Going back in time, traditional brokerage consisted of product sales. Sitting through provider presentations, sifting through brochures and trying to work out via marketing material which product would be a good fit for a client, and which would sell. At its worst, traditional life and pensions broking degenerated into thematic investing (think tech funds launched in 2000 or geared property funds launched in 2006) and was tainted massively by the commissions on offer.
However, over the last decade financial planning has evolved hugely. Some of this is down to external developments – regulatory changes with MiFID II, PRIIPs and increased regulatory scrutiny on commissions and fee models such as the recent CP116 paper from the Central Bank. But most of the changes have been as a result of professional financial planners undertaking proactive and significant changes in their business. These firms have picked apart every element of their client proposition in order to develop a truly client centric and highly valued offering for their clients. Future cashflow planning has been introduced as a core element of their financial planning proposition, and these firms have also placed a strong emphasis on upskilling and education with many ambitious planners achieving CFPTM status.
The biggest change though has been the change in emphasis. Away from products, and focusing instead on identifying and articulating the lifestyle goals of clients, and then developing and delivering a financial plan with these objectives at the heart of the relationship and the work over many years.
So, what are the areas in which you add most value to your clients today – we suggest that you should regularly remind your clients of all the value that you are delivering!
Goal Setting: Good financial plans are based on the goals, aspirations and ambitions of the client. However, very often the client has never properly thought about these! So the first role of the financial planner today is to help clients actually identify their goals and dreams for the future, and for these to then become the basis for the financial plan.
Costing their lifestyle: Using future cashflow software, you are grounding client dreams in the reality of life. You are enabling clients to build an ambitious but realistic picture of their future life and helping them to make important choices between living life only in the moment today, or choosing their lifestyle for all of their life based on their financial capability.
Financial planning: This is the detailed technical work that you carry out for your clients – the tax planning, asset location, asset allocation, portfolio construction and establishing financial products to help clients achieve their financial objectives.
Behaviour Coaching: And then you stop clients blowing up their plans! You are the voice of reason, the calming influence in volatile times, the expert guide keeping a long-term perspective. Humans have a nasty habit of doing the wrong thing at the wrong time. In your world, this translates to clients selling assets when they are cheap and buying them when they are expensive. You’re the voice of reason, gently but firmly ensuring your clients stay invested.
The personal CFO: You are the person co-ordinating the financial plan amongst the client’s other professional advisers – solicitors, accountants, tax advisers etc. You are the expert advocate in their corner, ensuring they have a Will and an Enduring Power of Attorney in place, making sure all of their affairs are in order. You have your clients back covered. Financial planners today also help their clients manage their money better on a day-to-day basis, through better budgeting and general money management practices.
Clients will pay for assistance in achieving their goals but are less likely to do so if you are only selecting investments and “fund picking”. Increasingly, clients can access products directly themselves, so the old-style brokerage model is being swiftly eroded by the process of disintermediation and direct-to-consumer offerings.
The US financial planning guru Carl Richards, author of The Behaviour Gap, has stated that the value of an adviser is in the following seven areas:
Defining and clarifying a client’s goals
Reminding the client about their goals periodically
Having someone stand between the client and ‘stupid’ (managing behaviour)
Determining a suitable asset allocation
Maintaining a plan
According to the Investment Management Consultants Association’s (IMCA) 2015 Investor Sentiment Survey, 93% said they wanted their adviser to “help them maintain a long-term investing approach,” and 83% wanted their adviser to help them “stay calm when the market drops.” These are things that no robo-advice tool or direct to consumer offering is really going to be able to compete with any time soon. These are also things that will clearly differentiate a client-focused financial planning firm from a product-focused firm. So, spending time on the above would seem to represent the way forward for top advisory firms and these are the firms that will thrive in the future.