In addition, the novice is then given a set of rules that determine actions on the basis of these features. At this stage of skill acquisition, the novice learns to follow these rules consistently.
Stage Two – Advanced Beginner: In the advanced beginner stage, while consistently following the given rules, the student begins to recognize examples of new features that can be effectively identified or learned only through experience. These new situational features are added to the context-free features that the student recognizes, and new rules are introduced that incorporate these examples. The advanced beginner continues to learn to follow given rules in a consistent manner, but is able to incorporate situational as well as non-situational factors when learning and applying these rules.
Stage Three – Competence: At the skill acquisition stage where students attain competence, they have absorbed enough features and rules that attending to all potentially relevant features and analytically applying rules has become overwhelming, and they must develop an approach where they can differentiate among more and less important elements of a situation. Competent performers learn to choose a perspective or formulate a plan that allows them to effectively make decisions by restricting them to only a few of the possibly relevant features of a situation. Through this, competent performers also become emotionally involved in the outcome of their decision making because this outcome depends not only on the adequacy of the rules that they have been given but on their accuracy in choosing a plan or perspective.
Stage Four – Proficiency: At the proficiency stage of skill acquisition, the emotional involvement developed at the competence stage, which strengthens the performer’s ability to distinguish between successful and unsuccessful perspectives, allows the proficient performer to accurately assess situations and choose relevant plans and perspectives. This intuitive situational awareness, though, does not extend to decision making, and proficient performers fall back on the analytic rules they have learned to respond to the goals they have identified and the features that they have identified as being important.
Stage Five – Expert: At the expert stage of skill acquisition, performers then move past the situational awareness that distinguishes the proficient performer to both divide these situations into nuanced subclasses and to attach reactions to them that have, in their experience, been successful. The expert both assesses situations and responds to them intuitively, drawing on his or her vast experience to identify desired outcomes and relevant situational features and also to determine which course of action will be most effective.
In this book, the professional practice capabilities are divided into three levels based on this Dreyfus model – entry-level, competent, and expert – each of which illustrates the financial planning professional’s ability to make appropriate decisions within a complex environment as well as the planner’s progression from strict adherence to rules to use of past experiences to define future action.
The reader is encouraged to use these practice capabilities to both self-assess competency relative to a given concept as well as plan future education and experience that may facilitate a higher level of expertise. Financial planning firms may utilize these capabilities to facilitate formal and informal mentorship programs within their organizations.
IN PRACTICE
Each of the chapters in Part One outlines many of the contexts that exist in financial planning, specifically relative to the topic of that particular chapter. These contexts, or vignettes, are designed to provide the student, practitioner, and instructor with specific situations in which this concept arises in real life as well as to offer some of the variables that may impact the decisions of the financial planner.
Relative to each of these contexts, the reader is encouraged to consider altering some of the fact patterns in the scenarios to see if the actions by the financial planner would change under different circumstances. Students and faculty are encouraged to discuss these scenarios and offer alternative actions that the financial planner could take relative to this or other scenarios and contexts.
PART TWO
Part Two of this book discusses the actions of the financial planner. These chapters focus on aspects of the process of financial planning, from establishing and defining the client recommendation to monitoring the recommendations. The definition, rationale, techniques, and contexts for each of these domain areas are presented, providing the reader with both an overview of the specific action as well as ways to complete it, plus a determination of when the action is necessary within financial planning practice. One case, containing a rather complex familial and economic context, runs through each chapter of Part Two, illustrating how each step of the financial planning process exists within practice and a real-life scenario.
PART THREE
Part Three is devoted to many of the related areas to the discipline and profession of financial planning. Many of these areas involve areas such as psychology, sociology, behavioral finance, marriage and family therapy, and elements related to certifications in this profession. The goal with this section is multi-faceted. The hope is that practitioners will read these chapters and begin to visualize how theory from other disciplines can be applied to their work, questioning current assumptions and considering new strategies for serving clients based upon the work of practitioners and researchers from other academic disciplines. For faculty, the hope is that these chapters will fuel new ideas for lines of research that incorporate theory from other disciplines into financial planning, engaging bodies of knowledge and researchers from other areas into financial planning. Many of the topics that are part of this section have been tested in multiple contexts and are grounded in theory that has been part of research and practice in other contexts for decades. It is our hope that regardless of experience in research or practice, that the reader be challenged relative to many of the important facets of financial planning.
CHAPTER 2
Function, Purpose, and Regulation of Financial Institutions
CONNECTIONS DIAGRAM
The marketplace for consumer deposits, loans, insurance, and investments exists as a mechanism to facilitate the creation and use of capital. Banks, trust companies, credit unions, insurance companies, and other investment firms operate and compete in this large and interrelated marketplace. There are seven primary laws – each of which is discussed in more detail later in the chapter – and one federal depository insurance system that governs financial institutions and the securities industry.21 These laws have emerged over time in reaction to changes in consumer expectations and corporate responsibilities. Financial planners have an obligation to fully understand and apply regulations of financial institutions in their daily practice of financial planning. As illustrated in the diagram, these regulations impact every aspect of financial planning. When combined, the laws form the foundation for financial institution regulation and the functioning of financial institutions.
INTRODUCTION
Financial planners work in a highly regulated environment. Often, financial planners must work within both state and federal regulatory guidelines. There are seven key pieces of federal legislation that impact almost all aspects of financial planning. Many of the rules that dictate current practice were enacted in the 1930s in the wake of the Great Depression. The first legislative rule-making action at that time was the Securities Act of 1933. This Act was written to ensure that investors receive financial and other relevant information concerning securities being offered for public sale, and to prohibit fraud,
Securities and Exchange Commission: www.sec.gov/about/laws.shtml.
