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What's going on out there?

Before we start to tackle the big philosophical questions around financial planning, it’s worth taking a step back to examine what’s happening with Certified Financial Planner (CFP) numbers, both globally and in the UK.

On the surface, we’re seeing an increase in the number of CFPs across the world.

It’s true to say that in many jurisdictions other financial planning accreditations exist, and taking that into account the number of financial planners is even higher. But here we’ll focus on the CFP, as it’s the only global benchmark and so we’ll use this as a proxy.

Yet the story behind that pleasing increase in numbers is less clear.

In many mature markets, the numbers of CFP accreditations is, at best, flat.

In the UK it is actually slowly but steadily decreasing. And that is from an already low base. With fewer than 900 CFP holders in the UK, the comparison with South Africa, with well over 4,000 CFPs, and Australia with 5,000, is stark.

Data from the Financial Planning Standards Board (FPSB) published in 2020 shows a rise of 3.7 per cent in the numbers of CFPs worldwide. Half of this increase came from Asia, with Brazil and the US accounting for most of the rest.

Looking at data from earlier this year, the picture hasn’t changed:

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Number of CFP holders in the UK

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Number of CFP holders in Australia

CFP professionals by territory – data from FPSB

Based on my experience of working with the FPSB, as well as with affiliates around the world, the future of increased CFP numbers is in new territories and jurisdictions.

That’s no bad thing. As we see growing wealth and a growing middle class in what were once so-called ‘developing countries’, it’s a positive to be able to include them in a global profession, and to support local regulators with what we see as good practice. That, in turn, protects a new wave of consumers.

But the question is, why are ‘developed’ countries falling behind? And why has the UK failed to increase CFP numbers for the last decade or so?

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“My concern here is it’s not clear as it could be to advisers or consumers that financial planning is a profession and business model in its own right.”

Organisations and groups filling the gap in advice leadership:

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Chartered, CFP and the rise of splinter groups

I think the answer lies in three parts.

Firstly, the launch and rise of the chartered financial planner in the UK was always going to be a threat to the future growth of the CFP marque here.

As someone who holds both accreditations, it’s easy for me to point to one as being mainly knowledge and education-based (chartered), and one being about how we work with clients (CFP). But given that consumers – and most of the mainstream media – can’t tell the difference between an independent financial planner, a tied salesman and all the rest, it’s possibly a difference for the purists and geeks among us.

I don’t mean this to be a criticism of the Personal Finance Society (PFS), which has done a great deal of good work in the past few years in progressing the field of financial planning, alongside its members.

But the PFS is, and must be, a broad church, with many calls on limited time and resources.

My concern here is it’s not as clear as it could be to either advisers or consumers that financial planning is a profession and a business model in its own right.

In the UK the IFP clearly spoke for financial planning. The PFS is less able to do so.

Arguably the position of the Chartered Institute for Securities & Investment (CISI), which merged with the IFP in 2015, is even more difficult. If advisers are planners’ siblings, or even twins, then perhaps wealth managers are our cousins? Related, but one step removed.

As a planner, I have much more in common with a mainstream adviser than I do with a wealth or fund manager. To be a bit brutal, most fund managers wouldn’t recognise their clients if they met them in the street.

So, in a world where few advisers perhaps understand or want to work with clients in a financial planning model, the lure of the CFP is limited. You can’t be what you can’t see. What’s the commercial driver for becoming a CFP, when clients seem more interested in the chartered title that they at least think they understand?

My second point is going to sound quite harsh, and I type these words with a heavy heart. It would be my contention that there has been a lack of vision and leadership in this area.

As a past IFP board member, I must carry my own share of responsibility for that.

We can rehash arguments and refight past battles, but we are where we are. If we are to move forward as a profession, and if the CFP is to be an integral part of that, then we have to accept the failings of the past, draw a line under them and do something different tomorrow.

Thirdly, as the saying goes: nature abhors a vacuum.

What that means in this case is that others will move into the financial planning space, and claim parts of it for their own.

Some come with the best of intentions and goals, and we’ll look at those below. Others, well, perhaps not with the purest of hearts.

Without wishing to dwell on negatives, this includes providers labelling their distribution process as ‘financial planning’. What I find ironic is these arms are often headed up by individuals with job titles like ‘head of distribution’ or similar.

The reality is these advisers are targeted and paid to distribute products, and any financial planning is simply a means to do so in a more structured and professional way.

If you walk into a Ford showroom, you’re likely to walk out with a Ford car. You would hope it would be appropriate to your needs, but it will always be a Ford.

On a more positive note, we’ve seen a variety of different organisations and groups that have moved to fill the gap in leadership.

These include:

  • NextGen Planners
  • The Initiative for Financial Wellbeing
  • Humans Under Management
  • The Society of Later Life Advisers
  • The Kinder Institute of Life Planning

This isn’t an exhaustive list, and it isn’t meant to imply any bias or endorsement – it’s just to make a point.

“Every medical professional measures blood pressure on the same scale. But have you ever tried having a risk tolerance conversation across different firms, let alone different countries?”

These organisations are loosely collaborative with each other, and there are certainly positive developments coming from them, with the promise of more to come.

Yet my concern is whether we may be seeing what I term as the ‘Balkanisation’ of financial planning, at least in the UK.

By that, I mean an increasingly limited focus on what separates us, rather than the 99 per cent we have in common.

I would ask: where is the overarching broad church/big tent in all of this?

The Society of Trust and Estate Practitioners (STEP) is a good example of this. It has a core membership, with special interest groups to reflect specialist areas of practice.

We also see a lack of clear leadership and forward momentum in other jurisdictions.

For example:

  • The Financial Planning Institute (FPI) in South Africa has had a rough couple of years at leadership level
  • Australia is still trying to get to grips with, and recover from, the impact of its Royal Commission, and the subsequent damaging headlines around ‘fee for no service’
  • In the US we’re seeing some misalignment between the Financial Planning Association (FPA) and the CFP board, as well as much of the Balkanisation we see in the UK

The pattern is apparent, and it poses a number of concerns.

This process of Balkanisation makes it easy for regulators to marginalise financial planners, so that we get lumped in with everyone else in regulatory terms.

By their very nature, these special interest groups are usually set up and run by small numbers of enthusiasts with limited infrastructure and resource. As they depend on volunteers, they may have limited impact and influence when it comes to the bigger picture, that is, on the media, consumers and regulation.

While there are clearly threads that unite the particular organisations I list (as well as those I haven’t listed), there are other issues these organisations are simply never going to explicitly address.

For example, what’s the role of financial planning as families become increasingly cross-border? Who is working on creating standard financial planning assumptions, or an academic approach to risk tolerance?

A profession needs a common language, and common standards.

Let’s take medicine and health as an example. Every medical professional, everywhere in the world, measures blood pressure on the same scale. The very phrase ‘2020 vision’ tells us how opticians around the world test eyesight.

But have you ever tried having a risk tolerance conversation across different firms, let alone different countries?

Even within the UK, I’ve seen a portfolio labelled balanced with an equity content that ranges from 30 to 80 per cent. Some balanced portfolios choose to include alternative and geared assets.

What would be the financial planning ‘house view’ on asset growth and inflation over three, five and 10 years?

Without a designated financial planning body leading this kind of research, it’s a free for all. No doubt many of us can call to mind examples of in-house risk profiling and asset allocation tools that, no matter the answer given, allocated to in-house funds without fail.

So the question is: does the growth of these specialisms make it difficult to drive the direction of change? My reluctant answer is, it would seem it does.

If we were to look at financial planning from the outside, where do people go for help and support? Is it all simply too confusing for the media and consumers to understand?

I emphasise, this is in no way the fault of particular groups. I salute and support the work they do. But I believe they need some ‘top cover’, that is, an umbrella organisation that can then free them up to do the work they want to do.

Key questions

  • The CFP marque is growing slowly in developed countries, but falling in the UK. Why has the UK failed to increase the numbers of CFPs over recent years?
  • Arguably, there’s been an increasing lack of leadership in financial planning in the UK, or at least a lack of a shared vison. Are we seeing the ‘Balkanisation’ of financial planning?
  • The emergence of specialist groups has led to positive developments, but these disparate groups can also make it difficult to come together to drive the profession forward. Who is doing the work that’s needed on creating a common language and common standards for the financial planning profession?

Actions

  • Clearly define your business model and advice status to ensure it is transparent and easily understood.
  • Define the preferred route to support your business model – chartered or CFP and actively champion it.
  • Review how you describe your qualifications to clients and test their understanding.
  • Educate your clients on the differences between advice and planning models so they understand your value proposition and corresponding fees.
  • Consider what you want from membership of your professional body and ensure they know how you want them to represent you and your business.
  • Consider what you want from membership of a so called ‘splinter group’ and be clear how it differs from the chartered or certified bodies.

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