Journal of Financial Planning: February 2016
Margaret (Peggy) Doviak, Ph.D., CFP®, is founder of D.M. Wealth Management Inc., a financial planning and portfolio management firm in Norman, Oklahoma. She is an associate graduate professor for the College for Financial Planning and a co-host of the FPA Theory in Practice Knowledge Circle.
Financial planning is a relatively young profession. As outlined in The History of Financial Planning: The Transformation of Financial Services, by E. Denby Brandon Jr. and H. Oliver Welch, our profession was born on December 12, 1969 in a meeting called by Loren Dunton and James R. Johnston.
Over the following 47 years, we have developed a common core curriculum among financial planners, and we have a set of recognized practices and procedures. We also have a collection of research areas that strongly influence our practices featuring names that are familiar to business and finance majors, psychologists, and marketing firms. The relatively recent addition of college degrees in the field of financial planning has also led to research written specifically for us. The future of financial planning is, indeed, bright.
However, there has been a long-standing division between those who conduct research in the field and practitioners. The division is easy to understand. First, in a unique way, the profession is born out of other industries that were often not overly concerned with a scholarly application. For instance, insurance provides a solution to a need faced by nearly everyone, so agents sold policies to grateful customers. Stock brokers provided data about securities, and mostly well-heeled investors made purchases because in the 1960s, most people did not have to rely on their own investing skill to secure enough money for retirement. As a result of these and similar activities, the financial planning profession comes from predecessors that were transactional.
As the field moved more to a client-planner relationship, determining the scope of what we currently call “financial planning” was challenging. Best practices often came about through formalizing processes because they worked—not because they were grounded in theory. Even today, the CFP Board of Standards does not grant continuing education hours for programs that are deemed to be practice management oriented. These examples demonstrate a major split between financial theory research and practice. And too many times, the theoretical world of financial planning, housed primarily in universities, has little impact on the practices of planners. Neither side appears to communicate well with the other.
FPA has created a forum to enhance communication between those involved in the theory of financial planning and those involved in the practice of it. The FPA Theory in Practice Knowledge Circle invites academics and practitioners to discuss current trends in theory and how they can be applied to client relationships. Practitioners have the opportunity to help theoreticians test new hypotheses and have a voice in what’s effective and what’s not.
The goals of this Knowledge Circle are lofty. To successfully bridge the gap between theory and practice, practitioners will need to follow the recommendations of Dave Yeske and Elissa Buie (“Evidence-Based Financial Planning: To Learn . . . Like a CFP” from the November 2011 issue of the Journal) and commit to practicing evidenced-based financial planning rather than following gut instincts, even when the latter are supported by anecdotal evidence.
Evidence-based financial planning includes planners who are current in their read of research, able to discern sales material from scholarly concepts, and driven to follow scientific methods. However, that is not enough for the Theory in Practice movement to catch fire. Additionally, academics will need to engage in meaningful dialogue with practitioners and value their input. They will need to present data in easy-to-understand ways in forums planners can easily access. Both camps need to appreciate and understand each other if financial planning is to operate from theoretical perspectives that align with planning practices.
Find more information about the Theory in Practice Knowledge Circle on FPA Connect (Connect.OneFPA.org). Monthly phone meetings are held every third Monday from 2 to 3 p.m. EST.