March 2020 Newsletter: Developing Financial Planning as a Profession

When we discuss the professionalization of the delivery of financial advice, we often discuss fees, minimum education requirements, and obligations to clients. One of the significant items missing from the discussion is a robust body of research. Four years ago, my eyes were opened to the extent to which I was missing out on this topic. Every year, the CFP® Board, the entity that licenses the CFP mark in the United States, hosts the CFP Academic Research Colloquium. This Colloquium highlights the latest financial planning research.

Those of us who have only ever been exposed to the Canadian market are likely missing out. While there are a small number of excellent researchers at Canadian universities (Chris Robinson, Jodi Letkiewicz, Bonnie-Jeanne MacDonald, and Moshe Milevsky all come to mind), the lack of graduate or PhD programs means that there is no faculty dedicated to supporting keen minds as they engage in financial planning research.

On the other hand, our counterparts in the United States have several excellent graduate level programs that produce wonderful, practice-oriented research. Texas Tech, Kansas State University, The Ohio State University, and University of Georgia routinely have multiple students presenting fascinating and useful research at this Colloquium.

I am on my flight home from this year’s Colloquium as I write this article. I had the opportunity to attend sessions describing 17 different pieces of published and unpublished research, plus to discuss research with the authors of several other papers. The research I was exposed to this year covered behavioural finance, fund manager rankings, investment risk tolerance, financial stress, perceptions of value of financial planning, retiring with debt, family violence and its impact on household finances, minority groups’ access to financial planning, and a range of other topics.

One of my favourite things about this conference is the effort these researchers go to in order to validate or challenge the assumptions that we all hold dear. Two examples of research that we saw at this year’s conference that challenged conventional financial planning wisdom were:

• One study that suggested that, while automated savings are best for those who don’t have a natural inclination as savers, for those who are good savers, allowing them the decision to save regularly resulted in greater savings.
• A separate study suggested that for those who received financial windfalls (‘positive shocks’ in economics language), those who were carrying punitive debt and low credit ratings were most likely to use those windfalls to improve their financial situation. The researcher suggested that, while there might be a perception that poor decisions led to these folks being in the worst financial situations, the fact that they made the best set of decisions when dealing with a windfall might suggest that it was bad luck more than poor decisions that landed them in that situation.

As happens every year, I leave this conference awed and humbled. There are so many brilliant young minds working to make the practice of financial planning more based in research and to help us all move away from the biases and heuristics we rely on, given that financial planning is still only a little more than 50 years old.

Errata: There were two errata from the February newsletter:

Thanks to astute reader Delilah Dushenski B.Comm., EPC, CFP® of Calgary, who was keen to notice that I put the wrong date for the filing of 2020’s tax return. It should have read “April of 2021” rather than “April of 2020.”

Also, Paula MacIntyre CHS pointed out that the comment about an OAS clawback in this scenario is not relevant.