History of Financial Planning

The financial services industry has undergone significant changes over the years, particularly in the last decade, and continues to evolve today. Financial planning - a distinct element within the spectrum of financial industry services - is still relatively young. But it is an increasingly important part of the service mix Canadians seek to maximize the potential of their hard-earned money.

Professional financial planning takes a holistic approach to an individual's financial life. A qualified financial planner will consider a client's goals, stage in life, personal circumstances and risk tolerance. They will make recommendations for growing and preserving wealth, minimizing tax, estate planning, insurance - and more, depending on the individual they are working with. In some cases, this same professional will be involved in executing some of the recommendations (e.g. sell specific products). In other cases, these transactions will be done separately with other professionals.

It wasn't always like this

Historically, there were distinct divisions within the financial services industry. You went to banks to save your money or to get a loan. You bought stocks and bonds from a broker. You purchased insurance from an insurance agent and mutual funds from a mutual funds sales representative. The regulation of the industry reflected the division of these transaction-based services, commonly referred to as the "four pillars."

However, as the aging Canadian population began to fear the increasing erosion of their discretionary income and retirement nest-eggs, and as their faith in the ability of public pension and health plans to meet their future needs waned, they began to seek more holistic, less product-specific advice from their traditional financial service providers. They began asking how they should plan financially for their retirement or for the cost of educating their children, not knowing how a decision about one aspect of their financial affairs might affect another. Unfortunately, in many instances, people confused transaction-specific advice with holistic financial planning. To a great extent, many consumers still do the same today.

Pillars are gone but some confusion remains

Over the last 10-15 years, the distinctions between the pillars have faded. Recognizing the market demand for more holistic service and specifically more holistic advice, the industry players saw opportunity to expand beyond their original turf. Most now offer a mix of products and services.

Today, financial service providers or intermediaries can wear many hats: They can be salespersons, advisors or, in many cases, a mix of the two.

This can be convenient and efficient at times. But it can also create some confusion - especially when trying to decide who is best qualified to offer the kind of service you need. Even knowing what kind of assistance you require is difficult.

Because of the various roles financial intermediaries may play, today the consumer must be increasingly more diligent in understanding what service they are buying. And while many intermediaries will clarify the distinctions between what they are and are not qualified to do, some do not.

Designations for different roles - and questions to ask

There are many designations that distinguish the various services a professional is qualified to deliver. For financial planning (looking at the whole picture), the Certified Financial Planner® (CF®) designation is considered the highest standard in Canada and internationally.

Nearly 17,000 individuals in Canada have earned the CFP designation and about the same number of students is currently working towards this designation. Internationally, there are now more than 100,000 CFP professionals.

Many CFP professionals also hold additional designations and provide a range of services that can include financial planning as well as selling various products. Clarifying what role the professional is playing in servicing your financial needs is important. A list of questions to ask your financial professional will be helpful in understanding the parameters of the relationship and services to be transacted. See 10 Questions to Ask Your Planner.

Burgeoning industry

With volatile markets offering a growing array of investment products to confused aging boomers who have changing financial needs, the desire and need for professional financial advice is growing exponentially.

An increasing number of post-secondary schools are offering courses to prepare students for careers in financial services. Today there are more than 89 programs offered by 67 education program providers preparing students to write the CFP examination, a requirement of CFP certification.

The CFP professional statistics FPSC has been gathering for the past five years indicate that more than one-third of CFP professionals are now over the age of 50. This means there will be room for and a need for a new generation of professional planners in the years ahead.