We’re currently working on a number of strategic marketing projects; integrating persona, proposition, pricing and brand, to build out and distribute content to interested individuals. This work includes a walk through the client experience and the subject of financial planning vs financial advice almost always comes up. While the majority of our clients identify as financial planning businesses, creating a scalable proposition that can accommodate differing depths of detail, is a challenge.
The proposition conversation is a perennial one with strong opinions on all sides of the various arguments. Citywire published an article this week, which is perhaps a good example of differing views (yes, we read the comments) on financial planning and it reminded me that I wrote an article on this subject back in 2014. Upon inspection, I think it’s still relevant, so it’s re-produced below, with a few updates to deal with time. Hope it adds something to any conversations or thoughts you might be having in this area.
Top 5 financial planning myths
I’m a big fan of self-directed learning and read, listen, watch and generally absorb all sorts of information. One subject close to my day job is that of financial planning. I’ve observed a number of so called thought leaders talking about financial planning like it’s some religion or dark art. I’ve spent countless hours working with good financial advice firms that want to grow and become great, and financial planning is happily always on the agenda. Between the thought leaders and my own experiences (which I’ve triangulated in order to validate them), I’ve observed a few myths that well, need busting and so, without further ado…
5. It’s just a cashflow model
I’m sure the IFP (now CISI) meant well when they said they wouldn’t recognise a financial planning proposition as such, unless it had a cashflow modelling element to it, but this assertion has since been taken out of context on too many occasions. For one thing, cashflow modelling software salesmen (often thinly disguised as business consultants) have presented this statement in a Simba – Lion King – Circle of Life kind-of way, ramming home the message that their box of tricks is all you need to do financial planning properly. In addition, this cashflow focused sound-bite has been picked up by investment management firms, keen to prove to the regulator that their KYC process can hang with the best of them (see retro-fitting myth below).
While any good financial plan (personal or business), requires an explanation of the financial impact of one’s strategy, skipping over the strategy itself and the drivers for it, rather obfuscates the value and often renders the plan useless without the author being there to explain it (surely not). A good plan should explain objectives, the current situation, possible strategies, financial implications, set out a roadmap for implementation and the metrics and process for review.
4. It’s complicated and expensive to deliver
I come across a great many advisers claiming to be financial planners. I ask them about their process and they describe different elements of it, but the overall planning framework is often missing. Then I ask to see a plan and I’m presented with a suitability letter. Often a very good suitability letter, but not a plan.
The perception that planning is complicated and expensive to deliver may be due to the fact that good financial planning encompasses a number of disciplines that are seldom found in one single person. This means hiring and training a professional team. Easier to talk a good game and deliver what the regulator wants. The downside is that it also makes coming clean with clients even harder, but if you are selling a non-essential, intangible service, physical evidence is rather important to a continued relationship, so you are delaying the inevitable.
There is also an idea that financial planning is only for the wealthy and further, that tech crusaders are going to have to jump into action to serve the needs of the poor old mass-affluent. A solid financial planning process is, by definition, neither complicated nor expensive to deliver. What you need is the aforementioned ‘right’ individuals to deliver it. There is no reason why a simple plan can’t be developed for a very reasonable fee. The resistance to delivering tangible financial plans to the mass-affluent, probably says far more about the broken business models, poorly equipped staff and ignorance of those leading the advisory space right now, than it does about the complexity of the process itself. A plan is only as complicated as the subject one is planning for.
3. It can be delivered without understanding the difference between consulting & coaching
For the avoidance of doubt, all financial advisers are consultants. A consultant provides technical expertise in a specific field of endeavour, to those who lack that expertise or the time to undertake the task themselves. A good consultant accepts delegated tasks, not abdication of responsibility, so education and validated understanding are crucial elements of a successful relationship. A good financial consultant works with a client to create a sound financial strategy, agrees tactics and supplies tools to help implement said strategy and regularly reviews the plan with the client, as aspects of their life change over time.
A coach on the other hand, promotes awareness and responsibility within the individual. This is not the same thing at all. There’s no delegation here, so the coachee must face their own music and take responsibility for the tune. It’s not a dependent relationship and the skill is all in the questions. Understanding the different levels of coaching is also critical. It’s pretty common for a coach to start with a transactional approach where the subject identifies a challenge and through the coaching process, a plan of action is created to address said challenge. If this doesn’t work, or if the transactional process uncovers some deeper issues, a good coach is able to identify the need to take a transformational approach where values, beliefs and motivations are explored (or identify a pathology and refer). These two approaches are very different and confusing them is dangerous. A transformational approach requires the right forum and expectations must be managed to ensure a safe outcome. Firing off some clever questions you picked up at a seminar is what can lead to a client crying their eyes out in your office, when they just popped in for a quick chat about their pension. This is poor form.
A good financial planning proposition requires an understanding of the difference between consulting and coaching and crucially, the ability to deliver on both. It’s easy to dismiss ‘discovery’ as factfinding, but a robust discovery process requires that one acquires all the hard facts, while developing an understanding of the person sat opposite, what drives them, their beliefs, values, how they derive meaning in their life and what their purpose might be (if indeed they care about such things). The ability to do this without projecting one’s own model of the world onto the client is a rare and highly valuable skill and is probably one of the key components of a truly world-class financial planning proposition.
2. It can be retro-fitted to an investment management proposition
Given that the prevailing business model in wealth management is one predicated on the acquisition and retention of client’s liquid assets, it is perhaps not surprising that placing barriers in the way of said activity is not a popular board-room play. If a prospect walks into an investment management business and tells them he has £1m spare from the sale of his business, he shouldn’t be surprised if he walks out with a portfolio, rather than a set of interesting questions to ponder. When you’re a hammer, everything looks like a nail.
Where it gets messy, is when investment managers attempt to build financial planning into their proposition, as a bolt-on. They include it in their marketing mix, but don’t put it at the heart of their proposition (this would only be possible if an individual with a financial planning heritage, got onto the board and/or owned a significant proportion of said investment manager). Retro-fitting a financial plan to an investment portfolio throws up more conflicts of interest than a FIFA fact-finding mission. Let’s say a financial planner (hopefully not the investment manager), works with the client to develop a plan, but then implementing it requires that a proportion of the portfolio is liquidated and spent! Woops – someone’s not going to get invited to the pub at lunchtime, or worse still, they’ll get fired. The conflicts thrown up by the characteristics of the investment managers’ business model, can diminish the value of the planning process. Good news for those firms that can and will put financial planning at the heart of their proposition.
1. Everyone MUST have one
Discovering the nuts and bolts of a new skill can be intoxicating. Understanding the science behind a process is often enlightening and can be all-consuming. I come across a lot of financial planning converts, waxing lyrical about the life-changing powers of financial planning. For some, this is just the proposition de jour, justifying the 1% pa fee and giving them something to talk to their clients about. For others its part of the personal journey to fill a void in their own lives. Evangelism is the practice of relaying information about a particular set of beliefs to others with the intention of conversion (straight out of Wikipedia) and I fail to see how the delivery of financial planning has anything to do with projecting one’s own belief system onto others, let alone attempting to convert them to something which is, well, not a belief system.
Not everyone needs and/or wants a financial plan, but opinions are, as we know, much like arseholes, in that everyone’s got one. However, as Tim Minchin states in his wonderful commencement address, our opinions differ from arseholes, in that they require regular and in-depth examination. Those caught up in a wave of partisan fist-pounding and finger-pointing, could perhaps pause to reflect on their motivations, their biases and their privilege (more Minchin). There are a great many individuals across the globe, who didn’t use a formal plan to create wealth, jobs, improve communities or, dare I say it, make the world a better place. How did they cope I wonder?
Really great firms ask the individual how they like to manage their life, show them both financial planning and transactional financial advice propositions and ask them which they’d prefer. One has a strategic focus, the other a tactical one. Horses for courses. Don’t be so quick to stand in judgement, especially if all your marketing material has you claiming to be client-focused.
That’s it, for now. If you want to change your proposition for the best, take a step back and adopt a design approach for starters. Take a look in the mirror first, get to know yourself better, learn more about generic planning (from those outside financial services), create a prototype and test it on yourself, keep developing and when you’re happy, launch a commercially viable proposition that helps your existing and future clients gain clarity and plot their own adventures.