For four days, 250 dedicated and passionate independent financial planners from across the globe are gathering in Palm Springs, Calif., for the 2009 FPA Retreat. Unlike other industry conferences, Retreat is known as the haven for energy, education and, of course, debate. It’s no surprise, then, that it is many advisors’ favorite conference. Some of the biggest names in the business are here discussing the most pressing issues that are shaping the financial advisory industry in this remarkable time. Here is a taste of what’s been happening here in Palm Springs.

Opening General Session

In the opening session, cultural anthropologist Jennifer James asked, and addressed, one very important question: Why do we hold onto the myths that affect our thinking? These myths, James says, can be everything from Americans’ former belief system that witches shall be hunted and reprimanded to our more recent prejudices against minority populations in our own country. It is these myths, James points out, that inhibit us from growing and changing and, most importantly, from adapting to the inevitable shifting environment around us.

She asks the members of the audience if the fastest-growing immigrant group in their area are their clients. The audience, of course, mostly shook their heads before James pointed out that these are the clients of the future. She also emphasized the important of financial education today, courageously stating that if we aren’t teaching children economics beginning in the fourth grade, then we’re not teaching children.

But all in all, James came back to one crucial point: the world is changing and the human reaction to change is fear. That, she says, is exactly what financial planners are being forced to deal with—frightened clients who fear they will no longer be able to retire. Now is the time to reach out and help them, giving them a story they can understand, a path they believe in and a set of values they can count on. “The country is hungry to understand how money makes money,” James said. “Go out and get clients. Now is the time to listen to your clients’ values—you need to be able to hear what your clients are saying in terms of values. They want authenticity and someone who is genuine. The same old role models won’t cut it. Tell them a story they can believe in.”

The Future of Financial Planning

This session delved into the discussion over where the industry is heading. It was revealed that the average age of an FPA member is 55. With that said, this session talked not only about the future of the profession as many advisors begin to transition their practices, but also about the next generation of advisors who are coming out of university degree programs ready and eager to begin a career in financial planning—or are they? Panelists Sheryl Garrett, president and founder of the Garrett Planning Network; John Guyton, president of Cornerstone Wealth Advisors; and John Salter, assistant professor of personal finance at Texas Tech University in Lubbock discussed.

Q: What do students of the financial planning profession need to do now?

Salter: Our students do back office work, pro bono work, and learn the different types of software (planning, CRM, portfolio management). We also have courses in working with people and counseling.

Garrett: How do we motivate clients to do what’s in their best interest? We all know how to eat right, but do we do it with regularity? No. We all have the same basic skill set, but we’ve become so narrow-minded about finding the answer that we forgot the question—which is how to get our clients from here to there. But if I can be the accountability coach, and get intimate really quickly to the point that they don’t want to let me down, well then that’s great.

Guyton: The old skills that used to work aren’t the only ones that are needed anymore. Clients want us to be their guide, and that relationship is going to be evermore the key.

Q: Do we need to move toward more of a partnership relationship with our clients?

Garrett: The feeling of a partnership role is absolute, but I’m not sure actually taking each step with them is necessary—maybe more like a check-in role. It can be delivered in different packages based on need, but all clients do need to feel like partners with you.

Guyton: [Having a true partnership with clients] would cause us to say to our clients what we don’t know, and that can be scary.

Garrett: It was liberating to me to admit that I didn’t know but I’d find out. That made me someone who will be their advocate no matter what.

Q: Where are students going? What can we do?

Salter: We’ve had more jobs than students. Most students want to go into small RIA firms.

Guyton: What you can do is have a path where these students can see that they’re going to have an impact on clients in meeting their goals. It’s critical; otherwise disenfranchisement can occur more quickly than we care to admit.

Q: What do you see as the future of business models?

Garrett: We’re going to see more business models tailored to fit clients’ needs. I see the compensation structure of getting paid for specific products fading as more holistic financial planning becomes more needed.

Q: Should we look into group activities with clients, especially younger clients?

Garrett: I love it. I did some. I think it’s comparable to Weight Watchers, which was and is successful due to peer support. Having training/study groups is a wonderful way to leverage and to tap into a huge segment of the population that we don’t usually get to tap into.

Q: Should we specialize? And, if so, does it only make sense to specialize to the high net worth?

Guyton: The more specialized a firm is, the higher the internal cost to the firm, so it makes sense that they want to charger higher fees for that service. Carve out the capacity; maybe some clients don’t fit the revenue model right now, but they will in a few years.

Carolyn McClanahan: What about making a residency program for CFP’s to have a career path from the beginning. We need to create a clear path for these students in the form of a residency program, much like that of physicians.

Garrett: One thing I’ve heard some talk about and I know the government is seriously considering right now is a financial planning corps, much like the Peace Corps, where we set up in communities that need us and people could walk in and get assistance. The advisors could get a salary by providing walk-in counseling and services.

Financial Planning Coalition

Just nine short months ago, the Financial Planning Association, the National Association of Personal Financial Advisors and the CFP Board have come together to form the FPA Coalition. Today, the coalition came to the conference to reveal the progress they have made in Congress to create a single body of oversight for financial planners subject to SEC oversight. Richard Salmen, president of the FPA; Marilyn Capelli Dimitroff, chair of CFP Board’s Board of Directors; and Diahann Lassus, chair of NAPFA discussed the progress and obstacles they see in their fight.

Lassus: There is no rulemaking authority for financial planners presently. We want to establish a governing body of federal oversight for financial planners. The board would be subject to SEC oversight. This would be regulation for individuals—not firms.

Salmen: FINRA is ill-equipped to regulate planners. FINRA evaluates the suitability of investment productions. This oversight body would oversee the client-advisor relationship. The CFP Board would be happy to designate an oversight body. We are looking to regulate individuals, not firms. The board would have the authority to force someone to cease and desist practicing, much as lawyers or doctors are disbarred.

Capelli Dimitroff: FINRA’s record of using rulemaking authority to benefit consumers has been mixed at best. FINRA doesn’t have the skill set or the experience to do what they need to do. They are focused on the distribution of products and not the delivery of service. The board would set a standard of care. And while CFPs and non-CFPs wouldn’t be held to quite the same standard, they would be held to at least a base standard.

Salmen: For the first time ever in presidential speech, President Obama mentioned financial planning in a speech he gave in Florida.

One financial advisor in the audience had this to say: “It’s a dream come true to see the three of you come together to do this. In some sense, you’re going to war. When do we come out with our hand guns marching?”

The State of the Global Economy and Capital Markets: Where to From Here

Stephen Wood, senior portfolio strategist with Russell Investments and a PhD, provided insight into his outlook for 2009, his opinion on when we will rebound from this recession and the repercussions he sees all this mess will cause.

“Behavioral finance is now neuroeconomics, and it teaches us that the core problem of investing is the investor,” Wood says. “We need to figure out how to get clients to be as least active as possible.” When asked how he believes we will be get out of this recession, Wood responded with simply: “Chamerica.” He expects that China and then the U.S. will lead us out of the recession, with the Chinese market having already seen its bottom sometime between November of 2008 and February of 2009. The U.S., he says, will probably bottom at the end of this year and will come out cyclically with third quarter growth likely to be flat, following two quarters of contraction this year. “This will end up being a 25-month recession,” Woods predicts. “Post Lehman Brothers, we saw the whole global demand reset. Boomers will be introduced to actually having to save money. They will have to realize that houses are terrible investments. We’re going to move into a frugal consumer world, and we’re going to be there for a while.” Woods does point out, however, that the economy is deteriorating less quickly today than it has been. He also appeased some with his opinion that inflation will not be a problem in the next one to three years. “In three to five years, though, we will deal with inflation—and we better. If we don’t, we’re Japan.”

Start With the End in Mind:
The Key Critical Success Factors for Building and Transitioning Firm Value

For this session, panelists Thomas Giachetti, of Esq.-Stark & Stark; Rebecca Pomering, CEO of Moss Adams Wealth Advisors; Darryl Celkupa, of Russell Investments and Timothy Welsh, founder and president of Nexus Strategy discussed key factors in creating a financial planning practice that is valuable to outside—or inside—buyers.

Timothy Welsh discussed the importance of transferring your business to a paperless, technology-based practice. “In the past few months,” Welsh points out, “advisory firms have lost a great deal of their revenue. That means overhead has taken a bigger piece of the pie and that firms want to reduce that in any way they can.” Firms can save 9% of their overhead costs by transitioning into a paperless office, Welsh reveals. One firm he spoke of had $1 billion in assets under management and approximately 700 clients. They spent one month every quarter providing quarterly reports for their clients. After doing a short survey, they found that only one in 10 clients read these reports. The firm eventually streamlined all of their information into technological software that could do the job for them.

Darryl Celkupa discussed various valuation boosters that make a practice more valuable to a buyer citing, most importantly, that firms should consider outsourcing their investment management. 

These included:

•  A repeatable/credible investment process
•  A client service structure and focus
•  A formal business development engine
•  A fee-oriented business