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Financial Advice, Planning, Life Planning, Wealth Management…?
Thomas Ham • May 19, 2020
Confused already? Me too.
So, we’ve set the scene, I’ve told you a bit about me and why I’m doing this, so what’s the first thing we should consider together? Let’s start at the beginning and look at the journey financial advice has been on in the UK over the last few years.
In the beginning there were door to door sales reps (the man from the Pru/Co Op) who would come to your house and sign you up to an Endowment or Pension plan. Pure sales reps paid by commission. Moving through the 90s and early 2000s various fairly low-level qualifications were introduced and a responsibility not just to sell a product, but to demonstrate its suitability for the end client. This had mixed success. A sales culture was still prevalent in advice provision (some might argue still is) and the reliance on commission created moral dilemmas. Fast forward to 2012 and the Retail Distribution Review (RDR). This piece of legislation brought in a requirement for advice to be paid for by the client and not by commission, as well as raising qualification levels. Commission in this case is a payment by the investment provider to the adviser who sold that investment. Of course, the client always pays, and if an investment was surrendered in first five years a penalty was often paid to allow the firm to recoup commission already paid out.
Since 31 Dec 2012 when RDR came in to effect all UK financial advice has in theory been fee based, with no commissions on investments paid to advisers. There’s an oddity to do with a large firm with a posh address which somehow maintains a virtually pre RDR model, but that’s for a different day.
Yadda yadda, what about this planning thing?
Some people see the different names (Financial Advice/Planning, Wealth Management etc) as interchangeable; whereas I think there’s a subtle but important difference, and it’s important for you as a client to understand what you’re getting for your money.
Someone concerned solely with products about your finances will ask more questions about your investments than they will you and your plans (if you truly understood risk and your attitude to it, you probably wouldn’t be there in the first place). They’ll likely talk a lot about the clever fund managers they use and use phrases like “best in class” (or best in breed, as if an investment fund is a thoroughbred horse). Annual reviews will centre on performance and the smart changes they’ve made to a portfolio. Maybe a fund manager has performed badly, so they’re looking to sell your holding (the ultimate sin).
Holistic planning is different. It encourages you to think about you and your needs for the future. When do you want to retire, if at all? What does retirement look like for you? What will that cost? If money were no object how would you spend your time? What brings you happiness and satisfaction? Would you like to leave a legacy? It will certainly involve a cashflow model and scenario planning for different outcomes. You’ll be central to the process and the money will be considered only latent energy to get you to the desired destination, crucial undoubtedly, but you and your wellbeing always paramount.
Perhaps most important is the behavioural aspect to financial planning (and why it’s the title of this site). This will be the subject of its own blog but working with a trusted planner whom you will accept the answer “no” from, is the most valuable aspect of your financial success. This is especially true when we experience short, sharp, temporary declines as in the global financial crisis or more recently COVID19 and the media fuelled desire to sell takes hold.
We’ll leave charges alone for now (far too contentious and needs its own post) but to summarise if you find yourself looking for an Adviser/Planner/Wealth Manager I’d suggest the following points should be utmost in your mind:
3. There’s a Plan: preferably a cash flow plan, I accept there are times when needs are simple and a full cash flow model not required, but they are growing less and less. However if your prospective adviser is talking more about investments and products than your hopes and dreams, get up, walk out, and find someone that wants to build an investment portfolio/pension etc around your future needs. Money should only be exposed to markets when you have a plan.
The above points assume that the prospective adviser is qualified under an appropriate professional body and regulated by the Financial Conduct Authority.
I have my own preference for low cost passive portfolios. That said I’d rather someone was invested in an actively managed portfolio, with clear charges, and a plan drawn up by a practitioner they trust, than faffing in cash, exposed to the silent killer that is inflation. A trustworthy planner will add value which can only be realised when you reach twilight of the plan's implementation.
In the beginning there were door to door sales reps (the man from the Pru/Co Op) who would come to your house and sign you up to an Endowment or Pension plan. Pure sales reps paid by commission. Moving through the 90s and early 2000s various fairly low-level qualifications were introduced and a responsibility not just to sell a product, but to demonstrate its suitability for the end client. This had mixed success. A sales culture was still prevalent in advice provision (some might argue still is) and the reliance on commission created moral dilemmas. Fast forward to 2012 and the Retail Distribution Review (RDR). This piece of legislation brought in a requirement for advice to be paid for by the client and not by commission, as well as raising qualification levels. Commission in this case is a payment by the investment provider to the adviser who sold that investment. Of course, the client always pays, and if an investment was surrendered in first five years a penalty was often paid to allow the firm to recoup commission already paid out.
Since 31 Dec 2012 when RDR came in to effect all UK financial advice has in theory been fee based, with no commissions on investments paid to advisers. There’s an oddity to do with a large firm with a posh address which somehow maintains a virtually pre RDR model, but that’s for a different day.
Yadda yadda, what about this planning thing?
Some people see the different names (Financial Advice/Planning, Wealth Management etc) as interchangeable; whereas I think there’s a subtle but important difference, and it’s important for you as a client to understand what you’re getting for your money.
Someone concerned solely with products about your finances will ask more questions about your investments than they will you and your plans (if you truly understood risk and your attitude to it, you probably wouldn’t be there in the first place). They’ll likely talk a lot about the clever fund managers they use and use phrases like “best in class” (or best in breed, as if an investment fund is a thoroughbred horse). Annual reviews will centre on performance and the smart changes they’ve made to a portfolio. Maybe a fund manager has performed badly, so they’re looking to sell your holding (the ultimate sin).
Holistic planning is different. It encourages you to think about you and your needs for the future. When do you want to retire, if at all? What does retirement look like for you? What will that cost? If money were no object how would you spend your time? What brings you happiness and satisfaction? Would you like to leave a legacy? It will certainly involve a cashflow model and scenario planning for different outcomes. You’ll be central to the process and the money will be considered only latent energy to get you to the desired destination, crucial undoubtedly, but you and your wellbeing always paramount.
Perhaps most important is the behavioural aspect to financial planning (and why it’s the title of this site). This will be the subject of its own blog but working with a trusted planner whom you will accept the answer “no” from, is the most valuable aspect of your financial success. This is especially true when we experience short, sharp, temporary declines as in the global financial crisis or more recently COVID19 and the media fuelled desire to sell takes hold.
We’ll leave charges alone for now (far too contentious and needs its own post) but to summarise if you find yourself looking for an Adviser/Planner/Wealth Manager I’d suggest the following points should be utmost in your mind:
1. Personal Fit: do you think you can tell the person in question your aims and goals in life? Not for the money, they’ll work out that, but the strategic direction you want to take? That business you want to start, or the round the world trip you’ve been planning.
Can you spend a lot of time in their company? Most importantly, will you respect their judgement as they tell you not to panic when all around are losing their heads and the media is telling you to sell assets?
2. Clear Charges: there are discussions to be had about fixed fee Vs %ages, in different scenarios they work for different people (%age usually favours projects where investments of under £85,000 or so result), but make sure charges are clearly articulated and impact of them demonstrated.
The above points assume that the prospective adviser is qualified under an appropriate professional body and regulated by the Financial Conduct Authority.
I have my own preference for low cost passive portfolios. That said I’d rather someone was invested in an actively managed portfolio, with clear charges, and a plan drawn up by a practitioner they trust, than faffing in cash, exposed to the silent killer that is inflation. A trustworthy planner will add value which can only be realised when you reach twilight of the plan's implementation.
Behavioural Wealth
The why behind the blog; setting the scene for our not so dashing hero.
