Journal of Financial Planning: April 2013
George Kinder, CFP®, RLP®, is author of Seven Stages of Money Maturity and founder of the Kinder Institute of Life Planning, a global organization that trains advisers in the skills and processes of life planning. His new book Life Planning: A Banking Manifesto co-written by Mary Rowland will be published this spring.
The banking crisis has drawn a stark contrast between “business as usual” and the client-centered ideals we hold in financial planning and life planning. It is time for society to openly discuss the ongoing political and economic obstacles to the ideal in financial services of placing client interests first. What would be the implications for the consumer, for our economic system, for financial institutions, and indeed for civilization of a financial system whose central purpose was to model integrity and deliver freedom?
To begin, here are four reflections and principles on life planning:
- The political economics of trust, of a fiduciary standard, of financial planning, and of life planning are deeply aligned.
- Life planning is the first phase of a financial planning process. Without an inspiring life plan, financial planning is inefficient and likely off the mark.
- Life planning delivers freedom and entrepreneurial action into people’s lives. Lighting the torch (see book of same name by Kinder and Galvan, FPA press) delivers the dream of freedom into a client’s life, the animal spirits of the client all fired up. Financial planning then provides the economic architecture necessary for entrepreneurial action.
- Both for individual freedom and to deliver the most efficient entrepreneurial economic system, every human being on the planet deserves to be life planned.
Icons of Capitalism
We treat our free market system embedded in democracy as if it were the icon of capitalism and freedom. But the banking crisis has revealed a corrupt and self-serving underbelly to Western political and economic systems that undermines the efficiency and credibility of both. A refreshed economic system must stimulate the highest level of entrepreneurial and social engagement by its citizens with the least possible economic disruption (such as banking crises), zero tolerance for corruption and conflicts of interest, the greatest possible efficiency, productivity, and profitability, and the least possible amount of regulation.
Where now is the icon of capitalism that is inspiring to people for its integrity, its trustworthiness, and its ability to enable the individual in his or her drive to freedom?
The icon must hold the vision. It must model integrity and deliver freedom. These principles are easiest to facilitate at the level of advice, most difficult at the level of product. Thus the power structure in financial services is topsy-turvy. On top should be advice. We need cathedrals of capitalism, icons of entrepreneurialism, Apple stores of freedom in financial services that have the capacity to connect profoundly with each adult human being in the world and that deliver ever-increasing levels of freedom to people everywhere.
Banks, insurance companies, and wirehouses have the most significant power and reputation for influence among all financial institutions. How come? Are they the most ethical, driven by integrity, delivering freedom, inspiring people to economic action? Where is the icon of capitalism that does all of those things while reaching down into the families and local communities, the passionate spirits of each and every individual human being? Where is the icon that makes us all proud? If banks and wirehouses choose products or conflicts of interest over fiduciary advice, they abdicate this role. What are the necessary elements to a renewed system?
The Seven Sanctities and Their Obstacles
The most important thing is getting the vision right—a vision for all people that inspires trust, the highest standards of integrity, and that delivers freedom. It can be summarized simply as, “Model integrity. Deliver freedom.”
It has become commonplace in economic circles to assume that free markets are paramount, but if any of the sanctities listed below is not held sacred, our economic system fails us as trust is eroded and cynicism enhanced. Without these sanctities we can neither model integrity nor deliver freedom. We must reinvigorate these areas and overcome their obstacles.
The first four could come right from Adam Smith or Financial Economics 101.
Sanctity of markets. Undermining factors: interest rate manipulation (Libor, for example), insider trading scandals, too-big-to-fail institutions, product rating scandals, government-corporate collusion, financial fraud, consumer distrust and disbelief, mis-selling scandals, inadequate markets for entrepreneurial action where markets and regulatory apparatuses are dominated by big companies and their products.
Honest, free, and open markets are critical, particularly now in financial services when new advice models are required to restore trust to financial services and bring fire to individual entrepreneurial endeavor.
Sanctity of products. Undermining factors: complex products more “sold” than advised on (such as CMOs, CDSs), high fees, high cost of products, low liquidity, huge sales and marketing apparatus of product companies, mis-selling scandals, consumer distrust, and conflicts of interest.
Buyer beware warnings should be big and bold on financial products.
Sanctity of advice. Undermining factors: mis-selling, conflicts of interest, fees tied to products, inadequate training in life or financial planning skills, lack of fiduciary standard, consumer distrust.
There is complete and unacceptable confusion for consumers on how to find an adviser they can trust both for integrity and for delivery of freedom. This is in part a regulatory issue; in part it arises from the power of large, product-oriented companies.
Sanctity of entrepreneurial endeavor. The driver of a free market economy is not markets, products, or advice. It’s entrepreneurial action that comes from animal spirits, from the heart and passions of individuals in society. This is where our economic focus should be. Great advice inspires, drives, and sustains entrepreneurial activity. Consumers don’t trust advisers, so this potential huge source of economic vitality either goes wasted or is inefficiently applied.
Free markets aren’t freedom; a soaring entrepreneurial spirit that has access to free markets is freedom. So where is that? The Harvard MBAs and venture capitalists have it, but most ordinary people are filled with suspicion and distrust of all things financial.
Believing that freedom and entrepreneurial action belong to everyone, in Europe, Africa, the United Kingdom, Netherlands, and Botswana, three nonprofits as part of their missions have to find ways to deliver an hour of free financial life planning annually to every citizen.
Without addressing these first four economic sanctities directly and substantively, the banking crisis is merely papered over. For decades the sanctity of these four essentials of a market economy has been trashed by the financial industry.
The next two sanctities are part of our democratic ideals.
Sanctity of free press. Obstacles: Rupert Murdoch and other tycoons; financial press dominated by product-oriented companies.
Sanctity of democratic process. Obstacles: money and politics; America’s eBay democracy, where 90 percent of congressional elections are won by candidates who spend the most money, and where political giving is dominated by financial services companies (see The Center for Responsive Politics and opensecrets.org.); regulatory influences that come from the largest industry political campaign contributors (the financial services industry); regulators chasing wrongdoing but rescuing banks; foisting top-down “economic development” on emerging countries, rather than bottom-up free market economics and life planning driven entrepreneurial action.
This schizophrenic approach to financial services wouldn’t exist if government and financial services companies shared the vision that modeling integrity and delivering freedom are what financial services companies are all about.
The final sanctity is essential to effect change and to maintain the vision.
Sanctity of leadership. Obstacles: profits tied to conflicts of interest; valuing products over customers; inadequate wisdom training (great leaders should be wise) and authentic engagement with all socioeconomic levels; lack of vision, integrity, and freedom that would deliver entrepreneurial action and an economic system one could trust.
A July 2012 study by Labaton Sucharow (U.S. & U.K. Financial Services Industry Survey) suggests 24 percent of financial professionals in the United States and the United Kingdom believe you have to cheat at some point to get ahead. CEOs could bring this epidemic of cynicism to zero within their organizations in short order. It’s a matter of an inspired vision, modeling integrity, and zero tolerance for cheating and conflicts of interest.
Great leadership in financial services and amongst regulators would solve these problems, delivering massive community-based entrepreneurial action and establishing trustworthiness for the public toward financial products, advice, and markets.
Failure to hold these seven areas sacred robs the world of productivity, efficiency, economic growth, and personal liberty.
It is challenging to deliver life planning to clients in a toxic financial climate. Even more, it is impossible to deliver freedom and integrity to others without first living it ourselves. Every moment of every day we have a choice. Either we yearn for freedom or we live in freedom. Life planning’s mission is to move people all over the world from yearning for freedom to living it.