Dan Moisand, CFP®, is a principal and financial planner at Moisand Fitzgerald Tamayo, LLC. His service to the profession has been exceptional over his 30-plus year career. He is a past national president of FPA and the current practitioner editor of the Journal of Financial Planning.
2020 was a year of massive change. It is too early to tell what all the changes mean or which changes will stick, but when reviewing 2020, I found myself wondering how differently I would have handled such events if they occurred many years ago. In some ways, financial planning is no different—and in other ways, it has changed a lot.
The changes are numerous. From regulations to CFP Board standards to the tax code—the rules affecting our work have changed. The focus of financial planning has shifted to be less investment-centric and much more holistic. How we get through the process has changed, largely on the back of technological advances.
One thing that has not changed is the basic financial planning process itself. It is labeled as a seven-step process now, but the process hasn’t changed from the classic six-step construct. Good financial planning requires that we understand the client’s situation, identify goals, analyze current and possible courses of action, develop recommendations, present the recommendations, implement, and monitor. This is a classic decision-making process that—if executed well—yields far more good decisions than poor ones.
The effect of this process has also not changed. Done well, financial planning has the power to transform lives. Done poorly, it hinders families.
This dynamic is why financial planning remains so important. The world of personal finance has only become more complex. More choices must be made by the consumer, and the regulatory structure still lacks a mechanism to fully hold accountable those who purport to provide good financial planning but do not deliver on their pitch.
Human Advice Remains Critical in Financial Planning
The technology available to me today bears no resemblance to what I had to use 20 years ago. It is faster, mobile, more sophisticated, and more intelligent than ever before. The technology allows for less doing of tasks and more thinking of what tasks need doing. It’s great.
Despite all these advances, I find technology just as useless as I always have for many critical roles I play as a financial planner. Software can ask questions, but it doesn’t listen. It can describe a financial scenario, but it doesn’t empathize. Software does what it is told, but only what it is told. Most problematically, if it is told to do the wrong thing, it is not accountable and it does not care.
We humans remain critical in the process because, among other things, we tell software what to do, are accountable for what happens, and care about our clients’ well-being. It’s a part of human nature to seek association with other people who care.
Technology is wonderful for getting to the nitty gritty. A good, detailed tax program can be very valuable in assessing the effects of different transactions, for instance. And make no mistake, I am an evidence-based guy who is skeptical about relying on anecdotes, “common sense,” or intuition. However, for most clients, the broader strategic aspects of their plans do not require software to develop.
Sure, you can use software to make attractive graphs and nice deliverables but if you can’t map the high-level strategies on a yellow pad, you may be overcomplicating things for your client and over relying on the software to direct your advice. Without a grasp on strategy, you lack context for using the output from software. The answers to most client questions haven’t come from software. They have come through contemplation and prioritization of what is important to the client, aided by guidance from a well-trained planner with enough experience about what is possible for them.
The Fiduciary and Compensation Arguments Remain
Today, there are more individuals providing financial services under a fiduciary standard than ever before. This happened not because of a regulatory change, but because more people seeking financial advice seek advice under a fiduciary standard and the industry has responded to that demand.
A significant catalyst to the growing demand is the advocacy of the financial planning profession emphasizing the importance of the fiduciary standard. Financial planning can only reach the status of profession if its practice is based on a fiduciary standard. Unfortunately, there are still large regulatory gaps to be filled, there appears to be little desire by lawmakers and regulators to fill them, and industry seems more interested in appearing to be fiduciaries than actually being subject to the standard. Reg BI is the most obvious example of this. So here we are, still arguing about standards.
We are also still arguing about compensation. The fee versus commission debate rages on, but now, we also see plenty of debate in the fee-only community about whether AUM, flat fees, hourly, subscriptions, or a combination, are best. This, too, is partly a function of the growth of financial planning.
There are more practitioners making a living based on more types of compensation models than ever before. It used to be just AUM fees, commissions, and some hourly fees. These methods still exist, of course, but flat annual fees and subscription fees are also proving viable. The in-fighting about compensation often isn’t good, but the emergence of additional options is because more of the public with differing circumstances are able to engage a financial planner.
Hope for a Bright Future
Twenty years ago, the typical financial planner was a mid-50s white man. Today, the demographics are not much different. The biggest difference I see now is there is a deliberate effort to make the profession’s demographics more reflective of society. The profession had started to do some work on this prior to 2020 through the members of the Financial Planning Coalition—most notably, through the Center for Financial Planning—but I am hopeful new momentum is building. The reactions to the killing of George Floyd and others seem to have infused new energy toward diversity, equity, and inclusion initiatives within the profession. Perhaps from tragedy a better future will be built.
As has always been the case, I am hopeful the future will be bright. Twenty years ago, I was part of a youth movement of sorts within the profession and witnessed the birth of FPA NexGen. I had the great pleasure of attending the NexGen Gathering in 2018—a dozen or so years after my first appearance at that event. I met a new wave of young professionals with strong servant leadership attributes and a dedication to financial planning as a profession. Despite what the dorm bed did to my back, it was one the most reinvigorating few days I have experienced in my professional life and I am looking forward to returning someday.
These emerging leaders of our profession are completely committed to practicing as fiduciaries. They see that advising clients through financial planning is the best way to help them. They are more diverse and more intentional about inclusiveness. They are smart, innovative, and passionate. This all bodes well for the profession and the public.
Ah, yes, the public. Of all the things that have not changed over the years, the public’s need and desire for financial planning is as large as ever. Unfortunately, so are client stress levels. Political issues have always cast a shadow over clients. That is natural when differences of opinion exist, but what has changed over the years is the intensity of the fears that clients harbor. 2020 was marked with plenty of news that is certainly worthy of great concern. People are worried and, regardless of which side of the aisle or how far from the center they sit, they are asking, “Where has civility gone? Will it ever return?”
Among the many issues that polarization causes is emotion-driven decision-making. Taking in news and making poor choices based on the news has always been a problem for some clients, but over the last 20 years—as internet communication and social media have taken off—managing the intake of news has become one of the central challenges facing clients. They know they should think long term and be at least somewhat optimistic, but they are drowning in a deluge of negative news.
“Leaders” speak of their opponents with vitriol and use extreme language when talking about the consequences of their side losing. It is all or nothing, all the time. There is no middle ground. No compromises. No hope.
Rationally, we know that America has managed to make progress with—if not fully overcome—every obstacle it has faced, even though every time we could say, “this time is different.” This time is also different. This time, the problem is internal.
When I started in this profession 30-plus years ago, clients were concerned about politics and what the future held for them and their children. We helped them then the same way we do now through planning and helping them focus on what they can control. People can learn to control their intake of news and what they do with the news they take in. What is different for us these days is that developing effective news skills is more difficult because of polarization and a premium many media place on speed over accuracy or objectivity. We can help our clients navigate our adversarial climate and make good decisions.
Many things have changed, but the need for sound personalized financial advice from a well-trained professional who cares has only increased. We financial planners cannot make America civil on our own but we can transform lives through our work. That will never change. The public needs our profession, and your clients need you now more than ever.