Until every single firm acts professionally, there is a risk financial planning will not be considered as such from those outside it
I was asked an interesting question by Money Marketing last week: “What one word or phrase do you think sums up the state of the financial planning profession today?”
A number of potential answers immediately came to mind. In rude health? Frustrated? Nervous? Paranoid? Complacent? Lacking in diversity? In the end, I came up with “work in progress”. Why? Because I think there is still more to be done to ensure that what used to be an industry is now a profession.
Just to be clear, I am not suggesting there are no businesses acting professionally. In fact, I see professional advisers in the majority. But until every single firm acts as such, there is a risk financial planning will not be considered a profession by consumers, accountants, solicitors, journalists or, potentially, regulators.
After all, “misselling” is still a term used frequently, even though advisers are no longer selling products but advice. And that brings me to the contentious issue of adviser charging.
Anecdotal evidence suggests most clients are happy with initial and ongoing fees being taken from products or platforms.
And given the increased transparency of charges across the value chain, it is likely these clients will be well aware of what they are paying and what services have been promised.
But there is a potential conflict of interest here for firms committed to adviser charging, because no transaction can equal no income.
Let me stress, I am not suggesting adviser charging equates to product pushing. But what I am suggesting is that it might be perceived as product pushing. And perception can be as important as reality. Time to think about a different approach?
On a more positive note, there is another reason why I describe the financial planning profession as a work in progress.
To try to evidence the scenario I am going to describe, I need to go back in time to the late 1960s.
Older readers might remember former broker and veteran commentator Julian Gibbs, who had a regular column in Money Marketing. I am pleased to say that last time I saw him he was in great form; in his 80s and still passionate about the market. I owe him a favour as he introduced me to my wife 40 years ago. And if you are a financial adviser, you owe him a favour too. Why? Because he invented your business model.
Gibbs was born into the family business of Antony Gibbs, an English trading company established in 1802. By the time he was working in the business, it was focused on insurance broking and banking. He came up with a great idea.
In those days, people used insurance brokers for insurance and stock brokers for investments.
Why not build a business which covered both? Hence Antony Gibbs & Associates, the first financial advice firm in the UK.
Why is this relevant to the theme of a work in progress? Well, maybe there is now an opportunity for another new business model: a 2020 digital model. Today, the adviser is looking after the investment, pension, protection and perhaps mortgage needs of clients. They probably know more about the individual than anyone else – including, quite possibly, the family.
Who better to provide life coaching? Many firms offer this already. Why not you?
We see “wellness” written about all the time. Mental wellness, physical wellness, financial wellness. At the moment, consumers must go to three different organisations to improve their wellness. The people they see for mental wellness are unlikely to know how the client’s financial wellness might be affecting it, for example. There is a disconnect. Exactly as insurance and investment were before the invention of advisers.
I am not suggesting advisers offer all these services themselves. But perhaps they could curate a range of other professionals, in addition to accountants and solicitors, and be the single point of contact. Or at least the first point of digital contact.
The next generation
The final area of “work in progress” is intergenerational wealth. This is a major opportunity. But it is also a major challenge to advisers’ long-term business model.
Take a wealthy, healthy couple. Their children are likely to be in their 60s or even 70s when the last of their parents die.
It is likely their adviser may have already died too. And what about the grandchildren? They could be in their 30s or 40s.
How do firms retain the family relationships? More importantly, do they have relationships with the next generation? If not, how can they build them?
The investable money in the 50-plus consumer segment is greater than that of all the younger consumers – before we take housing equity into account. All the more reason why clients tend to fall into this category.
But if firms looking to sell their business have not developed an intergenerational strategy – if they have not built bridges with the children and grandchildren of their clients – then the embedded value of their ongoing fees may be worth less than they had anticipated.
Malcolm Kerr is an independent consultant