Professional Services Ecosystems

What are they and why should you care?

I think proper financial planning firms should be the most powerful of all the professions. I have no hesitation in stating this. I also appreciate that it’s absolutely not the case right now, but I believe in twenty years, it could be. I think I’m pretty safe in making this assertion; my accountant doesn’t read my blogs and I don’t retain a lawyer because I don’t get in much trouble. Even if I did have a lawyer, I wouldn’t want them to read my blog as they’d probably charge me for it, such is the reality of their business model. I digress.

So how could financial planners ascend to the top of the professional services pile and why? First, some definitions. For my definition of ‘a proper financial planning firm’ read this. TLDR – firms that produce a comprehensive financial plan for a client, before advising them on any solution. And those solutions extend far beyond products that pay fees to the planner. This is important as this type of firm has a different proposition to many other firms also claiming to be financial planners. Professional services is not much easier to define either. The simple definition is a service that requires a particular expertise. When I walk my dog, the car park is full of vans belonging to professional dog walkers. These are not the professionals we are looking for.

For the purposes of this work, we are interested in the professionals you need to pay your taxes properly, file your company accounts, buy a house, claim your inheritance, create an inheritance, divorce your partner, establish your offshore stack, you know, that sort of thing. The list includes accountants, lawyers, property-related so surveyors and architects, business-related which might include consultants, marketing, HR, IT, corporate finance and personal including psychologists, coaches, personal trainers, nutritionists and so on. Complexity is often the driver and its increase is typically correlated with that of personal wealth.

Each professional looks at a client’s challenge or opportunity and identifies it as their problem to solve. After all, the client is in their office, asking them the question. When you’re a hammer, everything looks like a nail. It is a rare professional indeed, who refers without making some money first. I know this because every time I do it, I’m met with a mixture of surprise and delight.

Many situations require advice that spans several disciplines: accounting, legal, investing and so on. As a client, there’s no one to help you identify which professional you should engage, or if it’s obvious you need more than one, the optimum sequence of engagement. The multi-discipline trigger can be as innocuous as a single line in a complex report, stating that something is subject to legal advice or tax legislation.

Let’s say you get an accountant’s report on the tax treatment of an asset sale, and you need some legal advice. Off you go to a lawyer. But which one? So you have that hurdle to deal with first. Once you’ve selected one, you must start a new relationship, teach them all about you and your issue, go through that firms onboarding process and wait for them to give you advice. A lot of friction.

Once you have your legal advice, you probably need to review the original tax advice and synthesise the two. More complexity, lots of variables and so you go back to one of the advisers. Then you pay them to review the tax advice. They have questions and you don’t really understand them, so you put the tax adviser and the lawyer together. Now you’ve got two professionals (who could well be charging by the hour), talking to each other. In the end, you either undertake some additional research and make a judgement call yourself, or you get them all together to hammer it out. This wouldn’t be necessary if someone had done some planning. When you take into consideration the cost of all these advisers and the opportunity cost of your time, it can get expensive. And the responsibility for the final decision, that’s still yours.

What if you could engage a firm that does it all? A single P&L and everyone in that firm working in the best interests of the client. Sounds ideal. Examples might include large accounting firms (much more than accountants now), law firms (often offer parallel services) and so on. The reality is that these ‘integrated’ services are often anything but. Internal referrals are rare and this is regularly down to a mixture of ego and poorly aligned incentives. If I’m a lawyer and I need to refer a client, but don’t make anything out of doing it, there needs to be a good reason for me to refer and risk my personal reputation. I’ve lost count of the number of accounting and law firms that had financial advisers in house and span them out because the relationships weren’t working. The financial advice firms were often built by acquiring clients outside the parent firm, as internal referrals just didn’t happen.

And this is where we start to get to the root of the problem. Accountants and lawyers have been around forever. If they already have a client relationship, then they feel a sense of ownership. The problem with this, is the way accountants and lawyers see the world; one is a financial historian and the other is an asset that must have direction to be effective. Rarely does either see the big picture, as they are not incentivised to do so. They just want to solve their particular problem for the client. No one is there to determine which problems actually need solving and what the order should be. And why.

This is a job for a proper financial planner. Not a financial adviser. A proper financial planner. Someone who understands the client at a degree of depth that allows them to agree a robust plan with the client, challenging their goals and the underlying assumptions in the process. Someone who can point out the other professionals that might be needed and when. An image might help here. Think of a rectangular table in a meeting room. The planner sits on one long side with the client next to them. On the other side are solution providers like asset managers, platforms, banks and so on. At one end is the accountant, a lawyer at the other. That’s how it should be.

Many of the firms I work with, have built or are building financial planning propositions with a broader scope. They attract the type of client that needs a multi-discipline approach. I can see a time when these firms have an accountant and a lawyer on their technical teams, some already do. There will always be a need to refer of course. You can’t have all the expertise inhouse and some conflicts of interest can’t be managed internally. People will continue to be counted as clients of accounting and law firms, but their primary adviser will be the financial planner. With advances in technology, I can see this type of proposition being adopted by an ever-greater cohort of financial planning firms and it is this trend that I see disrupting the power some other professions currently enjoy.


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