The Key to the Profession

Journal of Financial Planning: November 2012


Rick Adkins, CFP®, ChFC, CLU, is president and CEO of The Arkansas Financial Group Inc. in Little Rock, Arkansas. He served as the 2003 chair of the Board of Governors of Certified Financial Planner Board of Standards. (ricka@ARfinancial.com)

Let’s say that you’ve noticed a tender spot on your neck that has gotten a bit larger and more sensitive over the past few weeks. It has concerned you enough that you’ve scheduled an appointment with a doctor to get it evaluated. The doctor listens to your concern and, to your surprise, responds: “I just read an article in Men’s Health about people who have had similar conditions. Most of the time it’s just an infection that will clear up. Here’s a prescription for an antibiotic that should take care of it. You can pay on your way out.”

Even though that wasn’t the response you expected, you take the antibiotic, but don’t seem to be better after a few weeks. This time you go to a doctor who has been routinely calling you for the past few years and taking you to lunch on your birthday. The doctor briefly listens to your concerns and responds: “Most of my patients actually die of heart disease. In fact, actuarially, 63 percent of men your age develop heart disease and 100 percent die. So, here’s a contract with my company’s Federal Arrhythmic Restoration Clinic (FARC), which will cover you for life. Just stop at the bank draft window down the hall and they’ll get you covered.”

Over the next few weeks your heart rate gets lower and you experience a much needed weight loss, but your neck gets worse. A friend at work heard about a doctor who uses the newest, innovative, cutting-edge (NICE) treatment options. This doctor listens to your concerns and says: “I’ve been working on a proprietary treatment protocol over the past few months that incorporates the latest in new-age, alternative care. Here’s a poultice that you should put on your neck twice a day. You can pay for it on your way out.”

After a week of using the poultice the skin on your neck is breaking out and the tenderness has only gotten worse. Based on the commercials you’ve seen on TV, you go to a doctor at a clinic owned by one of the large, well-known drug companies. Once you get in to see the doctor, she listens to your concerns and says: “Our company has developed a drug to treat precisely what you seem to have. I’m not going to charge you for my time, just stop at our drugstore window down the hall. It’s the only place where this new, proprietary drug is available.”

You never have a chance to finish the entire bottle of this new proprietary drug because before you can do so, you die of thyroid cancer. Whose fault was it? Which doctor was to blame? When the Federal Doctor Oversight Commission (FDOC) reviews their work, which doctor should be punished for your death?

Fortunately, that’s not how things work in medicine. Hopefully, any medical doctor who sees you would take your medical history, perform an examination, run tests, and refer you to a specialist, if appropriate. Most importantly, they would follow a systematic process that would likely result in a diagnosis of thyroid cancer, not heart disease. While not all doctors would prescribe the same treatment, they would try to follow a course of action that has been proven to generate the optimal outcome for your condition. That’s because they’re in a profession; they apply a systematic body of theory (which they’ve spent years learning and practicing) in the best interest of their patient.

Practice Standards

Sadly, the four scenarios above capture ways in which it still does work for some practitioners in financial services. It will continue to work this way as long as anecdotal, adviser-focused, newness-driven, or conflicted methods are employed. It will continue to work this way to the extent that we persist in having a transactional approach to regulation. The transactional model has been used by insurance and securities regulators for over 70 years. It’s what we all know and love. It’s objective. It’s based on rules that can be proven to have been followed, or not. But financial planning is not merely a transaction; it is data gathering, it is analysis, it is advice, it is experienced judgment, it is a professional relationship.

Medicine is messy. That’s why regulation and legal recourse tends to focus on a standard of care. What standard of care should have been applied? What process should have been in place? Was that process followed?

Financial planning is messier. For financial planning to ever actually be regulated, the focus also will have to be on a standard of care and on process, not merely transactions. Ironically, that was the original intent almost 20 years ago when Financial Planning Practice Standards were conceived. They took seven years to develop, but were then pretty much “put on the shelf.” All the anxiety that accompanied their introduction was unnecessary. The Practice Standards are all about process. They deal with key issues of:

  1. Making sure you and your client are on the same page from the beginning
  2. Developing a data-gathering process appropriate to the engagement
  3. Using appropriate analytical tools and process to solve the client’s problems
  4. Prescribing an appropriate course of action, based on items 1–3
  5. Carrying out your part in the appropriate course of action
  6. Monitoring progress toward the goal so that adjustments can be made to achieve success

In retrospect, CFP Board may have just been a couple of decades ahead of the curve. I was pleased to learn that CFP Board is reviewing the Practice Standards and their role in helping the CFP mark to be recognized by the public as the source of sound, client-centered financial advice. I believe these standards hold the key to moving forward with any meaningful regulation of financial planners and, more importantly, in causing financial planning to be recognized by the public as a profession.

The greatest challenge in making this so will be scale. Any system will work if you’re only regulating a few thousand people. Will your regulatory scheme still work when you have 500,000 certificants? What combination of “rules-based, transactional” regulation plus “principles-based, process” regulation should be used? What role might true peer-review play? What staffing from within the profession, in addition to professional staff, will be required? Here’s where I hope the Financial Planning Coalition—comprising Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors—can be effective. Membership organizations can help provide the “staffing muscle” and CFP Board can provide the “standards muscle” to create strong professional oversight.

I don’t know precisely how it will all happen, but I look forward to watching the next installment of our profession’s leaders move the ball forward. We’re still the best chance the American public has to receive sound, unconflicted advice about how they can best achieve their hopes and dreams.