later renamed itself the Certified Financial Planner Board of Standards Inc. (i.e., the CFP Board). Notably, the CFP Board assumed control of the CFP certification in July 1985 and was largely supported by CFFP’s $2.5 million investment into its creation and operations. 

Seizing the momentum, the CFP Board worked tirelessly to promote the CFP certification and, in April 1995, became the first non-health-related program to be accredited by the National Commission for Certifying Agencies (NCCA), which is now called the Institute for Credentialing Excellence. 

It also achieved international success by sublicensing the trademarks to foreign financial planning organizations and eventually created the Financial Planning Standards Board (FPSB) in 2004. As of 2019, the FPSB reports having more than 188,000 CFP professionals across 26 territories worldwide and a 3.7% annual growth rate. Meanwhile, the CFP Board reports over 87,000 CFP professionals in the United States. 

Overall, the CFP certification has become the most widely recognized financial planning certification in the world and is widely considered the gold standard of the profession. The CFP Board has relocated from Denver to Washington in order to be closer to regulators, policymakers and prominent organizations that have a direct impact on the financial planning profession. 

Last, the CFP Board has joined forces with the FPA and NAPFA by forming the Financial Planning Coalition. This joint coalition aims to inform and educate policymakers about the profession, advocate ethical practices and fiduciary standards, ensure competency among its advisors, increase and foster relationships with the public, and assist the U.S. government with financial services industry reform.

Expanding Education

The CFFP’s investment in the CFP Board without doubt paid dividends, as they became a premier leader in CFP education and one of the first fully accredited financial planning master’s programs in the country. They also formed a new umbrella entity with the CFP Board called the National Endowment for Financial Education (NEFE).

However, the NEFE, which is still active today as a nonprofit organization dedicated to financial planning education among consumers and underprivileged communities, sold CFFP to Apollo Education Group Inc. in 1997. 

Under Apollo’s ownership, CFFP continued expanding its presence and its educational offerings beyond the CFP and master’s programs via professional designations such as FPQP, AWMA and CRPC. Additionally, in 2003, CFFP became the first financial planning institution to offer online classes. Then, in December 2017, CFFP was resold to Kaplan Professional Education Inc. 

Kaplan, which operates in more than 30 countries and holds over 10,000 corporate and business partnerships worldwide, is among the largest international educational services providers in the world. In addition, 33% of CFP certificate hopefuls use its exam preparation services and boast some of the highest pass rates in the industry. 

It is also the largest FINRA series license exam preparation provider and the preferred educational provider of the CFA Society’s coveted chartered financial analyst (CFA) certification. Meanwhile, CFFP is the largest online financial planning program in the world, with over 8,000 students and 155,000 alumni worldwide. 

Altogether, the two entities have become premier players in the financial education space and appear well positioned for many years to come.

The Next Generation

As the profession grows, newer planning groups are starting to emerge and create their own impact on the profession. For example, XYPN Planning Network, a group of fee-only financial advisors dedicated to serving Generation X and Y clients, has grown to over a thousand members since its 2014 launch. 

Similarly, the Garrett Planning Network, founded in 2000, is the largest network of fee-only, hourly based financial planners and has approximately 250 members to date. 

Together, the groups specialize in serving clients that are typically neglected by larger institutions and advisors by utilizing subscription and hourly based planning, a stark contrast to the heavily favored commissioned and assets-under-management (AUM) approach. 

In addition, they are becoming vastly popular younger advisors (and career-changers) who are looking to break away from traditional turnkey planning platforms and ultimately start their own practice. Altogether, the rapid growth of both groups highlights the continued growth trend in the industry, and one can only presumably expect their popularity and impact to continue for years to come.

Conclusion

The financial planning profession has come a long way from its humble beginnings in Chicago. But despite the progress made, there are tough issues that need to be addressed.

They include growth, diversity, technology, regulation, compensation and education. These problems are not easily solved. However, we as a community of practitioners and educators are in a unique position to address and improve upon what has already been built.

After all, money affects everyone, regardless of race, gender, age, religion and nationality, so it is imperative that we work together and create strong and long-lasting solutions. It is up to us to continue driving this profession forward and ultimately create a better future for everyone — a goal worth planning for.

Dan Johnson is an assistant professor for the College for Financial Planning and a part-time instructor for Kaplan Professional, Boston University, and the University of California, Los Angeles. He lives in Chicago.