In the past, people visited IFAs for advice on a specific matter and ended up being sold a bunch of products laden with high levels of commission. I confess I was guilty of product pushing for a short period of time, before finding the light!
Fortunately, things have changed, we are seeing the emergence of a group of high quality, local financial planning firms delivering great financial planning.
Unfortunately, most people still don't understand proper ‘financial planning' and how valuable it could be to them, because this value isn't immediately obvious.
Good financial planning answers these questions like what does the future hold for me and my family? How much do we need, or will we run out of money? Can we help our family?.
By knowing these answers, clients become confident they can withstand whatever life and the markets may throw at them. They have the reassurance of a trusted planner by their side, who understands their family's circumstances and goals, who will be with them throughout life.
That's the true value of financial planning. Cash flow planning, low-cost portfolios, tax and contingency planning are simply the tools that good planners use to build and maintain the lifetime financial plan.
Planners need to be confident in articulating the value they deliver is worth their fee. It is often easy to show the tangible value received during the initial engagement process; however, it is more difficult to articulate the value of the ongoing relationship. Therefore, we need to break the process into three stages, taking the time to assure the client understands our value at each stage.
The first stage is to help clients set a clear vision for the future, both in terms of lifestyle goals and the money needed to fund them. Empowering clients to make sensible choices is the key objective of the financial planning process.
Clients arrive at our offices with the proverbial carrier bag of ‘papers' harvested over the years (old pension plans, investments and other policies). Some have a clear vision of what they want their future to look like, whilst others have no idea.
Analytical work like cash flow modelling provides a reality check of the gaps between the client's desires and the financial reality of achieving them. If we find gaps, we model different possible scenarios to help clients understand how to bridge them.
The process is a collaborative one, so we as planners should take time to understand our clients' personalities, circumstances, and goals.
For some clients, this means tough choices: saving more, spending less, retiring later, downsizing the house or leaving less for their loved ones. For others, this means potentially spending more, gifting money away or retiring earlier than expected.
Once we as planners and the clients agree on a strategy, we'll make recommendations to restructure the client's affairs, often spanning many different areas including asset structure, investments, tax, wills and contingency planning.
With this new strategy in place, clients will feel more in control of their future and finances. The process is often complex and time consuming. Therefore, the value the client receives is easy to see and often quantifiable (reduced IHT liabilities, tax savings and reduced costs).
Financial planning is not a ‘set-and-forget' process. But during the review stage, we as planners concentrate on things such as portfolio restructuring or adjusting to a new regulation that may seem mundane to our clients.
Over the whole term of the relationship, often little happens from one year to the next. Therefore, clients often perceive planners are no longer providing value. But a good financial planner always has their eyes and ears open to issues that may affect their clients and need to be flagged. We are constantly reviewing, analysing and interpreting a wide range of issues and challenges on the client's behalf.
Sometimes, momentous occasions take place either in the client's life (like marriage and children), or in the planner's world (like the markets falling abruptly). Understanding the issues a client faces, finding the appropriate solution, and having the fortitude to execute it under pressure is where great financial planners come into their own.
Remember that the true value lies not just in the initial structuring of a robust portfolio, but the financial planner's role as a foil to avoiding the dangerous combination of investor emotions and bad, yet often tempting investment ideas.
Living longer is a two-edged sword. On the upside, we can expect to enjoy a long life. But increased longevity comes with potential health problems. Falling ill is a distressing and worrying time that requires many life and financial decisions.
A good financial planner will have arranged for powers of attorney to be in place long before they are needed. They will know the family and their financial circumstances well and will be on hand to provide advice and support during these difficult and stressful times.
Many clients worry about what will happen to their partner when they pass away. We work to ensure in the event of their death, their partner will be well cared for financially and that their affairs are in order. Another aspect we focus on is ensuring our clients leave the legacy they want.
We need to quantify the value a financial planner brings. However, because clients often receive the benefits of good financial planning in the far-off future, that value is easy to miss, or even dismiss.
We need to work to make clients feel confident in the future and give them the time to enjoy the opportunities their money provides for them. Delivering ‘peace of mind' may sound corny, but that is our main goal, the result of great financial planning.
This note is a gentle reminder of the seen and the often unseen and unappreciated value that a great financial planning firm deliver to its clients. We as planners must work to not only provide this value, but show our clients that we are providing it.
We believe that clients of Otter Financial Services are in the small minority of people who have discovered proper, lifelong financial planning, resulting in ‘a life designed perfectly for them'. Therefore, we work hard to prove to them we are worth our fee.
My thanks to Albion Strategic Consulting, a firm we work closely with, for providing inspiration for this article.
Damien Clyburn is a Chartered Financial Planner and the Managing Director of Otter Financial.
