In response to Phil Young’s article.
Great article Phil. I’m really surprised how few people have commented or rated it. It hits the nail on the head.
And you certainly nailed the description of ‘Financial Advice’ using the plumber analogy: Financial Advice solves problems that just need fixing – whether that be simple (sort my ISA) or more technical (a complicated pension issue).
Unfortunately, I’ve noticed that most Advisers (including, sadly, the vast majority of CFPs and Chartered Planners) are so busy being ‘problem fixing’ Financial Advisers they never get round to doing much, if any, Financial Planning. (Yet they parade as Financial Planners).
This is useful for the ‘Industry’ because this means Advisers are still doing what the ‘Industry’ wants which is focusing on the bit where IT makes money. It’s also natural for the Adviser because a) they’ve been doing this for years (it’s a hard habit to break) and b) that’s normally where THEY also make THEIR money. So proper Financial Planning just doesn’t get done. Of course those in the ‘financial planning community’ collude with each other and pretend that it does, but it doesn’t. That’s why there are millions of people across the UK – with money or without – who haven’t got a clue where they are heading financially, many of whom will be receiving inappropriate advice. (How can it be appropriate without Financial Planning?)
But Advisers claim “Ah, but the client didn’t want a financial plan, they just wanted their ISA/Pension/Investment sorted”. Or “they didn’t want to ‘pay’ for a financial plan”.
I believe these are just excuses, encouraged by the ‘Industry’ because it suits all involved, it helps everyone in the ‘supply’ chain to make money, just like it always has. Advisers can then quickly get to the bit where they think they earn their money. Big mistake. The world has changed.
Phil suggests ’Financial Advice’ is problem fixing. Which by its very nature is short term. I think we call it ‘transactional’.
But, it seems to me there’s a mismatch. With the banning of commission, Advisers are now focusing on building long term revenues, normally extracted by a ‘fee’ – explicit or (for the time being) less than explicit – from AUM. Sorry, but obtaining long term revenue from a short term ‘transactional’ service seems to me like a problem about to hit, no matter how often you ‘review’ the transaction or switch the money around. Sooner or later this model will fail. And Advisers will say “What happened?!”
This type of operation worked in the past, in a world of ‘smoke & mirrors’, of commission and ‘opaque’ trail ‘fees’. But not any more. How can it?
Other than becoming pseudo investment gurus, many advisers haven’t changed what they do, they’ve just changed how they’re paid. Now it’s more on the drip.
But now, and more so over the next two years, clients are starting to find out just how much they’re paying (and have been paying) for ‘Financial Advice’. And this is when the fun is going to start.
If the majority of Advisers agree that they ALL want more of the right clients, then those ‘better’ clients better start getting a joined up service. They’d better get MORE financial planning, and LESS financial advice. (i.e. less product sales / switching / churning).
When many clients are now paying £1,000, £3,000, £5,000 or £10,000pa or more in fees to their ‘Wealth Manager’ as soon as the penny drops that they are NOT getting what they could be getting for that money, those clients will leave.
And that’s the opportunity! At least it is for those Advisers that can understand, communicate and consistently deliver a genuine client focused financial planning service that helps clients to achieve, as Phil suggests, ‘a life well lived’.
Clients will say, (as they are already saying to the Advisers I train) “You mean I can get ALL of this, (i.e. Lifestyle Financial Planning) without it costing me a penny more than I’m paying to my existing Adviser?!” Answer: “er.. yep!”
To add to Phil’s distinction of Financial Advice versus Financial Planning I would to add one other dimension.
I’ve been promoting the idea since 1992 that a GOOD Financial Adviser wears ‘three hats’ – 1) Lifeplanner***, 2) Financial Planner and 3) Financial Adviser. Not only did I promote that idea, I delivered it. To EVERY single client.
Let’s get this straight. Lifeplanning is nothing more than doing a bloody good fact-find, to identify the sort of life a client has and the sort of life they want to keep. It will also include asking some simple questions (in the right order) to identify what needs to happen for each client to ‘live a life well lived’. ***It’s NOT about hugging trees, meditating, or bringing clients to tears. In the process of doing this ‘fact-find’ you obviously identify the financial products already held, together with incomes received & expenditure requirements going forward. When this has been done you can confidently move to the second stage:
Financial Planning. Knowing what your client wants to achieve (because of your GREAT fact-find), Financial Planning then identifies the resources available to a client right now (assets, incomes – i.e. the starting point), the resources that may be coming available in the future (future incomes / inflows) and more importantly for many clients, the resources that BETTER DAMN BECOME AVAILABLE to give that client the life they want. (This cannot be done without an understanding of a clients expenditure requirements throughout life combined with a meaningful lifetime cashflow. If it ain’t got a meaningful lifetime cashflow, it ain’t a financial plan).
Finally, the third stage of Financial Advice (independent or otherwise) which is the ‘product/solution/problem fixing’ advice concerning (and /or implementing) any financial products that MAY be necessary (if any) to achieve the client’s objectives identified by the Financial Plan – i.e. getting and keeping the life they want. (I personally believe that NO financial product should be implemented until the first two jobs have been done. Period.)
Unfortunately most financial products and investments have been sold – and are still being sold and implemented – WITHOUT doing the first two jobs. In the past this led to Advisers recommending unnecessary ‘sexy’ products, manufactured by ‘the Industry’, which just wanted (and still wants) Advisers to sell its ‘stuff’, and, more importantly get assets under management. But just look at the trouble that approach got us in to.
It’s still going on. With an ‘Industry’ intent on coming out with the ‘next shiny thing’ for Advisers to ‘sell’ or base their investment philosophy on, and with Advisers easily persuaded by the ‘powers that be’ no wonder so few Advisers are doing proper Financial Planning.
My fear is this; we have just one chance to create a Financial Planning profession. This requires that those calling themselves Financial Planners must stand up and be counted and actually DELIVER proper financial planning, to every client.
If they’re not doing so, then… please, please, please…. shouldn’t they stop calling themselves Financial Planners?
I’m sure you’ve heard this one: “If you always do what you always did, you’ll always get what you always got.”
For the ‘Industry’ that’s fine. For Financial Advisers, that’s not a good outcome.