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The History and Evolution of Regulation and the Financial Planning Profession

For the last 42 years, it has been my privilege to work with families and professionals and to be part of their life journey to assist families or navigate their family destinies in a world that is becoming more and more complicated every day. 

To understand the evolution of our profession it is important to understand our roots, and where we came from. 

The History of The Financial World and Planning

The first organized financial markets emerged in Europe starting with Antwerp in the 1400s. The port of Antwerp found itself between the Germans, who traded furs and rye, and the Italians who brought gems from the Far East.

Innkeepers in the city would provide shelter, while also helping travelers exchange goods with one another. Over time, they began to create exchange rates and by the 16th century, they were trading more promissory notes than exchanging goods. 

Then, in Amsterdam in 1602, The Dutch East Trading Company became the first publicly traded company by offering an IPO to “all residents of these lands” inviting all Dutchmen the ability to invest in them. 

Then in 1792, stockbrokers met on Wall Street and devised the “Buttonwood Agreement” for the selling of stocks and bonds, which would eventually become the New York Stock Exchange

Charles Dow created the Dow Jones Industrial Average in 1896. Then in 1923, Henry Barnum Poor released the pre-version of the S&P, followed by MFS Massachusetts Investors Trust introducing the beginning of the modern mutual fund in 1924. 

While these United States markets were maturing, they remained almost completely unregulated until the stock market crash of 1929.

In the 1920s, if an individual wanted to buy stock in a company they had to go in person to a stockbroker for the purchase. 

It was simple if a person wanted to buy stock in a company, they go to a broker who would make it happen. 

The key was the flow of information. In those days it was very slow and those who had access to, for instance, newspaper printing presses were able to act faster on good news. 

Over time a problem developed, people who were close to the information we’re giving tips to friends who were also passing on this information. This created the first bubbles as hordes of people were acting on information transferred by the masses. 

This phenomenon would change drastically the landscape of investing in the coming decade. 

Then came the first crash of 1922.

Modern Portfolio Theory

In an effort to prevent another crash, Congress passed the Securities Act, which President Franklin D. Roosevelt signed in 1933. It was the first time the federal government passed legislation to regulate the nation’s stock markets. The federal government intended the law to protect investors, create transparency of corporations and their finances, and prevent misrepresentations and fraud.

Following the Securities Act Directive, the Government established the SEC (Securities and Exchange Commission), the NASD (National Association of Securities Dealers), and continued legislation over the coming decades. Financial regulation was born. 

It was this development that motivated the Nobel Winning economist Harry Markowitz to write the “Modern Portfolio Theory” and for financial planners and institutions to realize that customers’ needs drive sales and create a methodology to provide financial advice to clients. 

In less than 50 years after that legislation, the world would see the creation of commissions, corporations, societies, colleges, and new investment strategies and tax incentives as a direct outcome of those federal laws. 

The creation of new laws, theories, and strategies laid the framework for the general public’s need for a financial advisor.

The “Chicago 13”

On June 19, 1969, a man named Loren Dunton started the Society for Financial Ethics. This society recognized individuals who were legally and ethically helping the public with financial counseling. 

Six months later, Dunton met with 12 other men in Chicago on December 12, 1969. The group of attendees mainly had a background in mutual funds and insurance and were meeting during a bad economic cycle. 

They were seeking to find positive solutions to navigate the new economic situation. The International Association of Financial Planning and the College of Financial Planning came from this gathering. 

Within four years, the college released a five-course curriculum and graduated their first class with the CFP designation. This certification continues today through the Certified Financial Planner Board of Standards. The meeting of the “Chicago 13” now receives a public consensus as to the start of financial planning as a profession.

Today, Financial Planners Measured Also by Knowledge, Tools, and Methodologies

In the beginning stages of financial planning, the role looked very different from today’s reality. 

Investors focused less on stocks and more on real estate, limited partnerships, and annuities. 

Financial planners did more tax planning than anything. Inflation, taxes, and interest rates were high, and these investments served as a relief. 

In those days the stock market performed so poorly that investors wanted little to do with it and they still remembered the “crash” of 1922. 

As the world emerged into the 1980s, households started to realize they may need assistance because of new tax laws, pension laws, and a stock market that finally began to take off again.

Since the 1980s regulators worldwide are working to align clients’ interests with the interests of those who advise them, avoiding as much as a possible conflict of interest, and linking the compensation of professionals to their client’s best interests, encouraging them to develop new skills and pursue knowledge that will benefit those who are receiving the advice. 

This has proved to be more of a challenge than expected. 

Financial professionals should begin preparing for the future of financial planning by considering how their service offerings today compare to the trends in the market for tomorrow. 

These trends are creating a world where a professional is not only measured by their aligned interest and the fiduciary standard they adopt but also by their access to knowledge, tools, and methodologies to provide holistic life cycle advice for families for generations to come.

About the Author
Dan Dobry was the founder and a director of the GlobalNET Investment House, he was one of the founders of the Union of Financial Planners in Israel (UFPI) and served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and was a member of the Committee for Standards and Qualifications for the European Union (SQC) until December 2021.
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