Isn’t Financial Planning a Dying Profession?
Let’s return to an observation that we shared in last month’s introductory post. Do you remember the administrator who asked the peculiar question, “Isn’t financial planning a dying profession?” This question caught us a bit flatfooted at first as we wondered how anyone could work in a business context for the past two decades and think that financial planning is a dying profession.
It’s a growing career field.
There are many ways to measure where an industry might be in its lifecycle, but since we were planning a program whose goal is to place students in jobs after graduation, the closest statistic we could measure this statement against was the projected job growth within the industry. According to the Bureau of Labor Statistics Occupational Outlook Handbook (OOH), employment of financial planners is expected to increase by 7% from 2018 to 2028. This is moderately higher than the average for all occupations, which is just 5%. Most professions that are dying do not have a projected job growth rate that is 40% higher than the overall growth rate.
So why was such an odd question posed?
It is evident that we were not talking about the same profession. But how could that be? If the respective profession were changed to nursing, it would not be confused with pharmacology. Architecture wouldn’t be confused with lumber production. Those professions (and most all others) are rather clearly defined by name and distinguished from other professionals. Why such confusion involving the work of financial planners?
In last month’s blog, we proposed a long list of systemic factors that have impaired financial planning outcomes and distorted the way in which financial planning is done. Near the bottom of that list was a perilous factor whose proximity near the end of the list was not indicative of diminished importance. In fact, it’s the focus of this month’s post and one that will provide the foundation on which subsequent pieces will be built. It is an overarching paradigm that has played a significant role in creating the current culture and systems of financial planning—a culture that we believe has weakened the full potential of financial planning outcomes and circumvented most clients’ primary needs.
Here’s the factor:
Investment services silo while human-centered financial planning is comprehensive in nature.
In other words, using the term financial planning to represent what is instead solely the investment services function. Historically, most all financial services have been addressed in silos. An individual would have a bank for all savings and cash management functions, go to a stockbroker for non-retirement investing, use a Human Resource office to establish and fund a retirement investment plan, use an insurance agent for all insurance needs, have a Certified Public Accountant for tax preparation, contact a realtor and mortgage banker for housing and property purchases and funding, and hire a lawyer to address any legal matters. Most of these professions still exist and serve valuable market functions.
Comprehensive financial planning uses aspects of most all of these job functions in the implementation steps found within a financial plan, with the critical element being the integration and interaction of all areas of financial management. No financial area stands on its own.
More misconceptions.
However, the investment services silo structure remains different from all of the others — it has experienced radical transformation, leading us to agree with this questioning administrator if he had in mind a stockbroker when we said “financial planning.” Indeed, the historic profession of being a stockbroker is largely dead. Consider the progression of tax-advantaged investment accounts (primarily for retirement and college funding), the evolution of mutual funds and exchange-traded funds, the broad access to information, the speed of technology, and the automation and machine learning tools surrounding asset allocation. The world of investment management has morphed from being one of stock picking and asset selection to one of managing diversified investments across asset classes in tax efficient ways in order to fund future goals with optimal risk/return profile portfolios.
The confusion surrounding this topic also led to this administrator’s next question, which was, “Don’t robots already do financial planning?” (It should be noted that this is not one person’s perception and inquisition—we are asked a variation of this question all the time). See, the misunderstanding here is based on the same paradigm. If financial planning is defined as asset allocation and building an efficient investment portfolio that considers a client’s risk profile, then, indeed, robots (algorithms and machine learning) have replaced humans to a considerable extent.
This is good, right?
Well, that’s not really the critical question. It is far less about the industry being right than it is about the involuntary need to stay relevant by keeping up with the break-neck pace of change. In other words, the speed of change has altered the industry right in front of our eyes without much deliberate architecture. The system changed. Go back with us to last month’s post about the state of the industry. In that article, we stated a purpose for the blog series as defining what we see as wrong with the industry.
A major part of the complexity is that it is not any one thing. Nothing big is wrong. It is smaller pieces that are broken, and those small pieces accumulate into a perception of confusion and mistrust and suboptimal financial planning outcomes. The practice of investment management and investment managers all around the world have provided valuable services to clients as they work towards growing financial assets to meet future financial goals. This is good. But it has created a world where it is now virtually impossible for the marketplace to distinguish between a “financial advisor” and a “financial planner.” No matter what term the industry uses, the profession is filled with financial planners who almost exclusively do investment services work.
This is a long way from comprehensive financial planning.
Investment planning is only one piece of financial planning, and ignoring the other components leads to suboptimal outcomes. Again, it is not about semantics (what we call ourselves), but it is instead about substance and structure.
In our next post, we will begin to build a picture of how we view the most comprehensive and purest form of human-centered financial planning. Here’s a teaser…if you like puzzles, you’re in for a treat!
Ryan Halley, Ph.D., CFP® is Director of Planning Practices and Research at Human Investing. He holds a doctorate in Personal Financial Planning from Texas Tech University and an MBA with a concentration in Finance from The Ohio State University. Ryan has his CERTIFIED FINANCIAL PLANNER™ certification. Dr. Halley is also a Professor of Finance and Financial Planning at George Fox University, where he directs a CFP® Registered Program located near Portland, Oregon. He has co-authored a book and has numerous peer-reviewed journal articles. Additionally, he has been an invited professor and lecturer at various universities in the United States, Canada and China.
Related Articles
