Like many things, financial planning has evolved over time. From its early days as a distribution model for insurance companies, where “products” were sold to clients and commissions were claimed, to the late 1990s and early 2000s where regulation demanded that more detailed written advice be provided. This resulted in the rise of the Independent Financial Advisor.
Today, the internet has made financial and investment information freely available, allowing people to more-easily educate themselves on financial matters. When this increased knowledge is coupled with the rise of direct-to-consumer platforms (such as our own Charles Stanley Direct) this means that some of the Financial Planners/Financial Advisors/IFAs traditional perceived “value” has been eroded.
Over the last 10 years, new models and ways of providing financial planning advice have developed and grown which, in part, attempted to differentiate itself against the traditional ‘product-sell’ model. However, most importantly, has been the quest to provide a service that is entirely ‘client-centric’.
The ‘old-world’ model of financial planning advice was principally driven by technical product information, the arrangement of investments/products, tax efficiencies and fund picking. However, it is important that you realise that the job of a Financial Planner is much more than just a technical role. It is now a more human experience.
Deeper understanding now essential
The modern Financial Planner aims to connect with their clients in a deeply human way. It is about helping the client and their families to make great decisions about their personal and business finances. It is about helping people understand what is most important to them – which will help them to live authentic lives in a fashion that is in line with their personal values. It will also provide them with a healthy relationship with their finances. The role of the Financial Planner is to provide insight into how each client can live their best life, based on the assets and the income that they have.
The true value of a Financial Planner can be seen in one who cares deeply for their clients and, with absolute integrity, strives to make a positive and meaningful difference to each clients’ life.
This value is felt by clients in the Financial Planners ability to relate to their lives and goals, to connect with them on a personal level – and remain endlessly curious in order that a strong understanding is obtained. The client wants their Financial Planner to deeply listen to them, to reassure them, to challenge them, to tell them the truth, to help them gain clarity and to engage with and feel positive about the future. For them to see their Financial Planner as their “Trusted Advisor” and to have complete peace of mind knowing that the fundamental question has been answered: “Am I going to be ok?”
If done correctly, the majority of the Financial Planners time will be spent listening to their client, understanding their goals and objectives, their dreams and desires, as well as their major worries. It will delve deeper into their lives to understand the strength of the emotional connection with each of these elements.
This, coupled with a detailed understanding of the client's assets, income streams, a forensic analysis of their expenditure – and any one-off points of expenditure – the Financial Planner is able to build up a full “financial jigsaw” where each of the component parts is understood – and figures and timeframes are attached.
In mapping out the client’s complete financial jigsaw, it allows us to formulate the beginnings of a financial plan, which inevitably starts with the client’s details being input into a sophisticated modelling programme in order that the outputs can be analysed.
The computer software allows us to input each element of the client’s life together with their future goals and ambitions. Attached to this are timeframes and amounts, which are then modelled using standard assumptions around the lifespan, inflation and growth rates.
This gives us a Base Plan against which we can assess against the three potential outputs: 1) There is not enough; 2) There is just the right amount; or 3) There will be an excess of assets.
Dialogue with clients the core of decision making
Each output dictates different conversations with the client. For example, in a Scenario 1 situation, can the client save more now, can they increase their risk profile, can they delay their retirement or target a lower income for retirement? In Scenario 3, discussions may include reducing the risks they are taking and even bringing their retirement forward. It will also allow them to spend more in retirement should they so wish – or they could gift money to their children earlier. There are many other possibilities to consider.
The modelling of a client’s finances also allows us to test various ‘What if?’ scenarios. For example: 1) What if I retire 5 years earlier; 2) What if I gift money to the children during my lifetime; to 3) What if I require care in later life – what will this look like?
The modelling also allows us to accurately calculate what the current Inheritance Tax Liability is on the client’s estate – and what this may be in the future? This allows a full and informed discussion on the topic and to explore options and consider planning opportunities that will mitigate this risk.
In modelling a client’s situation in this way – and setting out a financial plan – whilst a phenomenally useful exercise to explore many aspects of our life and finances, one would be somewhat misplaced to think that this was a guaranteed blueprint for our life going forwards.
Flexibility a necessary life remains unpredictable
As Financial Planners, all we can hope to do is capture a moment in time. We do this by using a set field of data with underlying assumptions to model the client’s future situation. However, we do this in the full knowledge that every single aspect of the Plan is endlessly fluid – and the future may bear little-to-no resemblance to what was originally determined by the Plan. As such, and in the absence of a serviceable crystal ball, we acknowledge this as part of life’s journey – and come back to this exercise year-on-year to ensure that the client remains on track to achieve their personal goals and objectives.
A financial plan provides a foundation for the client to reflect on where they are, where they want to be – and what they may wish to do or achieve along the way. This could be from a material perspective, such as achieving a level of income in retirement or the dream car to helping children with the cost of education or house deposits. From another perspective, it could be about dream holidays, spending time with friends and family, leaving specific legacies, to enjoying more good lunches!
In modelling the numbers and stress-testing the results we allow the client to consider the things that are most important to them and whether they are realistically achievable. We then provide Financial Advice around this to ensure that they have the right Financial Architecture to achieve their life goals. We also ensure that there is sufficient human capital protection – and that the necessary planning steps are made with regards to retirement, inheritance tax and long- term care.
The purpose of this as an exercise, ultimately, is to put the client in a position where they have a trusted advisor on whom they can rely – and give them clarity and understanding of their own personal situation. This should give the client the peace of mind that will allow them to enjoy their life to the fullest.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.