Financial Planning: Current Trends

November 26, 2007
As personal wealth continues to accumulate at a lightening pace, the "financial planning industry" is maturing to meet the demand for the much needed guidance and resources to make sound financial decisions possible. This article will review the current trends regarding the all-encompassing phrase "financial planning."

Financial Planning - A Definition

According to the Financial Planning Association, "Financial planning is a long-term process of wisely managing your finances so that you can achieve your goals and dreams, while at the same time helping to negotiate the financial barriers that inevitably arise in every stage of life."

More specifically, the SEC (Security and Exchange Commission) states, " . . . a financial plan generally seeks to address a wide spectrum of a client's long-term financial needs and can include recommendations about insurance, savings, tax and estate planning, and investments." However, financial planning isn't just for those accumulating mass wealth but for the range of earners seeking to protect and invest their income in preparation for the foreseen and unforeseen. Effective financial planning enables individuals to proactively protect themselves during various stages of career transitions. Many outplacement firms, and increasingly companies, are providing individuals with financial planning services to help them navigate the complexities faced during career changes and benefits decisions.

Financial Planning - Current Trends

Growth of Personal Wealth

Consider the following statistics:
  • The number of millionaire households increased 56% from 2003 to 2006, from 3.5 to 5.4 million according to a study of U.S. Census Bureau
  • The number of pentamillionaire households ($5 million in investible assets) increased 47% from 2003 to 2006, from 514,000 to 755,000, as reported by Investment News
  • One study reports approximately 70% of affluent households use financial advisors

Based upon the statistics above, it is no surprise that the financial planning industry is poised for growth. The Financial Planning Association, the industry's main professional association, recently surveyed it's members and found that the majority of financial planners believe that the retirement income market will grow substantially.

This belief is already starting to take shape. A new benchmarking study, issued by the National Association of Personal Financial Advisors, reports that:

  • Fee-only financial advisors are increasing client numbers, revenue and profits at impressive rates.
  • Between 2003 and 2005, both revenue and number of clients per firm grew at an average annual rate of 21%.
  • Median assets under management increased at a rate of 30% from 2003 to 2005.

How do investors feel about their newfound investing power? The vast majority of investors turn to financial advisers for information before purchasing shares in a mutual fund, according to the results of a survey from the Investment Company Institute. The survey found:
  • 73% of recent fund investors consulted their advisors before buying shares.
  • 80% of mutual fund owners buy their funds through an adviser.

Retirement Trends - Effects on Financial Planning

As stated previously, according to the SEC, financial planning "generally seeks to address a wide spectrum of a client's long-term financial needs." The phrase "long-term financial needs" exudes the concept of "retirement."

What is the current mainstream thinking on "retirement"?

What is the current mainstream thinking on the funding of "retirement"?

A comprehensive and powerful study, "The Future of Retirement: What the World Wants," bears the following answers:
  • In general, people want to abandon the traditional models of retirement in favor of self-sufficiency and a mix of work and leisure.
  • Given a choice, a higher number of people (36%) think their government should enforce additional private savings, rather than increase the retirement age (23%), raise taxes (12%) or reduce pensions (12%).
  • 43% of individuals worldwide expressed a desire to fund their own retirement either through savings or by working later in life, perhaps part-time.
  • Individuals in most countries want to be primarily self-sufficient when it comes to funding their retirement. However, a 'confidence gap' exists as one in three people worldwide believe the government should bear their costs in retirement, compared with around just one in five (21 percent) who believe they will.
Another study, from the National Association of Personal Financial Advisors, reveals that 87% of clients of Certified Financial Planning members expect to maintain their present lifestyle in retirement, while 60% of financial planners expect client savings to be sufficient to maintain that standard of living.

The Merrill Lynch New Retirement Study concluded the following:
  • Paying off debt was ranked as the single most important thing to do towards securing a financial future in the coming year (33%).
  • 53% of the individuals surveyed were concerned about the amount of debt in their households, yet 63% expected to have less debt when they retired and expected to be eventually debt-free (74%).
Yet, with all of these high expectations, most people haven't accumulated enough financial resources to fund the retirement lifestyle they are seeking. This is evidenced by the following research from the US-based Employee Benefit Research Institute:
  • 68% of current workers said they and their spouses have accumulated less than $50,000 in retirement savings.
  • 88% of workers aged 25 to 35 have less than $50,000 saved for retirement, compared with 52% of workers aged 55 and older.
Need for Financial Planning Resources

The equation is off-balance. The facts:
  • There is an increase in personal wealth.
  • There is a corresponding increase in the financial planning industry to capture and funnel this personal wealth . . . amassing greater personal wealth.
  • BUT - the majority of individuals have high expectations for their retirement and haven't planned for their financial future.
Bottom line - this off-balance situation creates a massive need for financial planning resources.

Increased Use of Technology for Financial Planning

Technology is increasingly being utilized, successfully, as a financial planning resource. This is evidenced by the following statistic reported by the National Association of Personal Financial Advisors
  • 75% of Financial Planners surveyed use some type of retirement income planning software program.
But . . . what do Financial Planners think about financial planning technology?

According to a recent study from Tiburon Strategic Advisors.
  • 64% of financial advisers reported their financial planning software was just OK.
  • 24% of financial advisers reported being unhappy with their financial planning software.
  • 3% of financial advisers reported being very unhappy with their financial planning software.
  • Only 9% reported being very happy with their financial planning software.
But, investors are clamoring for easy access to retirement planning . . . and using technology is one of their expectations. A latest survey from the Investment Company Institute found:
  • 50% of recent fund investors said they used the Internet daily.
  • 77% of recent fund investors said they relied on the Internet at least once a week.

In summary, it is apparent that the overall increase in personal wealth has fueled the financial planning industry's maturation. This maturation has, in turn, created a demand for technology to support the financial planning needs of both individuals and the financial planning industry itself. Many organizations are turning to financial planning tools and resources, such as those offered in Insala's Solution Suite. This powerful Suite offers financial planning content, including retirement planning resources, financial calculators and sophisticated financial calculation resources.

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