The History of Financial Planning

The Transformation of Financial Services
By E. Denby Brandon, Jr. H. Oliver Welch

John Wiley & Sons

Copyright © 2009 John Wiley & Sons, Ltd
All right reserved.

ISBN: 978-0-470-18074-7


Chapter One

A New Profession Emerges

To call it an unlikely revolution would be an understatement.

One of its principal architects was a onetime vacuum-cleaner salesman who had transformed himself into a marketing consultant and motivational writer. The other was a former insurance salesman turned school-supplies salesman who had a master's degree in psychology. Both were living in Colorado, far from Wall Street or any other financial capital.

The first planning session of the new endeavor, intended as a historic summit meeting, managed to attract just 13 attendees. Its timing-at the onset of one of the worst bear markets in U.S. history-was inauspicious.

Most discouraging of all, the fledgling movement had only the vaguest of action plans. And throughout its early existence, it was starved for capital.

There's no small irony in that last point. The revolution that began in December 1969 was intended to help ordinary Americans gain control over their financial destinies. How could that goal be achieved if the organizations created to realize it were barely solvent themselves?

And yet, despite huge odds, financial planning-the first new profession in the last four centuries-did succeed beyond the most fervent hopes of the revolution's founders, not just in the United States but around the world. Forty years after the profession's inauspicious birth, there are more than 120,000 CFP professionals around the world, educated in scores of colleges and universities.

This is the story of that astonishing success, of the people who built the movement, and of the seminal concepts that contributed to a robust and dynamic-and continuously growing-body of knowledge.

Before the Revolution

Worldwide, 1969 was a year of dramatic milestones. In July, Neil Armstrong became the first person to set foot on the moon. Midnight Cowboy, Butch Cassidy and the Sundance Kid, and The Wild Bunch shook up the movie industry. Overseas, the war in Southeast Asia continued to escalate: More than 600,000 U.S. and allied troops were fighting in Vietnam, and the United States secretly bombed Communist bases in Cambodia-a harbinger of a more general attack that would take place the following year. But it was hard to see a reflection of those cultural changes in the financial services industry.

For decades, financial services had meant primarily one thing: sales. Mutual funds had been introduced in 1924, making it easier for small investors to enter the stock market. A decade later, the Roosevelt Administration successfully pushed for legislation to protect investors from a recurrence of the 1929 crash: The Securities Act of 1933, the Securities Exchange Act of 1934 (which created the Securities and Exchange Commission), and the Investment Advisers Act of 1940 established guidelines for regulating the investment industry and provided for disclosure and investor education.

And then, over the next 30 years, little changed. As the years rolled by, the same few large securities firms-whose salesmen were paid on commission-sold equities to wealthy clients. Banks provided trust services, also to wealthy individuals. For average Americans, an "investment" meant a life insurance policy, usually traditional whole life with a guaranteed death benefit and a guaranteed cash value; insurance salesmen also worked on commission. Lawyers drafted wills, created trusts, and sometimes gave tax advice; certified public accountants filed tax returns. The term financial planner was rarely used, and when it was, it often identified an insurance agent who offered estate planning and annuities in addition to life insurance. Or a "planner" might have a dual license in insurance and mutual funds. The financial planning process as it is known today was then only a loosely defined idea.

Rich White, an early chronicler of the financial planning profession, wrote about those early years:

As late as 1960, life insurance was the substance of financial planning.... By definition, a financial planner was an insurance man who offered the public more than money-if-you-die. Financial planners ... estimated estate tax payments for wealthy customers and sold insurance to fund those payments. They formed clinics in which they analyzed financial goals and sold packages of life insurance, disability insurance and annuities.

But even though the surface remained placid, there were stirrings of innovation. Servicemen returning from World War II and the Korean War created new markets for financial products, and a booming economy meant there was cash to invest. The traditional American way of retirement-supported by a company pension and Social Security checks-while still dominant, was being challenged: In 1962, when Congress passed the Self-Employed Individuals Retirement Act (better known by the name of its sponsor, Representative Eugene J. Keogh of New York), it gave partnerships and unincorporated businesses the same tax advantages only corporations had previously enjoyed.

Meanwhile, creative thinkers in academia, government, and business were beginning to reexamine the old financial services models and tinkering with new ones. Their ideas would have far-reaching consequences for the entire industry-including the handful of men who conceived of an entirely new approach to delivering financial services.

A Meeting of the Minds

Financial planning's official birth took place on December 12, 1969, in a hotel meeting room near Chicago's O'Hare Airport. Although the gathering's organizers, Loren Dunton and James R. Johnston, had contacted everyone they knew in financial services, only 11 men showed up, paying their own expenses to travel from Florida, New York, Ohio, and Pennsylvania. They included insurance salesmen and salesmen of mutual funds and securities. One was a financial consultant. One was a publicist. Many were members of the insurance industry's prestigious Million Dollar Round Table, which since 1927 has represented the most successful insurance and financial products sales professionals in the United States and the world.

These men came out of curiosity and a sense of shared mission: to raise the level of professionalism in retail financial services and to make "financial consulting," rather than salesmanship, the driving force of their industry.

Dunton and Johnston had been planning the meeting for months. They had first met the previous summer in Colorado, where both men lived. Johnston, a 35-year-old former life-insurance salesman who was selling school supplies, had come to Dunton's home in Littleton to get a copy of one of Dunton's books, How to Sell Mutual Funds to Women. But both men quickly found they had something bigger in common: a desire to improve the way financial services were provided. They also agreed that ongoing professional education would provide the route to that improvement.

Johnston had long been fascinated with motivational speakers. "I listened to them every chance I got," he reflected, decades after his first meeting with Dunton. "I was always impressed with their ability to motivate me. The trouble was, I'd stumble back to earth when I walked outside." Johnston thought the answer lay in "a follow-up educational program for new concepts and motivational speakers." He saw in Dunton a conceptual thinker and motivator, and regarded himself as the educator who would follow up after Dunton introduced his new concepts at motivational events.

At first, Dunton lacked Johnston's keen interest in education. However, he did recognize Johnston's talent for sales and promotion, and saw mutual benefit in an ongoing association. The two men continued to meet over the next 12 months, and on June 19, 1969, Loren Dunton registered a nonprofit 501(c)(3) corporation in Colorado to further the goals they'd been discussing. He called it the Society for Financial Counselling Ethics. (The name was later changed to the Society for Financial Counseling.)

The society's charter identified two purposes for the organization:

1. To supply recognition to those who meet not only the legal but also the ethical standards of financial counseling and conscientiously share their wealth of knowledge with the public

2. To establish an educational institute providing a certification program outside of either the mutual fund or insurance industry, to indicate the ability and desire in specific individuals, and to provide objective guidance and assistance to the public in the form of financial counseling

In addition to Dunton, the SFCE's trustees were Robert Leary of Denver, retired director of sales of Westamerica Securities; and Dr. Daniel Kedzie of Chicago, former director of education of the Chartered Life Underwriter (CLU) program. Dunton persuaded six additional men to serve on the board: Lewis Kearns, from Wellington Management; Jack Glassford, from International Securities; D. Russell Burwell, of Myerson & Co., a New York Stock Exchange member and a customer for Dunton's training films; Ben Cascio of Mutual Fund Magazine; Dr. Arthur Mason, dean of the University of Denver; and Walter Fischer, vice president of the Mutual Funds Council.

Despite this impressive roster, the SFCE floundered, raising only $3100 in its first nine months. (Dues had been set at $500 a year.) Although its stated goals were lofty, it offered no clear benefits to participants. For its mission to be realized the SFCE would need to be supplanted by a more effective organization.

Nevertheless, when he greeted his 11 invitees in Chicago on December 12, 1969, Dunton still felt bullish about his plan and his organization. And he refused to be discouraged by the small turnout. He believed his consulting firm, Loren Dunton Associates, could guide and finance the two new organizations that emerged from the two days of meetings in Chicago: a membership organization, the International Association of Financial Counselors; and an educational institution, the International College for Financial Counseling, which would become the College for Financial Planning in mid-1970. Dunton also believed that the group's collective talents would attract additional capital.

Dunton turned out to be wrong about the capital, but his assessment of the attendees' talents was accurate. Though small, the group was skilled, experienced, and committed.

Lewis G. Kearns was director of financial planning for the Wellington Management Company, near Philadelphia, manager of the $1.5 billion Wellington Fund; he had strong convictions about the way mutual fund salesmen would be trained, and would eventually serve as the first chairman of the board of regents of the College for Financial Planning.

Robert Leshner of Cincinnati was already practicing diversified financial counseling with his firm, W.D. Gradison & Co. Like Kearns, he was passionate about professional education and a promoter of early workshops held by the fledgling IAFC.

Herman W. (Hy) Yurman was vice president of the Planning Corporation of America in St. Petersburg, Florida. He proposed that the educational program lead to a professional designation to be called Certified Financial Counselor.

Hank Mildner, a mutual fund salesman from Pompano Beach, Florida, brought his deep concerns about ethics to the meeting. He shared with the group a story about a widow who had lost more than $10,000 in a mutual fund; she had told the salesman, "All I want is safety of my principal"-instructions the salesman blithely disregarded.

Kearns, Leshner, Yurman, Mildner, and the other attendees returned the following day, December 13, to meet with representatives of Dunton's Society for Financial Counselling Ethics. After agreeing that the new membership organization and college would be managed by Dunton's company, LDA, they returned to their homes, ready to begin the crucial committee work that would build the foundations of the new institutions.

Two weeks later, on December 30, President Richard Nixon signed the Tax Reform Act of 1969, the most sweeping tax bill since the income tax was introduced in 1913. The act closed loopholes and dramatically altered tax rates, and had important consequences for investors and their advisers. But it could not stop the advent of the 11-year bear market that began in 1970-a downturn that created a new national anxiety that financial planners were poised to alleviate.

The First Challenges

Before financial planners could help the public, they had to help themselves create a credible profession. They faced substantial hurdles.

Although the Chicago group had decided to launch a membership organization and a college, they were short on resources. They were not men of great wealth, nor did they have enough influence to reach into the deep pockets of wealthy financial services companies. They were not educators, nor did they represent educational institutions. Their working capital was inadequate. (The initial IAFP membership fee was just $10, low even for 1970.) Indeed, it's difficult to imagine a major movement getting under way with the odds stacked so heavily against its success.

Nevertheless, the 13 men were, in their different ways, exceptional people. They were sociable, energetic, knowledgeable, and respected by their peers. Perhaps most important, they represented an idea whose time had come.

To propel that idea, the early leaders of the IAFP decided to hold sales workshops. Robert Leshner helped promote the first one, held in Cincinnati on January 20, 1970. It drew about 40 attendees, most of whom signed up as new IAFP members. One of them was P. Kemp Fain, Jr., of Knoxville, Tennessee, an independent salesman for Financial Services Corporation, a national company with a reputation for innovation; its founders, John Keeble and Richard Felder, had created their first financial plan in 1963. By 1968, they were creating about 300 plans a month. When he returned home, Fain immediately organized the first IAFP chapter. (See the profile of P. Kemp Fain, pp. 162-163.)

The second IAFP sales workshop took place two weeks later in Winter Park, Florida, and attracted more than 60 people. Loren Dunton flew in to be the keynote speaker, and announced to the audience that IAFP membership was approaching 2,000. Whether or not this number was entirely accurate, it was true that by mid-1970 the IAFP had at least one member in every state except Mississippi, and checks were beginning to come in from all over the world.

A College Takes Shape

Lewis Kearns, who had attended the December 1969 Chicago meeting, was tapped to guide the creation of an educational institution that would train and certify financial planners. (Its original name, the International College for Financial Counseling, was changed in mid-1970 to the College for Financial Planning-another step toward solidifying support for the planner designation over rival terms such as counselor or representative.) Kearns formed a committee that met frequently between 1970 and 1972; its members included David Allard; P. Kemp Fain, Jr.; Jerrold Glass; Jim Johnston; J. Chandler Peterson; Shannon Pratt; Thomas Ritt; Larry Wills; and Hy Yurman. Their meetings took them to California; Georgia; Washington, D.C.; and Pennsylvania. It was decided that the college would be located in Denver, largely because Dunton and Johnston lived in the area.

Even before the college had an educational program, some individuals were eager to enroll. In early 1970, P. Kemp Fain stopped in Denver to check on the program's process and became its first enrollee-the only enrollee that year. Fain was already working in financial services; he said he saw the college's courses as an important step toward professionalism:

The tests weren't easy, even then. They were all essay questions, and you really had to know the materials and write good, representative answers. The designation wasn't popular; no one understood what it was. It wasn't until around 1978 or 1979 that you saw recognition in people's eyes when you said, "I'm a CFP."

Fain and other prospective students-more than 150 signed up in 1971-had to wait to take those tests. There was still no curriculum.

(Continues...)



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