The profession of financial planning, when compared with accounting and legal professions, is relatively new, and over the years it has evolved as a way of deal- ing with our modern complex society. Even as late as in the 1960s, there was little demand for financial planners. Most people were content dealing with their traditional advisors, such as attorneys, accountants, bankers, insurance agents, and stockbrokers. However, in the 1970s, our society grew more com- plex, especially after we experienced the 1973–1974 economic downturn, argu- ably the most severe recession since the 1930s. For the first time we experienced the oil embargo, stagflation (stagnation with inflation), high level of unemploy- ment, and the infamous bracket creep in personal and corporate taxes. Clearly, the financial planning profession was ill-equipped to handle the myriad of spe- cial financial planning needs of American families. So to deal with this challeng- ing situation, a “new, improved” profession was born, marking the beginning of the modern financial planning profession as we know today.
As is generally the case with the emergence of any new discipline, initially people expected financial planners to be all things to all people. That expecta- tion, however, was short-lived. Soon it was recognized that consumers’ interests would be truly served only if the financial planners acted either as a quarterback or as an orchestra leader, coordinating the services of other traditional advisors to provide comprehensive planning services for their clients. For instance, if a client needed a sophisticated estate plan, an attorney could fulfill that need. A complex tax return could be prepared by a Certified Public Accountant (CPA).
Life insurance could be purchased from an insurance professional. Similarly, the investment portfolio could be reorganized with the help of a portfolio manager or a professional investment counselor.
However, let us be clear. To suggest that a financial planner should closely work with other professionals does not imply that the planner cannot—or should not—
perform one or more of the tasks just listed. In fact, frequently financial planners are licensed members of one or more of these professions and can successfully perform the related tasks. For instance, most practicing financial planners are registered investment advisors and many are also licensed to sell securities and insurance products. Some planners are also CPAs, while others as Doctor of Jurisprudence (JDs) are licensed to practice law. Nevertheless, most sophisticated
financial planners recognize that while it is desirable to be knowledgeable about the key areas of planning, one should seek the professional when circumstances warrant; it is best to seek the professional services of other advisors. The following is a brief description of the approach taken by each type of professional and the importance of including such a person on the planning team.
Attorney
In recent years, much has been written on the client–attorney relationship and on the legal community’s indifferent behavior toward the financial planning community. These writings suggest that at least some of the dissension stems from turf battles. The thinking behind such behavior is not only misplaced but if allowed to continue can be counterproductive and ultimately damaging to the client’s best interests.
In the context of financial planning, an attorney’s key function is to certify the legality of a proposal developed by a financial planner and to prepare the asso- ciated legal documents. For instance, if a charitable trust is recommended, the attorney would be asked to either confirm the planner’s choice of the legal instrument or suggest a better instrument to accomplish the client’s objective.
The attorney would then prepare the appropriate legal document to implement the recommendation. The same approach would be used for recommendations relating to education, life insurance, joint ownership, and other types of trust and estate planning issues. Clearly, in the scenario just described, there is no room for turf battles and acrimonious debates, for in this role the attorney oper- ates not as an adversary but an integral part of the team of professionals.
Accountant
Traditionally, accountants, CPAs, and enrolled agents (EAs) have performed two principal functions: maintenance of financial records and preparation of taxes.
Ooccasionally, these professionals also perform certain financial planning func- tions. Whatever the role, traditionally CPAs have commanded the public’s respect. In addition, occasionally these professionals also perform certain finan- cial planning functions. They have commanded the public’s respect and admira- tion primarily because they were not permitted to receive commission on product sales. Today, however, commission rules are governed by individual state boards of accountancy, and many CPAs receive commission on the sale of investment and insurance products.
With the financial world becoming more complex and financial planners establishing themselves as coordinators of the professional team, the role of accountants has significantly changed. Today, CPAs, EAs, and accountants still perform financial record-keeping and compliance services such as audit and tax preparation. But as team players they also assume a major role in analyzing the overall tax consequences of buying investment products or transacting investment business. CPAs also provide invaluable assistance to the financial planners by (a) interpreting and evaluating the ever-changing tax laws, (b) recommending ways of taking advantage of these changes in the law, and (c) occasionally computing and monitoring investment results by acting as investment advisors.
Portfolio Manager
The two most important components of financial planning are the creation and preservation of a client’s estate. While the attorney and the tax professional help preserve the estate, the portfolio manager helps create or build it. This constitutes a two-step process. First, a financial planner creates a target investment portfolio that would help achieve the client’s short-and long-term objectives. Second, a portfolio manager identifies appropriate investment vehicles—stocks, bonds, mutual funds, annuities, limited partnerships, real assets, and so on—helping the planner complete the investment planning process. The Chartered Financial Analyst (CFA) designation is a prestigious credential awarded to individuals who successfully navigate three levels of rigorous testing. Many of these professionals ultimately become sought after portfolio managers.
Insurance Counselor
A dimension of asset protection is the purchase of life, disability, property, casualty, professional liability, long-term health care, and other forms of insurance. Also, in the event of an untimely death, a life insurance policy pro- vides the liquidity for paying taxes and administrative expenses without imposing financial hardship on the surviving family. The financial planner is responsible for developing a coordinated risk management plan covering vari- ous types of insurance. The task of the insurance counselor is to select from multiple insurance products that are particularly suited for the client.
Other Professionals
The financial planner works with other professionals as well, depending on the client’s special needs and circumstances. These include trust officers, bank and credit advisors, real estate brokers, investment bankers, human resource depart- ment representatives, and estate planners specializing in charitable giving and sophisticated planning strategies. In each instance, the planner’s objective is to seek external assistance to improve the value of the financial plan.
Summing Up
By establishing harmonious and productive relationships with traditional advisors, financial planners can provide valuable service for the client. If the activities of these advisors are coordinated, it is possible to create a productive working environment that would ultimately benefit all parties: the client, the financial planner, and all the traditional advisors.
To promote a healthy cooperation between the financial planner and the tradi- tional advisors, the financial planner should establish rapport with the client and the existing advisors. This can be achieved only if the planner makes a com- mitment to the client and coordinates the activities of the traditional advisors to serve the client with distinction.