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Financial Planning Process – Where Did That Come From?

By Dan Candura, CFP

In the US, financial planning grew out of an interest in needs-based selling in the insurance and investment industries. Agents and advisors discovered that by focusing on the needs of the customers, they sold more … and the business they were in, stayed on the books longer.  This increase in both production and persistency, was a powerful profit generator that was noticed by management. These early needs-based advisors learned that when clients’ needs required multiple products, persistency improved dramatically. The limiting factor in these relationships was not client-need, but adviser capacity, meaning the capacity to meet the need with the products and services offered by the employer.

1894: Investors Diversified Services

Only a few companies were positioned to meet multiple client needs: IDS (Investors Diversified Services), based in Minneapolis, MN, was one. Since 1894, they sold face-amount certificates, which were akin to a periodic payment CD. These fixed return instruments performed well, through various economic cycles. In the 1920’s, IDS was an early adopter of open-end investment funds. In fact, the eponymous, IDS Mutual, became the icon for all such funds. IDS clients could seek fixed returns with certificates or variable returns with mutual funds, but they still faced catastrophic risks such as death and disability.

Therefore, in the early 50’s, IDS formed a life insurance company to fill this gap. What made IDS unique, at the time, was something consumers now consider to be the norm. IDS representatives could meet multiple client needs – all in a single relationship. They trained their representatives to look at the total client situation, identify the most important problems the client faced, and solve them.

Client Needs Up Front

By placing client needs at the front of the sales process, the groundwork for financial planning was laid. It was inevitable that professional advisers would seek to reduce the restrictions that forced them to choose single, proprietary solutions from just one financial provider. They demanded greater choice and increased flexibility to meet client needs. They asked their clients to share their goals. They created inventories to develop a better understanding of client situations. Then, they analyzed whether the client would succeed under their current approach or if change was required, all before discussing a single financial product.

What started as a small number in just a few firms, has spread throughout the world. Now, over 130,000 people earned the right to refer to themselves as certified financial planner™ professionals and many more use this process to serve their customers.

Financial Planning Process


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