The Role of Universities in the Development of the Personal Financial Planning Profession

Abstract I begin this paper with a discussion of the emergence of the personal financial planning profession from its financial services roots. I then provide definitions of financial planning from several points of view. After a review of the reasons for growth in the profession, I examine the relationship between universities and other planning constituents. In particular, I focus on the importance of education and practice standards in the development of the financial planning profession. Much research remains to be conducted to guide the practice of financial planning. I describe the state of the knowledge base for financial decisions, using an example. The paper concludes with a discussion of the role of universities in the future of the financial planning profession. © 2002 Academy of Financial Services. All rights reserved. JEL classification: D11; D14; G20 Keywords: Personal financial planning; Professional education; Financial services 1. Introduction 1.1 The emergence of the financial planning profession Financial services firms employ the majority of individuals providing industry specific financial advice, including insurance company agents, bank loan officers, customer service representatives and personal bankers, and securities brokers. Many financial services firms provide advice in various areas of finance including financial planning, but often in a very fragmented way. That is, there is little coordination of borrowing, investment and insurance advice. Today, few financial services firms seem to realize the extent that the financial planning process links the various services they offer. However, the relationship between financial planners and the financial services industry hasn't always been a close one. Financial planning often evoked a negative response from financial services firms in the 1970s and 1980s. Some firms even prohibited employees from using the "planning" label and dismissed those that called themselves planners. One can only speculate as to the reasons, but some feel the policy was due to liability concerns, whether resulting from fiduciary responsibilities or by application of the standard of duty expected of an expert. Planning stretches expertise, and encompasses more than selling a particular type of security. Other firms might have feared that as planners, employees might feel a higher obligation to their customers than to their firm. In contrast, today many financial service firms have embraced the terms "financial planner" or "financial counselor. " They also have embraced professional credentials, such as CFP Board's certification marks CFP® and CERTIFIED FINANCIAL PLANNERIM. In some cases this acceptance may have resulted from the wholesale embrace of the six-step financial planning process. In others it may have been simply that the marketing benefits and public acceptance of the financial planning process and credentials was finally worth the potential liability. The financial planning field has gone through several metamorphoses. One could call the initial phase the "maverick era. " Those independent practitioners formed the heart of the profession in the 1970s. Often, planners had fled from, were fired from, or were driven away from their insurance, securities and sometimes banking roots. They founded firms that provided financial advice without regard to any specific company's products. They often viewed financial advice much more broadly than a product line. That is, they used products from a range of financial service provider types (e.g., insurance, securities, and banking) and used strategies often unrelated to specific products. These embryonic professionals were self-taught, primarily within the context of their previous financial service employers. They were aided by newly introduced personal computers and spreadsheet software. Some were armed with business degrees emphasizing corporate decision-making, but most had no specific professional college education in personal financial planning. …