2012 Household Financial Planning Survey Highlights Differing Interests Of CFP Board Versus CFPs, Documents America’s Financial Pain, And Shows No Increase In Financial Planning By Americans Since 1997 — But Planning Works

Friday, July 27, 2012 00:13
2012 Household Financial Planning Survey Highlights Differing Interests Of CFP Board Versus CFPs, Documents America’s Financial Pain, And Shows No Increase In Financial Planning By Americans Since 1997 — But Planning Works

Tags: Advisor businesses | CFP Board | financial planning | profession | Wealth Management

The 2012 Household Financial Planning Survey paints a grim picture of the American household’s financial condition and deals a dose of bad news for financial advisors. Sponsored by the Certified Financial Planner Board of Standards and Consumer Federation of America, the survey was last conducted in 1997, a much better time for Americans and advisors. Data documenting the deterioration in the American household’s fiscal wellbeing overshadow the main highlight of the survey results: that people with comprehensive financial plans are more confident about their finances, save more, and are better able to meet their financial goals.  

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“Still feeling the effects of the Great Recession, many American families today struggle just to make ends meet,” says the opening line of the executive summary.


“Our new survey documents the economic pain people are feeling,” according to the survey report prepared by Princeton Survey Research International. “In 2012, households where people live from paycheck to paycheck outnumber those where people feel financially comfortable (38% versus 30%). Fifteen years ago, when economic conditions were much more positive, these numbers were reversed — fewer people described themselves as financially struggling than said they were living the good life (31% vs. 38%).”


Other bleak statistics showing the pain people feel today versus 15 years ago: In 1997, 50% of non‐retirees expected to retire before they turned 65 versus 34% today; 15% thought they would not be able to retire before age 70 versus 27% today; 4% of those not yet retired thought they would not ever be able to stop working versus 15% today.


Conducted by phone in May, the survey was a random sampling of 1,508 households. The summary report divides the respondents into four categories of annual income: $24,999 or less, $25,000 to $49,999, $50,000 to $99,999 and $100,000 or more. The focus on lower- and middle-income households and the data present a compelling case for the benefits of comprehensive financial planning for the masses.


“Financial planning is often seen as a tool for the more affluent, but the survey provides strong evidence that those with modest incomes also benefit,” says the report. “Among those in the $25,000‐$49,999 income category, 46% of those with a plan say they usually pay their credit card bill in full each month, compared with 26% of non‐planners. The margin is 41% to 16% between planners and non‐planners in the under $25,000 category.”


However, the findings highlight an underlying problem for financial planning professionals. The CFP Board is a professional licensing body that must act in the public’s interest. As such, the CFP Board’s focus on the broad spectrum of American households is necessary, appropriate, and in line with its mandate to serve the public.


But where does the CFP Board’s mandate leave CFP professionals paying the Board’s $325 annual license fee?


The differing interests of the CFP Board and CFP licensees are highlighted by the survey’s findings.


As admirable as it is for the CFP Board to survey the broad population, it does little to help CFPs. Households with less than $25,000 or even less than $50,000 are of little interest to CFPs because practitioners have not figured out how to serve those individuals. In fact, many CFPs have no interest in serving households with less than $100,000 of household income.


Maybe the gulf between CFP Board and CFP licensees can be bridged as the Internet makes comprehensive financial planning possible for the masses. Then perhaps instead of 66,767 CFPs currently licensed, the CFP could be licensed by 100,000 or 150,000 financial professionals. But what would such growth do to the profession? How would it affect the income of CFP designees?


Perhaps the most troubling question posed by the survey to CFPs is why financial planning has not caught on with Americans. “The percentage of American families who have made a comprehensive financial plan — either on their own or with professional help — has not changed significantly from 15 years ago,” according to the report. “Overall, only about a third (31%) of decision‐makers today report having ever put together such a plan.”

Comments (3)

Good piece, the CFP Board has recently increased that renewal fee and the regulatory industry has added additional requirements for the industry. All this adds to the cost of doing business. We as CFPs need to survive and provide for our families, unfortunately spending too much time with small clients doesn't pay us. As a CFP this is still a highly regarded designation and I would like to see it stay that way without diluting it with people that are less qualified. Maybe a designation for a simplier, less affluent client base would be a better solution.Those clients don't usually need involved estate planning using trusts or extensive tax planning, it requires a fairly cookie cutter approach. Discipline, and cash flow analysis is more is important with smaller clients. In addition to adding some basic insurance. Keep the"CFP" as the Gold Standard", but get the message everyone needs financial planning!!
cbitzas , July 27, 2012
Good article and analysis. I think it might be more appropriate to say that CFP's haven't had a compelling reason to figure out how to serve true middle income clients.

However, we already can do plans for middle income clients at about $350. And we continue to refine our systems and processes, with an eye towards automating reminders to those clients to help them track their progress and complete tasks so that we can keep followup labor costs low.
bramsay , July 27, 2012
@ Andy - evidence that planning works? Never seen any such, aside from palliative outcomes in the client's feeling.

Is the key not that we continue (because that is the way a broker or dually registered rep must operate by FINRA compliance) to approach planning and the investment piece as separate? The investor perceives the two as unified, ie the reason why they invest.

Consider you are charging separately for a plan, then use Mean Variance Optimization to allocate investments. MVO is based on the Capital Asset Pricing Model, which assumes every investor has a singular goal - to beat the market at a risk adjusted level.

Disruptive technology will soon allow the investor to be their own planner (I mean really, those who are using MGP are you doing anything but just imputing client data?) with the asset allocation reflecting the goal.

Currently, the asset allocation sets the goal, so the investor is unable to perform simply planning on his/her own.

CFP still does not unify planning with outcomes, ie investment management. In fact, they claim the planning process stops before implementation.

RIAs can create a tremendous advantage by unifying the process with the client at the center.
brentb843 , July 27, 2012

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