When you think of the people who have influenced the planning profession with their passion, philosophy, and thought leadership, few people come to mind more quickly than Dick Wagner.
It was in 1982 that Wagner shifted his career from law to financial planning, eventually serving as principal of his firm through 2000 when he started WorthLiving LLC with the mission of focusing on relationships between humans and money.
Along the way, Wagner greatly influenced the profession through his volunteer work, serving as president of the FPA predecessor organization, the Institute of Certified Financial Planners (ICFP), and in various roles at FPA and CFP Board. In 2003, he received FPA’s prestigious P. Kemp Fain Jr. Award, recognizing his outstanding contributions to the profession.
When the Journal heard Wagner was releasing a new book, Financial Planning 3.0, we took the opportunity to connect with him to get the latest on what he, as a financial futurist, is seeing and predicting. And there was no better person to do the interview than another financial planning thought leader, Dave Yeske, DBA, CFP®, the Journal’s practitioner editor. –CS
1. Your new book, Financial Planning 3.0: Evolving Our Relationships with Money, tackles some very big issues for financial planners and the profession. What is the one key point you want planners to take away from the book? And what would be the one key point for academics?
For planners, I think there are actually two key points. One is that money is the most powerful and pervasive secular force on the planet, which speaks to huge responsibility.
And two, that we [financial planners] are generating the most important profession of the 21st century. I want people to wonder about that, but I want them to also be open to the possibility that this is a true statement; I believe it is.
It’s hard to embrace that, though. One of the reasons that’s a problem is that financial planning is very, very young as a profession. If you believe that 1969 was the first year for the profession, then we’re into our 47th year. That’s not very many years if you compare it to other authentic professions.
For academics, I’d like them to come away with the notion that this is a new area of study. Macroeconomics really got going after the American Civil War. What it is that we do in terms of working with individuals really only got started 45 years ago or so, and we were left behind by the macroeconomists. They ignored the individual—and our work is with individuals. We’re in the numerator business, and they’re in the denominator business, and until now we haven’t set the containers for what the numerator business in academia looks like. For courageous explorers, the field is wide open for helping academics achieve both fame and fortune.
What is the study of our relationship with money (which is how I would define the mission and purpose of financial planning)? What sorts of academic inquiry does that generate? What does that container hold? I’d like to see academics discuss what that container should include.
2. I want to circle back to something you said a few minutes ago, and something that you propose in your book: that financial planning is the most important profession of the 21st century. Why is that?
I first made that statement years ago in the speeches I made when I was president of the ICFP [a predecessor organization of FPA]. I put it in there as a method of thinking aspirationally about the importance of financial planning, but I’ve thought a lot about it since.
Our relationship with money is at the base of every positive human activity. It has to do with social justice. It has to do with providing support for all the technological and scientific advances that can and should be made. It has to do with being able to feed, house, and clothe a world that contains 7 billion human beings, and probably moving to 9 billion before the end of the century. Money is the best self-organizing force ever for enabling human beings to get along with each other in a peaceful and productive manner.
In my opinion, we don’t talk enough about money’s virtues and functions. We talk about income inequality, which is a fair enough subject, but I don’t know what it’s supposed to prove. If people have enough to eat and drink and stay warm and be sheltered, it strikes me that “inequality” is a rather specious issue. It’s perhaps more important to look at income sufficiency. Income sufficiency is something that financial planners can comment on readily.
We need to recognize that we’re dealing with something that affects every human being on the planet, and in very real ways. Everyone has to deal with the issue of money.
It’s not in the nature of money to ever be “enough.” It can be wasted; it can be spent. It’s key to a life well lived in the 21st century, and that’s a new phenomenon. Up until World War II, money and income weren’t as big a deal. Economic prosperity was a big deal, but it was not based on money the same way as it is today, where money is really the only source of, at some level, determining well-being and wealth. The whole concept of “what is wealth” is one that needs to be addressed as well.
3. Given what we’ve just been talking about in terms of the centrality of financial planning, the way it touches on every aspect of human life, do you think the CFP® certification exam needs to be updated?
I think maybe what needs to be updated are the attributes of a quality and qualified personal financial adviser.
And I think it’s not necessarily fair to have such a large barrier to entry [into the planning profession]. I established the subject of “finology,” and in my book I have a section that deals with subjects that could be addressed by finology. I think that it would be a mistake to make proficiency in all of those a barrier to entry for all people who want to come into the field of personal financial advice.
For example, I think lawyers have priced themselves out of the market to some extent with the unauthorized practice of law and being so careful to make sure that practitioners have passed the bar exam. You don’t really need to pass the bar exam to be able to help somebody buy a house, for example, or to engage in other transactions that have been taken out of the lawyer monopoly. It just didn’t make sense.
That’s not to say those can’t be complex, but do you need a license to do that? That’s a question, I think, that ought to be part of the conversation within the [financial planning] community. Should we start providing gradients for academic success, and should we be able to have a master’s and doctoral program that says that somebody’s got a little bit more than the CFP® [designation], or maybe a lot more than the CFP® [designation], for that matter?
What do financial planning academics really need? Is one exam a real barrier to entry, or should we have a higher bar to jump over be the barrier to entry?
I think that we want more quality financial advisers, not fewer, so I’m going to say that the bar shouldn’t be so high as to be insurmountable, but by the same token, we probably need to realize that academics are not necessarily the end-all and be-all of qualifications to be a financial adviser.
4. Just a minute ago you invoked the concept of finology. Not everyone is familiar with that. Can you define it and give a little history?
I’ve had a feeling for a very long time that we need different words to talk about issues of personal finance. Our garden of knowledge is expanding from securities and insurance and taxes to something that is both more complex and inclusive, and how do we communicate what that might be? I’ve spent the last 25 to 30 years, probably, playing around with different words Mostly, they didn’t work very well.
Finology sort of came to my mind one day, and I thought about it for a while. It’s the “ology” of finance, like the “ology” of earth (geology), or the “ology” of the body (biology). There are a lot of “ologies,” and “ology” means logic. We’re looking at the logic of personal finance.
My son, Jake, did a lot of work on this. We played around with different definitions for the study of money, and “finology” just works. The only problem with it is that people confuse it with “phrenology” and they want to rub your head. I try to be disciplined with saying finology with a very long “I.”
Finology is the study of money and value exchange. It’s fundamentally taking a look at different subjects through the lens of money, and then anticipating a department of a liberal arts college that is able to fiddle around with other departments and have courses of joint study or be informed by other subject matters.
I have a couple of examples that I use. One is the issue of literature and money, and could you have a literature course that was the literature of poverty—Dickens to Steinbeck. That could be a pretty interesting course for people to take. People’s eyes really light up when I use that example.
Behavioral finance is a different kind of a deal; it’s a subset of psychology and it’s about people using money rather than money itself. There are a lot of other issues around the psychology of money that we haven’t explored yet.
There’s no word in the English language that describes the relationship between human beings and money, which is pretty stunning when you think about it. Using money to exchange value has been part of humanity for thousands of years. That’s why I think I get mad at the macroeconomists, because I think they really set something in motion that has taken us 150 years to overcome, and that’s the notion of “human” being so limited.
Basically, human beings are described by economists as “homo economicus,” which posits a filament of a human being whose sole purpose for existence is to maximize his or her personal “utilities,” which is ridiculous. The economists who made fun of that know that it’s not reality, but by the same token, they haven’t really suggested a workable substitute.
Moreover, they believe money is value-neutral. Financial planners know, to the contrary, that money is value-laden. It’s something we really have to start asserting for ourselves amidst the insulting relationship we have with the macroeconomists.
5. In your new book you write, “For the most part, financial planning and financial planners … have not identified or acknowledged our mission and purpose.” What do you propose our mission and purpose should be?
The mission and purpose of financial planning is to work with individuals and families and their personal relationships with money and the fearsome forces that it generates.
There’s something about “fearsome forces”—it’s terrifying. I mean, it’s a quintessential challenge of the 21st century: just try to survive with this money stuff. People do something that’s really hard, which is to anticipate their needs of the last 20 or 30 years of their lives. Now, how do you do that? You have no idea what your health will be, you have no idea what your date of death is, you have no idea how long you can continue to earn a living.
Part of what financial planners need to grasp is most of us don’t have a good source of original knowledge about money. Our parents didn’t have good exposure to money, and their parents didn’t have good exposure to money. We baby boomers, my cohort, are the first generation who have really lived our lives in the context of money, and there has been nobody to teach us.
6. You also write that we confuse money with wealth; that those terms can sometimes be interchanged, but they are not synonymous. How should we think of them each more distinctly?
I think that wealth is the quality of life, the stuff that makes life worth living. You can be wealthy without money. It’s important to have a sense of perspective on this.
We can confuse money with wealth, but typically, people with a lot of money aren’t necessarily happy, and people without a lot of money can be happy.
We need to be careful how we look at money and wealth. We need to think about it more broadly and be careful whom we envy. I would ask those people who have sufficiency: “Would you trade lives with somebody who’s on his deathbed who has large account balances, or somebody who’s going through rehab who has large account balances?” Money can be a ticket out, but there are a lot of ways to screw it up, pure and simple.
How many people do you know who have been happy their whole lives, and then they go through a dark night of the soul in some form or another? There are things that test the mettle of a human being; it’s part of the purpose of life to go through these issues. There’s a reason that money and money-related topics are the second-most popular topic in the Bible; these challenges are not new. People have had to learn to live with envy and greed.
7. I want to ask you about something I have been talking about for 25 years, and that is this notion about financial planning becoming a profession, or perhaps already being a profession, and sometimes wondering what it takes be a profession. Do we need to reframe the question: “Is financial planning a profession?” If so, how?
Well, I think we need to be careful what we call financial planning. That is, perhaps, the most difficult issue we’re facing. I think financial planning done right is, in fact, a profession, but there are an awful lot of people who are calling themselves financial planners who fall a bit shy of that standard.
We have the “Industry,” but I use Industry with a capital “I” to indicate all the financial services, including companies dealing with insurance and securities. Certainly, insurance and securities do their best to confuse the public about what it means to be in a financial planning relationship.
Unfortunately, we all say the same thing, and we all wear the same suits and have the same haircuts. It’s difficult for the public to trust an individual, and so they get to know them well enough to have been, frankly, abused by them.
I wrote an article [in Financial Advisor] about a year ago that talked about this. If you go to a party and somebody says, “There’s another financial planner on the other side of the room,” what’s your immediate reaction? Is it, “Yikes, watch out for your wallets,” or, “I’m going to find a good person to talk to about professional issues.” I know what my immediate reaction is, and it’s not about professional issues.
I was at a meeting with fellow CFP® [professionals] last Friday. Now, I was also part of the original [CFP Board] code of ethics committee back in 1980 when we had conversations about what should be in the new and improved, revised code of ethics. Last week, I knew a few people in the room but not most. Yet, the conversation was identical to the ones we had in 1980. That’s a little sick. You’d hope that people wouldn’t be having the, “Yeah, but those fee-only guys are elitists,” or “It is okay to move from advice to sales without warning” and, “Yeah, but if you impose that fiduciary standard, then poor people aren’t going to get served; they’re not going to have advice” conversations. Have you seen some of the garbage product that’s sold to some people? They don’t have advice now.
8. In your book you take issue with using the word “soft” to describe the interior work of financial planning. Why is using “soft” a problem?
It’s a problem because it’s used as an insult; “soft” as opposed to allegedly “hard.” It’s said with a sense of superiority, “We deal with hard stuff.” Well how hard is it? When you look at economics in particular, a lot of it is a bunch of nonsensical economic formulas, and a lot of them are pretty easily disproved as to their accuracy. I’m a Steve Keen fan. He’s an Australian economist who has irreverently dismantled certain assumptions that economists use to mathematically predict or analyze economic behaviors.
The funny thing is, and you may disagree with me on this, but it seems to me that no financial planner has proven an ability to consistently beat the market, and yet many seem to suggest that somehow or another we’re dealing with the “hard” job of investing portfolios; I don’t think it’s hard. I think we’re speculating.
I have three rules of financial planning: save more, spend less, and don’t do anything stupid. Saving more and spending less are the two keys to building financial wealth and not doing anything stupid is the way of keeping it. It seems to me if you can manage that, you’ve done pretty well for yourself. Not doing anything stupid takes in a lot of turf, and it’s not a rule that I concocted because I somehow was immune to its effects. I’ve done my share, paid my dues. It’s something that we ought to take to heart.
I once heard that the definition of idiocy is taking a risk you don’t need to take in order to accomplish the goals you want to accomplish. Somewhere in there is the quintessential duty of a financial planner: to advise people on how to make decisions that are suitable to their goals and without the risk that jeopardizes those goals.
9. Let’s talk about something that has been in the news lately and will be for a while. At one point in your book you write: “Fiduciary advisers may operate in the same sector—i.e. money— as the financial services industry. But we are not it. We’re, in fact, on the opposite side.” What role does the fiduciary standard play in the practice of financial planning?
I think it’s important to understand that there are two kinds of fiduciaries. One is absolutely representative of the financial services industry, and that’s the custodial fiduciary where, essentially, an individual hands the custodial fiduciary a certain amount of money on the notion that when certain conditions are met, that money will be returned, sometimes with an addition, and sometimes with a subtraction, but it’s the job of the custodial fiduciary to keep those promises. By that I mean banks, and trust officers, and brokerage houses.
It’s a very big deal to hand your money over to somebody and believe that you’ll get it back for sure and for certain, and that there’s a whole industry built around that. They keep those promises very, very well. But they’re not necessarily in the business of providing advice.
The other sort of fiduciary is the relational fiduciary. This just drives financial planners. Our job is to put the client first and serve his or her interests. I am a common law guy, and I like words like “reliance,” and “confidence,” and “acceptance of responsibility” … “a relationship of trust and confidence wherein one party relies upon the honesty and fairness of the other, who is in a position of superior knowledge.” That, to me, is the essence of a common law fiduciary relationship, and I think that’s what we’re trying to get to with the work by the Department of Labor.
The Department of Labor fiduciary standard is about holding somebody’s best interest to heart. I find words like “best interest” to be pretty ambiguous, so I’d rather use “trust” and “confidence.”
I think they’re better words, and there are centuries of case law behind them.
I think it’s the job of industry to make and sell, and it’s the job of an adviser to recommend and counsel, and those are not the same jobs. I think that industry makes some darn good financial products, and we need to be grateful for that. We need to acknowledge that they’re experts at it and appreciate the work that they do. That being said, I think we need to know that there’s a difference between making and selling, and advising and implementing. I don’t see an inherent problem with financial advisers getting commissions; I think there’s a problem with commissions being the primary incentives for salesmen masquerading as advisers.
Advisers need to advise, not sell. We’re dealing with the essence of somebody’s ability to live their lives comfortably and completely for the duration of their lives, and it’s a huge and awesome responsibility.
10. In 1990, the Journal originally published your seminal essay on the role and responsibilities of financial planners, “To Think … Like a CFP.” You proposed then that in order for financial planning to be respected as a true profession, CFP® practitioners must “think” as professionals. It’s been 26 years. Have we made progress?
Oh, yeah. I’m really proud of the profession in a lot of ways. We have the FPA now, and we have people who are achieving doctoral degrees in financial planning. Some of the departments at Texas Tech, Kansas State, Virginia Tech, Georgia … there’s some really exciting exploratory work being done, and from what I can tell, people who come through those programs are highly regarded by their employers.
I think there are good people involved in financial planning, some of the truly finest people. For the most part, we are inclusive, we are loyal to the client’s best interests, and people put together great firms.
The ways of getting paid are better. Even though I think AUM has issues, it’s certainly better than 100 percent commission structures like we had back in the late ’80s.
The reason the new book is titled Financial Planning 3.0 is 1.0 is what is taught in schools with product and the exterior, and 2.0 was life planning as George [Kinder’s] work really began to take hold in the ’90s, and a lot of us got involved in life planning and piecing together the exterior with the personal. For 3.0? Read the book.
For what comes next, it’s: how do we play in the public environment? How do we accept responsibility for being an authentic profession that has something to contribute to the public dialogue? We need to make sure we don’t do liberal and conservative, we don’t do left and right, we don’t do Republican and Democrat—there’s too much conflict involved in all those things. We do have to say we want the best for our clients. We want to create an environment where people can relate to the fearsome forces that money generates in a healthy and productive manner. We want to look at ourselves in the mirror and say, “We’re worth it.”
Dave Yeske, DBA, CFP®, is managing director of Yeske Buie and serves as practitioner editor of the Journal.