Why Is Financial Planning Not Working?

Financial Heretic

If something is not working then it is normal to think it is broken. Or we can determine if it ever worked in the first place. So let's ask the question did financial planning ever work in the first place?

How do we know it doesn't work? Just look around and ask the question, if financial planning works then why are so many people out-living their wealth. Why are so many good people hurting financially and living longer than planned? Why does financial planning even exit? How did it get started?

When we look at the brief history of financial planning we have to go back to before the Great Depression to understand how it evolved. If you want to see a timeline of the history just go to this link https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781119203124.app2 and see how the financial planning industry evolved.

"One can trace financial planning education to 1862 and the passage of the Land-Grant College Act of 1862, or Morrill Act. Land grant universities were intended to foster advances in agriculture and industrial arts in order to bolster the economic vitality of the nation. One of the departments that developed in the late 19th century was Home Economics, first aimed at providing instruction in the economic management of the farm household, but later expanded to include the economic management of any private household. From the earliest days, the field encompassed a wide range of social and technical topics, including nutrition and food science, personal finance, family household management, and consumer behavior. Home economics is now more generally known as “family and consumer science,” or less frequently, “human ecology.” Many university financial planning programs today that are registered with CFP Board arose from this source, shifting their focus in the 1980s toward educating professional advisers rather than “home economists.”

"The first undergraduate financial planning degree program aimed at educating professional advisers, a bachelor’s degree in financial and estate planning, was created by Robert Bohn at Brigham Young University. This was followed in 1980 by graduate programs at Golden Gate University (master’s in financial planning) and San Diego State University (master’s in financial services). Throughout the 1980s, more programs arose in business schools and family and consumer sciences departments, and by 1987, the IBCFP could report that 20 universities across 14 states had registered their programs with the IBCFP." * https://www.financialplanningassociation.org/article/journal/SEP16-concise-history-financial-planning-profession

As you can see financial planning stems from planning for farmers and understanding the agrarian community. Years ago schools had courses like Home Economics which taught students how to run their homes efficiently and learn how to do many things centered around the home and farm.  

For older folks, they can probably think back to when the High Schools offered Home Economics as a course of study. Many planning tools came out of the agrarian way of life. Back in Communist Russia, they used the term Kondratieff Wave to predict long-range technological growth cycles in farming.  Many connections can be made to the agrarian industry in referring to planning of any sort. With our thesis being financial planning and how it's broken we will limit our discussion to the financial aspects of a planning process.

Like any planning process, everything has to be considered to make it viable. Financial Planning is supposed to give peace of mind to the client, but because it uses the 4 basic laws of the financial institutions as its basis it is hard to get a non-biased view of existing problems. There is no process that the financial planning follows, only suggestions given by the planner. The whole basis of financial planning is that the planner is in control of what is suggested, which is a micro view that offers no solutions in macro.

Owners of their wealth need to be in control but financial planning has morphed into the planner being in control and removing the individual from the process. Loosely put, there is no structure behind the planning process therefore the planner is guided by his or her witts and income.

Without a Macro process, many problems go unnoticed and end up costing the client dearly consequently leaving the client in a void later on in life. When products are placed above process the consumer will always lose.

The only way to make sure the client is on track is to use a macroeconomic, dynamic model. This will enable the client to understand where negatives occur and fix them on the fly. A macroeconomic model will uncover many inefficiencies and enable the client to fix them before they happen. This model is called the Leap Model and is shunned by many planners because it takes the control out of the hands of the planner and puts it in the hands of the client. Clients can see the problems in a simulation fashion and how to fix them.

When the financial planning process started it was macro in nature but over time it became micro with the financial planner not understanding how everything fits in a big picture, they became more product-focused. This was caused by the financial institutions in their quest to sell financial products through their financial sales.

Home economics was a balanced approach balancing all external events together such as do I buy a new tractor with the cash flow, and how do I increase my cash flow with a new tractor. Will my insurance cover my loss of the new tractor and allow me to let others use it. The agrarian community  knew that everything had to be coordinated together not stand seperatly. The financial community focus on one product and expect it to do everything financially when years ago, before financial planning, everything was part of the focus and how it all works together.

This being said todays practice has to be focused on the macro instead of the micro. Process has to take precedence over product and negative variables need to be removed and put to growth. It's not hard but financial planning will not do it. Financial planners are not equipted to do it and following its process will lead to financial failure.

The only way to get this done is through a macro economic model and the best place to find it is to go to the LEAP System. It can be found on the internet or give me a shout and I will help you find a Leap consultant.