By Patrick Meyer

Reminisce with me for a moment. It was the middle of July 1996. I was holed up in Baltimore taking the 10-hour Certified Financial Planner exam. Hurricane Bertha was raging outside as it moved up the coast from North Carolina.  At 4 p.m. on Saturday, when the proctor yelled “TIME,” I submitted my exam materials, turned off my calculator, and walked out of the testing center into the storm. During the white-knuckle, two-hour drive back home to Hershey, PA, all I could think about was passive activity losses. Why didn’t I study more about passive activity losses? Other than that, I felt pretty good about the exam.

About six weeks later the results were mailed and, indeed, I passed! A brief letter from the Certified Financial Planner Board of Standards made it official and I was given CFP number 56833. Careerwise, I was about to put my new credentials to work at The Vanguard Group; I was set to join a new unit advising Vanguard shareholders about their investments and retirement savings. Ultimately, our goal would be to scale advice and reach thousands of households with basic financial planning services.

Looking back now, after 30 years, I am amazed at how the financial planning landscape has changed. In 1996, stocks, bonds and mutual funds were the predominant securities. You read a physical copy of the Wall Street Journal and watched Wall Street Week with Louis Rukeyser on Friday evenings for stock tips.

If you sought financial advice at that time, you may have worked with a full-service brokerage firm (like Merrill Lynch or Dean Witter) or worked with a planner from American Express Financial Advisors. In the mid-1990s, Fidelity Investments and The Vanguard Group set out to disrupt the business of financial planning by building their own capabilities in-house, and hiring, as salaried employees, CFPs to advise their own investors. While revolutionary then, it just seems quaint now.

You could fill a thin-ruled notebook with all the changes that have transpired in the financial planning industry over the past 30 years. Here are reflections on a few areas that merit special attention.

Technology

We entered the internet age in the mid-1990s. Financial information (and education) was still largely in paper format or gleaned through conversation with professionals. The internet enabled investors to get stock quotes and prices immediately, and the advent of online brokerage services made it easy to trade securities without the need for a broker. Financial service firms and advisors put research, analysis, charts and commentary on their websites, which you could access 24-7. I remember The Motley Fool as one example of an early provider of “trusted” financial information presented in a way that novices could easily digest. Once the internet was mainstream, it was simple to be a DIY investor and to find answers to planning issues in chat rooms and blogs. Investment costs went down; transparency went up.

Later, with the introduction of robo-advisors (from pioneers like Betterment, Wealthfront and The Vanguard Group), advice reached millions of investors and scale became a reality. The digital advice platforms that emerged in the 2010s used algorithms to choose appropriate securities and keep portfolios in balance, thereby attracting wallet share from the masses, and at a fraction of the cost of a dedicated, human advisor.

Over time, it became apparent that not all investors were interested in pure, technology-driven solutions for their financial needs. Money is personal, and it is hard to have a trusted relationship with a machine. While the robo-advisors manage around $2 trillion today, a hybrid model, consisting of a credentialed relationship manager/planner/financial coach using a robust technology-driven platform, is the industry standard and unlikely to disappear anytime soon.

Artificial intelligence is the latest technology impacting our industry; making it faster and cheaper for investors to plan and manage their financial affairs without the need of a professional. I’m of the opinion AI will replace many of the tasks we do but won’t completely replace the value and benefits derived from working with a human being.

Holistic Planning

Back in the 1990s, financial planning and advice were largely centered around investments or a product-based solution. A typical scenario: you met with an investment broker to discuss contributing to an IRA. The broker advised you to make a $2,000 IRA contribution and then showed you some mutual funds with various risk attributes (and hopefully high Morningstar ratings) suitable for the investment. Maybe the broker inquired about your after-tax savings; maybe the broker showed you the value of the IRA at your age 70 ½, assuming a certain growth rate and pattern of annual contributions. You left the meeting feeling you accomplished something and inspired to make future contributions to the IRA to reach that big number. The broker was (likely) compensated for his time through the sale of the mutual fund.

Investors are much better served today with solutions that take a broader, comprehensive view of family finances. In a typical scenario today, an investor meets with a planner (already credentialed in most cases) and through a series of fact gathering discussions bears his financial soul so the planner can construct a model of assets, liabilities, household income and expenses, long-range cash flows, savings strategies, insurance assessments and a myriad of other things to help the investor pursue and satisfy long-term goals. With holistic planning at the center of the relationship, the client and advisor can focus on the client’s wants, needs, biases and other matters well before any product or investment pitch enters the fray.

It took time for the industry to shift away from investment-centric to planning-centric approaches … and it took technology. Until there were off-the-shelf comprehensive financial planning software solutions, it was difficult to advise on a client’s whole picture. Technology, again, helped push the industry forward, enabling some firms to charge fees for planning and managing assets instead of collecting commissions on the investments or products sold. A salaried financial planner doesn’t have the “sales” pressure a commissioned broker may have, which generally results in higher quality planning and a more satisfied client.

Nowadays, even though internet tools can handle number crunching, the financial planner continues to play a vital role by monitoring progress, keeping the client focused on goals, and coaching through behavioral issues that might otherwise derail success. The modern-day financial planner is more akin to a quarterback, leading the team to victory, versus the guy at the merch table, who just sells jerseys.

What Is Advised Upon

The universe of topics a financial advisor is expected to advise upon continues to expand, and frankly, I don’t see it contracting anytime soon.

Over the past 30 years, we’ve seen new account types (e.g., Roths, 529 Plans, Coverdell ESAs, ABLE accounts, Health Savings Accounts and Trump Accounts), new investment types (e.g., ETFs, digital currencies and tokenized funds), significant legislation affecting income taxes, changes in retirement plan savings and distribution rules, and changes in Social Security claiming strategies. What’s more, there is a heightened interplay among these matters that make it increasingly difficult for advisors to help clients optimize solutions.

To complicate matters further, there are more distractions and background noise in the environment where advice is given. There’s a guy on TV forecasting economic collapse and telling me to put it all in gold. There’s a post in my daily feed saying gold will plummet and to put it all in silver. Deep fakes and biased influencers abound. Trust in our world is fleeting, and our job, as CFPs, in this tornado, is to build trust.

I think things were a lot simpler 30 years ago. If that makes me sound like a grumpy old CFP, so be it.

One bit of advice for financial success hasn’t changed, and I’ll spare you the Dickensian quote this time: save more; spend less; live within your means.

Thirty years from now, that will still be true.

For questions about financial planning, contact a Fiduciary Investment Advisor