Real People, Real Plans

In the financial world, comes news of recessionary prospects created by taming inflation and the inevitable “what’s next” question from clients of financial planners and wealth managers who hope the advice they have purchased will help them navigate the stress.

In the academy, some university undergrads have a financial planning competition beginning soon. A hypothetical case study. The CFP Board invites competition among a select few of the bright minds. That is, the competition is “designed exclusively for undergraduate degree programs registered with CFP Board.” Unfortunately, there are relatively few academic institutions that offer a “transcriptable” curriculum in the area. Last year’s competition winners were from Utah Valley University. Kansas State and Texas Tech feature among past winners.

The CFP credential carries weight in the market to sell financial planning products and services. It doesn’t carry much weight in the broader academy. Most CFP-credentialed programs connected with top universities are a quiet sideshow attached to continuing education. Universities make a little money, offer the courses taught by people in the business, and certificate earners advertise the university-affiliation on their LinkedIn page. Think about that.

There is a higher importance and one of the making of every university continuing education group that sells certificates: students and interested third-parties value them! They use them in their work environment for promotion and often carry a university’s brand name on their CV.

I have tried vetting the CFP curriculum but the offerings are extraordinarily opaque. Notable, and one of my pet peeves, is that my own university’s continuing education administration cannot ever seem to locate a syllabus for the CFP course content. After all, I am curious and have an educated eye toward the topics that ought to be covered. Is economics involved beyond portfolio theory? Modern portfolio theory is rigorous but financial planning training can be soft. The terms “advisors” and “planners” have been captured by those with products to sell.

Subscribers who value their relationships with a PWM or are seeking the advice of a planner who advertises their services might benefit from knowing how their advisor is trained and continually trained. In addition, if I am a student thinking about a career in the field, I’d want to know the course content and how I can be successful as a planner. Income tax law, estate planning, and employee benefits have complex institutional details. How does a CFP curriculum compete in rigor in these specialized areas with a CPA exam or law school? I am betting it falls short.

The CFP lane is financial planning and what does financial planning mean to the CFP Board? What is the theory and where are the decision tools? Reasonable questions to be answered because there is an education mission involved that is relied upon by financial planning clientele and those who want some occasional good financial advice. “Better talk to a CFP” doesn’t carry the same weight as “better talk to a CPA” if you have a tax question.

Where do the CFP’s exist?

You may be looking to identify a financial planner or wealth management advisor. How do you find talent? Word-of-mouth may lead to the credential weighing of the candidate. That can be problematic in the financial planning sphere because there are many different views of what personal financial planning means. Credential Hysteria. While I have offered subscribers a solution to the Monte Jackson problem, maybe the right person with just a CFP credential could help you blade through the snow. The CFP is the recognized credential. Can you find one?

Here is some perspective. The CFP Board reports more than 96,000 CFPs as of May 1, 2023. To give this some context, the Bureau of Labor Statistics estimates there about 280,000 “personal financial advisors” and estimates there about 450,000 "insurance sales agents." I did a quick look at CFPs per capita by state.

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Across the U.S., there are, on average, 2.7 CFP’s per 10,000 population. The median is similar. Colorado comes to the top of the list and is also the home of the College for Financial Planning. Nearly doubles the average CFP concentration. Southern and less wealthy states are at the bottom. Minnesota is a surprise to me because net migration losses are showing up in the middle class of that state and the wealthy are running. If you want the full list in an Excel file, let me know.

Regardless of whether you live in a locale with sufficient CFPs, good planning should be accessible. My recommendation:

Important is that the planner is fee-only. Place importance on NAPFA membership and an education, liberal or specialized, from a quality university. Using the CFP to help sift is reasonable.

And keep reading Personal Finance Economics :)

Real People, Real Plans

Case analysis and competitions are common place in business schools. The intellectual exchange, skepticism about new ideas that vet the new ideas, and mutual learning paths are good for the environment. There are winners, also rans, and underperformers. The best-in-class will not be chased by the local car dealer’s NIL money, but we all benefit from a healthy exchange of solutions. The CFP Board is doing their part to promote idea exchange through their annual case competition.

There are practical reasons to use hypothetical cases to mirror the real-world. Comparability in a case competition is one. Imagine if you could apply the principles to a real-world case? A thousand times I have heard or read remarks from practitioners that universities don’t do that. Unfortunately, universities feed the pig. From the SMU continuing education site:

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"...you will learn how to apply the academic content in practical, real-world scenarios." But wait! Business schools are about applications and most disciplines have economic theory as their foundation.

Each semester, my SMU undergraduate students apply the techniques of economics-based financial planning to real households. Last week I received 65 financial plans constructed by undergrads for individuals or households with minimal up-front requirements. The “client(s)” have a full-time job and have moved into life without the shelter of parents. Extraordinary is the diversity of my students’ client list. I get plans for more than other twenty-somethings. The map below shows a small sampling of a few actual clients grouped by state and occupation.

A low-income worker in California trying to make ends meet. A middle age working mom with kids. A successful older artist in the entertainment industry. A youngish friend in fashion in New York City. Typically, friends, sometimes siblings, and other times friends of the family who give private information to benefit my students and themselves. The focus: a plan that achieves the highest level of lifetime living standard that considers all the inputs from investments to preferences for educational funding and retirement planning.

Those occupations listed in the map above are about 20% of the client makeup for this semester. We’ve all been students at some point and it wouldn’t be much of a sales job to convince subscribers that there is variation in the quality of the financial plans, the quality of the interpretation of the findings, and the implications for the client-household. Like students who attend universities with a financial planning degree, there is a continuum of talent and curiosity.

An important point: for those students who want to learn about economics-based financial planning, actual households matter more than imaginary ones.

Before any analysis is undertaken I ask students to ask their clients to approximate their annual discretionary spending because few of us think about it. Beyond basic food, shelter, and clothing, how do you sum up in dollars your spending? When pencil is put to paper, that simple question invariably leads the household to some committed thinking and insight. The client has already benefited from the process. Most important though is how the client achieves their optimal living standard. My students’ model that with economic principles and software that can handle a very complex question. Great financial planning requires full information from the client and great financial planning inevitably leads to spending and savings recommendations and a real discussion about what the household prefers. Curious students come back to me during the planning process and ask about the details of the executed solution and financial plan. “Did I get it right?” “How do I model a vacation home?” In the real-world, there would be more runs of the software , client questions, and give-and-take, to green-up the brown spots. In my world, the semester clock runs out.

You may know of students who want to know more about financial planning and building a career. You may have friends who want a resource to help them with their financial literacy. Invite them to join us.

1. Using 2022 population estimates from the U.S. Census Bureau and May 1, 2023 data from the CFP Board.

2. This promotional approach is not unique. Many universities have an affiliated certificate program for the CFP.