US financial planners look for yardsticks

The problem with a young field like personal financial planning is that there are few precedents. Each new rule often springs from nasty events like conflict-of-interest or bungled investments. What exactly is a financial planner? And how should he or she make money? Deep in the heart of this industry (as several of the Monitor's ``Personal Finance'' articles pointed out last month) those questions are being asked.

At a meeting of the Financial Analysts Federation here last week, the debate arose once again in a session entitled ``Personal Financial Planning -- Miracle or Mirage?'' Planners generally lamented the lack of formal academic training in their field, the lack of regulation, and the biases of planners; and they pondered how fees should be assessed for services.

One problem, says Prof. Frederick Amling, professor of business finance at George Washington University, is that ``the home economics department is the place where personal finance is usually taught.'' Business schools, he says, have not treated it as a ``mainstream'' subject.

In today's financial environment, says Thomas W. Foley, vice-president of Planners Financial Services, ``the do-it-yourself approach'' is virtually mandatory -- ``but schools don't teach you about this.''

Mr. Foley notes that US demographics have changed radically since the 1950s, when most American families had a house, two children, a dog, a car, and something in savings. Tailoring financial plans is imperative today, he says.

And yet today, the financial planning profession has split into two camps:

Many people have simply hung out a shingle, calling themselves planners; they are only mildly regulated, but they have the advantage of being independent.

Those with large firms -- typically brokerages or insurance companies -- don't have to charge high fees and are often licensed stockbrokers or insurance agents, but they have their company's products to sell.

Foley and Ronald M. Shapiro, president of Personal Management Associates Inc. of Baltimore, agree that financial planners should be independent and should be compensated by client fees. But they admit that is the ideal.

``Financial planners must achieve independence,'' Mr. Shapiro says, ``although the dilemma is that the fee structure does not support the level of services.'' Below the $70,000 to $75,000 income level, says Shapiro, the market is very limited, and there the package deals, such as Merrill Lynch's ``Pathfinder,'' must suffice.

Shapiro notes that financial planning is available from banks, brokers, independents, and insurance companies. He favors independents but wants to see more certification, testing, and self-regulation. Not only must financial planners support themselves, Shapiro notes, but malpractice insurance is a growing need.

Foley sees banks as the emerging financial planning source: ``They have trust and they have bricks and mortar, although at this point they don't have qualified people.'' Banks, however, can have salaried employees to do financial planning without pushing exotic investments.

Both planners see the era of computer programs that plan one's finances as having passed. Software can help with tax projections, budgeting, and savings, but highly sophisticated plans, says Shapiro, have not proved desirable.

The only real regulation of financial planning comes via the federal Investment Advisers Act, and both men call for self-regulation along the lines of the National Association of Securities Dealers.