Financial Planning – A Historical Summary and Insights for the Future

Cultures have different traditions in greeting the New Year. However, there are some similarities. Make noise – firecrackers routed the forces of darkness in China, Thais fired guns to frighten off demons, and Swiss pounded drums. Eat lucky foods – Spanish ate twelve lucky grapes at midnight, rice means prosperity in India, and eating ring-shaped food signals “coming full circle” and good fortune. Give a gift – Romans passed coins, Persians exchanged eggs as signs of fertility, and you kiss the person you hope to be kissing for a long time.

The New Year is also a time to reflect on the past and plan for the future.  So I share with you a history of the financial planning profession and some future trends. It has and continues to evolve and adapt as life and the environment change.

The industry is relatively young emerging in the 1960’s. However, the concepts of personal financial planning had its roots a hundred years prior with the Morrill Act of 1862 and the rise of land grant universities. The US government promoted agricultural and industrial studies and States were each offered 30,000 acres of land to either sell or used to develop colleges. Some of the first were Michigan State and Iowa State. Home economics departments emerged, first directed at the farm household and later expanded.

Financial planning as we know it today was born in December 1969 when thirteen financial services industry leaders gathered to discuss the creation of a new profession. The first CFP graduates were in 1973. Over the years, three main organizations would emerge – a membership association (FPA) and an education and enforcement arm (CFP Board), and one who was focused on fee-only advice (NAPFA). These organizations promote the planning industry, maintain and enforce high standards of practice, and support initiatives holding planners to a fiduciary standard. There are approximately 170,000 CFPs worldwide, and numerous CFP Board Registered colleges.

The industry has had a bumpy ride over time. The 70’s were marked by a double dip recession, a 15-year bear market (ending in ’82), OPEC lead oil shocks, double digit inflation, resignations of President and VP, end of Vietnam War, IRA accounts, and ERISA signed into law. It was largely product-driven (tax shelters, annuities and real estate partnerships) because of runaway inflation, high interest and tax rates, and few were interested in the stock market. The 80’s were marked by Reagan and Volker breaking the back of inflation (18 – 20% money market rates and 14-16% mortgages), tax reform, 401k’s which changed the way we’d save and invest for retirement, a rising stock market, Alan Greenspan, and Black Monday.  The 90’s started with Gulf War I, recession, drop in real estate prices, tech bubble, then record stock market highs. And during this time, financial planning turned more to a needs or goals based approach.

But what is on the horizon as we look ahead? Here are a couple financial planning trends:

Better aging – What if more people lived longer with active lifestyles? How might that change investment, saving and spending, health and wellness, and career and lifestyle decisions?

Evolving women demographics – Studies forecast an increased control of wealth by women. US population is shifting to women. Women live longer and graduation rates outpace the men. And gray divorce is a growing trend. How can we attract more women into the financial planning industry, and the industry itself better serve the needs of women?

Advancements in technology – The pace of change continues to accelerate. Similar to the trend of driverless cars, will investors be successful with automated investment solutions (robo advisors) or better served by humans in the cockpit? Which planning technology do you adopt and master? Are you fast (innovating and adapting) or slow (keep your values and filter out the noise)?

In closing, may the words from Poor Richard’s Almanac ring true with you – “Be at war with your vices, at peace with your neighbors, and let every New Year find you a better man.”

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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