[tweet_box design=”box_10″ url=”https://buff.ly/2Ppm0Wj” float=”none” excerpt=”No matter how successful, and how good you are, and how smart you are, you’d better listen to what the client really wants. – Tom L. Potts, Ph.D., CFP® on #YAFPNW”]No matter how successful, and how good you are, and how smart you are, you’d better listen to what the client really wants. – Tom L. Potts, Ph.D., CFP® on #YAFPNW 174[/tweet_box]
Hannah: Today on the podcast we have Dr. Potts. So he’s a big part of my story. He was actually one of my professors at Baylor University, but he’s a part of a lot of stories. And he is this years 2019 the P. Kemp Fain Jr. Award. Which is largely viewed as a lifetime achievement award at FPA. So thank you for joining us today Dr. Potts.
Dr. Potts: It’s great to be here Hannah.
Hannah: Well first of all, congratulations on this award. It’s a pretty significant award and a really big deal, so congratulations.
Dr. Potts: Oh, well thank you Hannah. As I told Evelyn Zolan who called me to tell me that I’d won the award, I was surprised to hear that I’d won the award. And I told her, “Well I feel humbled and honored at the same time.” Because it is a pretty big deal. And you’re wondering, should I be in the company of the 22 people who have proceeded me in winning this award? And so it really makes you feel very appreciated, especially since it was awarded by FPA and decided on by your peers. So that means a great deal to me.
Hannah: Well, we’ll get to more of your lifetime achievements. So I graduated in December, 2008 and I had you for my last semester, that fall semester of 2008. And I remember as one of your students seeing you, several class periods seeing you stress and realizing in that class period that you were going to be the president elected FPA for the next year. And so you are stepping into this leadership role in FPA right when the market was hitting its low.
Dr. Potts: Right.
Hannah: So tell me what was that like? So not only were you stepping into that role, but you were also the first academian to be stepping into a leadership role. So you kind of had a double whammy there.
Dr. Potts: Right, right. I can remember the National FPA Conference in the fall of 2008 and it was in Boston. And I still remember it very vividly the financial planners being inundated by conversations by their clients as that market was crashing. And so that’s one of the recollections I have is coming in was how bad it was, and how quickly the market melted down in the fall of 2008, bottoming out in 2009. So 2009 was my president elect year as you were saying. And so that was tough on everybody. One of the things that we also saw was the value of financial planning because if you compare the financial planning clients with traditional… and I don’t know if I should use the word broker, but some of the traditional advisors who were not true comprehensive financial planners or certified financial planners, those clients were more likely to panic.
For a couple of reasons, one was having all weather portfolio. Now, as I was telling you before we started the podcast in 2008 there wasn’t a place to hide. Nearly everything was crashing, so it was a very tough time. But I think the second part is a true financial planner has great communication with their clients. And that’s something that’s extremely important. You’re there, you’re available, you’re holding their hand during this really difficult time and saying, “This will turn around.” I know that’s easier said than done. But for those who could weather a storm and maybe even put more money into some losing investments, which I know in behavioral finance is called escalation bias, which is not necessarily good.
But I’ve seen that in a number of these downturns to where people have, or students have to say, “It’s going down. I don’t know where the bottom is, but I have extra money that is liquid. I’m putting more money in.” And when it does turn around, which it’s always turned around in this country, then they come out on the other side in better shape. I hate to compare that with doubling down at Las Vegas because it’s not the same thing. In Las Vegas there’s no guarantee there’s going to be a turnaround. But we’ve always had a turnaround in this economy. Hopefully we never have what happened in Japan 1989, which was a tremendous market crash with really no big rebound.
Hannah: Yeah, it’s interesting. We talked to a lot of new planners and that does tend to skew younger. But a lot of these younger planners haven’t ever seen that market downturn.
Dr. Potts: No.
Hannah: So I love that you’re tying… How do you help prepare yourself for that? And really tie that to the value of financial planning?
Dr. Potts: The FPA was a big resource for the planning community. The members who could, for one thing, they could talk to each other. I know you do that. And I know the next gen planners do that a lot. And I tell my students this, interactive learning is very important. But communication with your peers is one of the best things you can do. So I talk about communication with clients, but really good planners, even the ones that are seasoned professional that are very successful, they want to check with others. And that’s where the study groups come in, et cetera. Is how are you handling this? And how are you structuring your client’s portfolios? And how are you trying to reduce their fears? The resource of FPA has really been important during a time like this.
Hannah: Well, and you’re just talking about the different, the biases and there’s so many times the confirmation bias that we have, and that’s part of the value of getting other perspectives.
Dr. Potts: Right.
Hannah: Is, what am I missing? What are my blind spots?
Dr. Potts: Matter of fact, I was covering that today with some students in terms of communication. And bias is one of the things I really worked on, on the FPA board especially was being a better listener. Because being a professor, I talk a lot, I talk too much I’m sure. But being a board member, I wanted to be a very attentive listener. And you learn when you listen. And that’s the same thing with clients is one of the best communication skills you can develop is listening to that client. And you’re listening for what they really want. I had a very successful estate planning attorney talked to my class one time. And he told a story about a gentleman who had, I think like 78 million dollar estate, and he had worked up this very elaborate cutting edge, technical estate plan.
He presented it to this gentleman and when he got through he said, “What do you think?” And of course my friend was so proud of what he had done. And the old gentleman kind of rocked back in his chair and looked at him and said, “O don’t think it’s worth a damn.” And he said, “What do you mean?” He said, “What you did was all technically correct and very cutting edge and very sophisticated. But you didn’t listen to what I wanted.” And I thought, what a great self effacing story to tell a group of students in the sense that no matter how successful, and how good you are, and how smart you are, you’d better listen to what the client really wants.
Hannah: So you have quite a few accomplishments in your career. But you were the first person on an FPA board that was from academia. So can you tell me, how did you step into that space and how were you received? And you’re obviously deeply ingrained in the profession, but coming at it from a different angle.
Dr. Potts: Right. I think the board looked at it as diversity on the board in terms of diversity of thought. Because sometimes we get in these conversations on diversity and we forget about diversity of thought. There’s all types of diversity, whether it’s gender, race, or other things. But the diversity of thoughts important on boards like that because if everyone’s thinking the same way, you don’t have any creative sounding board. If everybody’s agreeing on it, you’re probably not being very creative in a way. So I think they embraced me coming on the board. While I was on the FPA board, they viewed me as a leader. And not just an interesting person to have on the board. And that was quite a compliment by my peers. And I think it showed that I probably did develop into a good listener. And where that really helped me out too is when I became chairman of the board of the FPA, is running the board meetings, is being a really good referee and listener. And not trying to… you’re trying to do direct the conversations, but you’re not trying to dominate them.
Hannah: Which that seems like a skill set for all of life.
Dr. Potts: It is. With your spouse too.
Hannah: Right. So when I look back at your resume, if you will, you started teaching in 1975? Does that seem right?
Dr. Potts: Yeah. I was finishing up my PhD in 75.
Hannah: Yeah. So 1975 you started teaching in the finance department at Baylor. And you got your CFP in 1987. So I’m curious where in here did you learn about financial planning? Or what really piqued your interest about financial planning?
Dr. Potts: Okay.
Hannah: Instead of just the traditional finance route.
Dr. Potts: Yeah. Because I was happy being a finance professor, and doing the things I was doing. I was doing as much corporate as anything else, some investments. But from the investment side, I became interested in the financial advisory industry, I would say industry at the time. But really, I’ll try to make this relatively short a story. I was working as an expert witness in a personal injury lawsuit. The lady that was injured won like two million dollars, which in the mid 1980s was a lot of money. She won two million dollar cash, and she didn’t know what to do. She asked her attorneys how to invest the money. And quite frankly, they weren’t very good attorneys. And so she calls me up and said, “You were the expert economist on the case. What should I do with this two million dollars?” And I asked her, “What’d they tell you to do?” And she told me their advice. And I said, “Did they tell you this, this, this?”
“No, no, no.” And so that’s what really kind of spurred my interest in, “Boy. There’s a need out there for people who don’t know where to turn.” She turned to her attorneys. And about that time, I was reading about this emerging field, and I would say this emerging professional financial planning. And that’s how I became interested and ended up attending a conference of the International Association of Financial Planners back in the early or mid 80s. And that kind of started my road to where I am now. If I hadn’t have had that particular case, I don’t know if I would be here. And this phone call.
Hannah: And when you went to that conference for the first time, were there other professors there?
Dr. Potts: No. I didn’t see any, I don’t know of any of them. And I’ll tell you real quickly, my first session I went to at this conference, which happened to be in Las Vegas I think. But the first session I went to was rather disappointing. It was a stock swap, excuse me, it was a bond swap seminar. And the people who were doing it weren’t very good and they had a bias. And I thought, “Oh my gosh, what have I gotten into?” Then I went to a session that was led by a gentleman by the name of Tim Coaches. And I was very impressed with him, his sophistication, his knowledge, and so on. And I would say, had I not picked the right sessions at that conference, I probably would have walked away from this saying, “I don’t see any future here.”
But Tim’s session was one I’m saying, “Oh, there’s people like this in this field. This is the future of this profession. Or this emerging profession.” Because again, I don’t think you could call it a profession at that time. But it was emerging, it had a chance, it had potential. And so I wanted to be involved in that. And if I can deviate a little bit from the question, I started looking for other academics. And I found Tom Warschauer at San Diego State. Bob Bond, who had been at Brigham Young and so on. And they had been creating programs that were teaching financial planning. And that was the very first of that type of curriculum design. And I became involved with them. And the three of us sort to helped create the Academy of Financial Services, that was an academic group that was centered around personal financial decisions, and financial planning. So it was working with the Professional Association professionals and working with the academics at the same time that really helped me move forward.
Hannah: When you went to that conference and when you came home and as you started connecting, did you see the potential of financial planning? Did you see the possibility that we could be where we are today?
Dr. Potts: Yes, I did. And another gentleman I will mention is Bill Carter at that time was the president of the IAFP. And Bill was from Dallas. So when I got back to Waco, and got to start putting my notes together, I called him and said, “Mr. Carter, I saw you at the IAFP conference. I know you’re president. If you have a few minutes I’d like to visit with you.” And Bill said, “Sure, that’d be great.” And we’ve been close friends ever since then. That was probably the turning point for me is Bill Carter’s support for what I was doing. And it really opened up a lot of doors for me as well as just saying… This is the type people I would be working with would be the Bill Carter’s of the world. And a few years after that, Bill and I were elected to the CFP board at the same time. So we go back a long time and have a really great friendship.
Hannah: So you helped create the Academy of Financial Services. Can you tell me more about what was the vision for this organization?
Dr. Potts: Well the vision for the organization was to sort of split off from the traditional much larger academic organizations that dealt with mostly financial management or corporate finance, with some splinter into investments. Matter of fact, the key academic organization in finance is called the FMA, Financial Management Association. And so anything other than financial management was considered sort of a splinter group. And we felt like we needed our own identity. Because we felt like this is really what we’re looking at. It’s not even confined to finance because you know what the financial planning field is like. You’re talking about tax, you’re talking about insurance, you’re talking about estate planning, you’re talking about many other areas other than investments and finance. So we wanted to broaden this thing out. And that was the genesis, and the impetus for the creation of the Academy of Financial Services.
Hannah: When I look over the history of financial planning, one of the most, I don’t know if staggering is the right word, but one of the most impressive things that I’ve seen is how academia has developed and built over the years. Can you tell me more of what you’ve seen? Because there was nothing and now we have, how many CFP based programs, college programs in the country? It’s just hundreds.
Dr. Potts: Probably 150 or more. Maybe.
Hannah: So can you tell me what has been the progression of academia within financial planning?
Dr. Potts: Well, that’s a good question. And I’m going to have to give you some part of this answer, may not be that acceptable to some people, because it’s been good and it’s been bad. In the sense that good that we’ve had a number of schools sign on, matter of fact, I was on the CFP board when we started the registered program. It was suggested at the time that we start affiliating with universities and that we would accredit the universities. And I said, “No. You don’t want to get into the accreditation business. We already have accreditation.” I said, “You need a new title.” And we came up with registered programs at that time, which was really, really beneficial. And we’ve seen it spread and it’s been… you’ve seen it in family science departments, you’ve seen it in schools of business. You’ve seen it like at Texas A&M and Ag-eco is the center.
So it’s not all in the same type of backgrounds. I think the negative part that I’m seeing that I really want to work on is many of the major schools of business are not embracing it. And I think they’re not embracing it because, well of two reasons. One is personal financial plannings. They get that confused with personal finance, consumer economics and they don’t think it’s the rigor that they would embrace. They don’t understand the difference. And the other is going back to that narrow focus on financial management. Many finance departments to obtain tenure, you’re going to have to hit certain journals of a certain level. And those journals tend to be centered in financial management or something similar to that. So it’s hard for a younger faculty member to come on, get tenure, and do the top of research I’ve done.
So that’s kind of a battle for schools of business. Now, the family science departments with different types of titles there have done a great job of picking that up and moving with it. Some of the other schools of business have taken it up as well. Again, Ag-eco, which is a great department at Texas A&M, has created a program there. So it’s still growing. It’s just in a little different way. I’d like to see it be more diverse and I’d like to see these major schools of business embrace it in a way. And I have some ideas that might be hybrid. And I don’t want to get too technical here, but maybe some hybrid programs for the schools of business can offer what they’re really good at. And maybe team with some other universities with some of the other courses. But ultimately I want to see these people become certified financial planners
Hannah: As I’m talking about the Academy of Financial Services and the impact. You really highlighted the impact of bringing new planners into the profession, but can you talk more about the impact of research and how that has helped shape financial planning as a profession?
Dr. Potts: Yeah, I think so. One of the things I’ve always felt about a profession is profession has certain characteristics. And you’ve heard the term learned profession. So a profession in almost any area you can think of, whether it’s medicine, law, theology, et cetera, has an academic cornerstone. And so I think that’s kind of a need that the financial planning movement had was it needed that academic cornerstone as it progressed to a profession. And I think the Academy of Financial Services helped lay that cornerstone, maybe is a better word. I feel like financial planning is a profession. I have not always thought that because I’ve been involved with this for a long time. I kept using the word emerging profession. You never really get a notification or an email from somebody saying you’re now a profession.
But I feel like when you look at the checklist of what it takes to be a profession, I feel like financial planning is there. But I think the academics involved in the Academy of Financial Services, and some other organizations have really helped that. They certainly, it’s been the professionals in the profession that have really driven it. But I think there’s been great assistance by those academics. Not in just the credibility of teaching and that learned profession, but also helping expand the body of knowledge with good pragmatic research.
Hannah: So it’s interesting that you used to call financial planning an emerging profession, and now it’s a profession. At what point did you kind of see that shift? And was there anything that really triggered you to kind of make that change?
Dr. Potts: There’s not. I can’t point to a time period and say, “This is it.” There’s been milestones along the way. Milestones like even when I was on the CFP board, the sort of the new code of ethics that I felt was quite a bold step for a new emerging profession to take that bold step of creating a rather rigorous code of ethics at that time. Which has been revised and the standards are even higher now. But I felt like that was kind of a starting point to some extent. Because again, if you look at characteristics of professions, we talked about the academic cornerstone, the learned body of knowledge, there’s standards and ethics that I think have to be part of what is a profession as opposed to just an occupation. If it’s okay I’ll go beyond that a little bit. Can I talk-
Hannah: Oh please.
Dr. Potts: Okay. Because I’m really considering the difference between a job, a career, and a calling. If I look at those three categories. And a job is something where you work. A career is more substantial in the sense that there’s more foundation to it. But a calling, to me is the highest level of saying that this is something you feel like you’re called to do, it fulfills you, but it also provides a needed service to society. And I feel like financial planning is at that level of calling. And I think that’s a threshold in a way. That when the young people entering this feel like it’s more of a calling than just a job or a career.
Hannah: And is that a threshold really to be a profession?
Dr. Potts: I think it is a, I do. Again, I was doing a little research recently on what is a profession. And I don’t have that in front of me right now. But I think you see terms like calling in there. If you think of the five traditional fields, and I don’t know if I can list all of them, but theology, law, medicine, engineering, et cetera. I think those people going into those areas felt it was a calling. It was something that they were called to do. I don’t want to use the word destiny, or it’s predestined. But I think they didn’t feel like, “Oh well this is just a career path for me or a job.” I guess even more so other than maybe theology, that planning would probably have more of a calling aspect to it than some of the other. Certainly medicine, one I would see would be a calling. And I know that’s a pretty high standard. But I certainly see financial planning adding the same type of life changing, helping mentality, and a result that you might get from medicine.
Hannah: So for the people listening, that’s a pretty high standard. And I talked to a lot of planners, I was talking to one just a couple weeks ago, who she was very much in the investment side of it and really transitioned into financial planning. And she said she read a book that introduced her to financial planning. And she couldn’t believe that it existed. So for the planners that are listening to this, this aspirational view of a calling and helping to transform lives… Is that possible from your perspective? Or maybe that’s not the right question. Obviously you think it’s possible. But maybe that is a question. Is that possible for the young planner who’s listening to this?
Dr. Potts: Oh yeah. I think that’s what’s going to attract a lot of young people into this profession is a profession that can transform lives through the power of financial planning. I’m sort of quoting mission statement in a way. But maybe I’ll divert a little bit here in terms of contrasting something. I was doing a case study a number of years ago and this case study required that I traveled to a couple of different financial planning offices. One was in Arizona and one was in Indianapolis.
The one in Arizona, there was young lady working at this financial planning office. She had a law practice. She had her own office and a law practice, and she worked sort of part time as a lawyer and part time as a financial planner. And this conversation I had with her, she said, “I’m going to close my law office and go full time financial planning.” And I said, “Well, why are you doing that?” She said, “I found out in my law practice I was trying to help people mitigate mistakes, errors, tragedies in their life.” And she said, “I found out with financial planning, we’re helping them avoid that.” And she felt like that was much more fulfilling. And that really was a great conversation to hear somebody tell me that.
Hannah: So as financial planning continues, I would agree with you that we’re a profession now. What are the next steps that you see for us as financial planners and for the profession?
Dr. Potts: I think it’s adapting to the newer generations. Me being an older generation, adapting. And of course I’m around students all the time. So that kind of helps me keep tapped into generations as they come through the university. But adapting to the new generations in way of hiring, using them in your firms, but also adapting to them as clients. Because you’re going to have to communicate differently with them. You’re going to have to use technology correctly. You’re going to have to learn to leverage technology instead of fear replacement. And I said this probably 25 years ago. I was telling an audience of younger people, I said, “You’re going to need to select a career that technology will not replace you.” Okay?
So I think that’s a challenge for financial planning too with the robo advisors, et cetera. You’re going to have. And the younger generation is more comfortable with less interpersonal interaction. As an example, they’d rather text each other than they would have a conversation many times. And we’re not used to that. We’re used to… I feel like there’s three levels of communication. I feel like the written word is the least effective. A phone call conversation at least you get the voice inflection. And the most effective is going to be an in person communication because you get voice inflection, you get facial expressions, you get everything in a communication that you don’t get with just a written word.
So I think that value has to be communicated to the younger generation that it’s more valuable to have that personal contact, that personal relationship, and a personal financial planning engagement than just have a written communication or a written report. So I think that’s going to be one of the opportunities and one of the challenges for both the new people coming into the industry, but also for those dealing with new clients. That’s kind of what I see going forward. I think there’s a lot of promise, but like any other field, financial plan is going to have to adapt.
Hannah: Does anything concern you about the future of financial planning? Or anything you’d want young planners to really be on the lookout for?
Dr. Potts: That’s a great question. One of my concerns is consolidation of getting bigger and bigger when you’re doing away with the single person or the small group offices, small boutiques. If they’re becoming more and more absorbed by the bigger guys, I’m afraid we’re going to lose some of the personal touch. I don’t mean that for being a blanket statement because there’s some really large firms out there that have some really good personal relationships with their clients. It’s just I want to see both. I want to see the big firms that are doing a good job, and especially if they’re handling this in a fiduciary manner. I want to see those firms thrive. But I also want to see room for the smaller businesses that maybe just have one planner office or maybe three that share a staff or something like this. I hope that’s available going forward. So I think it’s an opportunity but also a threat.
Hannah: Are there any final pieces of advice or anything that you would leave a new planner with?
Dr. Potts: Yeah. It’s like I would tell any student in college or one that’s getting ready to graduate, make sure that three years from now you’re more valuable than you are now. For a younger person, their main asset is themselves. And in economics we call that human capital. Add to your human capital, especially in your 20s et cetera because that’s going to set you up for the rest of your life. As you become like my age, my human capital is reduced, but I’ve got quite a bit of financial capital. So that is a replacement. But these are the opportunities for younger people to grow and learn. Financial plannings a great home, a resource to tap into, to learn from others. And to learn from a great organization, in the good conferences, national conferences, regional conferences, local chapter meetings. Become involved.
What I find really beneficial about an organization like the Financial Planning Association, say you go to a chapter meeting, you’re sitting at that table, you’re heading the lunch. And you’re hearing a speaker, but you’re also talking to people around you. And learn from those people. Again, add to your human capital. You have the opportunity to do that and it’s exciting to add to that human capital. And you’re going to be a better financial planner whether you’re working for yourself or someone else, you’re going to be a commodity in a way, where other firms may want to hire you away. So never quit learning.
Hannah: Well thank you Dr. Potts, for being on the podcast and really for everything that you’ve contributed to our profession. It’s pretty profound when you start looking at your body of work and just all of the work that’s gone into building this professions to be where we are today. So people like me can take advantage and find this incredible career and calling to be a part of.
Dr. Potts: Well Hannah, thank you for the conversation. And I also want to close with saying with one of the things I take most pleasure in is seeing some of my graduates be so successful and make a difference in the profession, and in their lives, and in their families, but also in their clients. So it’s kind of like a pyramid when you’re starting at the top and you build this base and you see that spread out. It’s just, or like planting a garden and watch it grow in a way. I know Dick Wagner used to talk about the garden of knowledge. For me, it’s kind of the garden of the graduates I see go out and make a difference in the world. And it’s really quite satisfying to see that. So thank you.