The Rise of the Financial Planning Industry

Article excerpt

ABSTRACT

The financial planning industry in Australia has experienced significant reform in the last decade. This reform has not only made a considerable impact on financial planners but also on other groups such as the accounting profession, regulators, the financial services industry, educators and consumers. Although consumer protection was at the heart of this reform, it has also prompted the industry and other groups to consider financial planning as a profession.

This paper begins with a definition of financial planning, followed by a discussion of the historical origins of financial planning. Several examples are used to illustrate how the industry has developed and changed over time considering the impact of social, cultural, institutional, political and economic factors. Particular attention is given to the role of the accounting profession and government regulation in Australia. The paper concludes with a discussion of the professionalisation of financial planning in light of the increased pressure for changes in remuneration practice in the industry.

Keywords: financial planning; history; professionalisation; Australia

INTRODUCTION

Financial planning is still relatively new to academia and to date little research has been conducted in the growing financial planning industry. In particular, the financial services reform introduced in Australia in 2002 had a considerable impact on the industry and other groups such as the accounting profession, regulators, the financial services industry, educators and consumers. This reform and the consequential events have acted as a catalyst for professional, educational and research opportunities and prompted the consideration of financial planning as a profession.

Although financial planning is generally seen as a relatively modern occupation, this paper presents an alternative view, demonstrating that financial planning has been part of everyday life dating back to ancient times. This paper begins with a definition of financial planning, followed by a discussion of the historical origins of financial planning. The impact of social, cultural, institutional, political and economic factors are then examined to illustrate how the industry has developed and changed over time. The paper also reflects on the role of the accounting profession and government regulation in Australia. The paper concludes with a lengthy discussion of the professionalisation of financial planning in light of the increased pressure for changes in remuneration practice in the industry.

WHAT IS FINANCIAL PLANNING?

Both the Financial Planning Association (FPA) in Australia, as well as the Certified Financial Planner (CFP) Board in the United States provides a broad definition of financial planning. This definition explains financial planning as a process of determining how to best meet one's life goals through the proper management of finances/resources. A more comprehensive definition is provided by Warschauer (2001, cited in Warschauer, 2002) as follows:

Financial Planning is the process that takes into account the client's personality, financial status and the socio-economic and legal environments and leads to the adoption of strategies and use of financial tools that are expected to aid in achieving the client's financial goals.

This definition by Warschauer suggests that not only do financial planners need to possess technical skills but also require relational and strategic skills.

Financial planning involves a synthesis of a disparity of areas such as superannuation, taxation, estate planning, trusts, home ownership, investments, debt and risk management, social security benefits and annuities. These areas are considered as part of a comprehensive six-step process (adapted from Certified Financial Planner Board of Standards Inc., 2009) as outlined below.

1. Establishing and defining the client-planner relationship (service offered, remuneration details). …