What is Financial Planning and Who are Financial Planners?

Financial planning is a relatively new profession. It represents the first broadscope service profession to emerge in recent years. Its development can be traced back to late 1969, when a small group of financial services professionals met at a hotel near Chicago’s O’Hare Airport to discuss the inadequacy they saw in the state of financial services at that time. They voiced their frustrations and searched for ways to introduce a new degree of client orientation and professionalism into a field that was neither well known nor well defined.

The planning pioneers who founded this profession led a movement to provide clients with better and more targeted service. They looked forward to the time when comprehensive financial planning would become an accepted and integrated means for providing service and product delivery to consumers. In doing so they revolutionized their business, creating a new way for individuals to manage their personal finances. The pioneer’s approach was to focus on the client’s needs and objectives by putting their client’s interests first and foremost above personal gain.

The efforts toward targeted client service led to the development of two principal types of financial plans, segmented and comprehensive. Segmented plans enable practitioners to review one aspect of a client’s life, such as insurance, investments, or retirement. Comprehensive plans provide a more detailed and complete approach by factoring in all of the financial concerns affecting the client’s life, such as cash flow, education, insurance, investments, income tax, retirement, and estate issues. These revolutionary changes in approach paved the way for a new profession: Financial Planners.

The next step for these innovators was to educate the public about their new service profession. They wanted to show the public how they differed from their predecessors and why it would be worthwhile to use their services. To counteract negative perceptions, a number of financial services professionals began pursuing a different way of helping their clients. They strove expressly to adopt a logical and consistent format in providing good financial advice not just in one specialized are, but in every aspect of client’s financial lives. Furthermore, they wanted their clients to know that they were trained specialists in their area of practice.

Who are today’s financial planners?

Financial planners have come from a variety of fields and hold many licenses and designations. As noted previously, many today are midcareer professionals who have retired from their first field, have grown bored with it, or wanted to branch out into something new that involves helping others. For example, many are CPAs with 20 or more years of experience who have found that their clients specifically ask for such services; if they fail to provide financial planning, they run the risk of losing clients to other CPAs who do.

Similarly, many representatives, brokers, and related employees at major brokerage firms and insurance companies find it difficult to compete solely by selling products; financial planning offers a more flexible and comprehensive approach to satisfying their client’s needs. Likewise, bankers more and more are finding that they cannot effectively compete in the service marketplace without taking an overall view of financial planning for their clientele. The banks have finally recognized that financial planning in its own right can be a very profitable revenue center.

So what does this all mean? For many financial services professionals, the days of pushing a product-centered transaction with little or no concern for client needs and objectives are gone. That approach is being replaced by the services offered by more sophisticated and better-trained financial planners who want to understand their clients in order to make the most appropriate choices for them.

Although the history is a largely U.S. experience, the world has seen the evolution from product pushing to solutions provision…thus evolving from agents to planners. Asia has seen changes, and the changes are happening in a much faster pace. Singapore has been the most successful in its evolution to financial planners with strict implementations of standards and procedures. Thailand, Indonesia, Malaysia and other ASEAN countries are also on its way in developing substantial numbers of professional financial planners.

For many years now, it has been my quest to take part in the evolution of the financial planning practice in the Philippines. In 2005, I helped found the Registered Financial Planner Institute of the Philippines which will hopefully result to the evolution of Filipino Financial Planners but the evolution to professional financial planners goes beyond the RFP.

Today, there are a lot of advisors claiming to be financial planners and while some are true-blue ones, many are still in name rather than in deed. However, I am very hopeful with the rate the financial planners are evolving and soon, this profession will be one of the most respected in the Philippines as well.

Randell Tiongson is an advocate of Life & Personal Finance. He is a Director of the Registered Financial Planner Institute (Phils.), a columnist of the Philippine Daily Inquirer and has over 20 years experience in the financial services industry. For speaking engagements, financial planning, training and consultancy, write to randell@randelltiongson.com. To read his personal finance blogs, visit www.randelltiongson.com.