The Financial Planning Professional: Part 3 of 6
The good news is, the 2019 Edelman Trust Barometer: Financial Services report indicates that trust in the financial sector is at its highest level since Edleman started measuring it in 2012.
But at 57 percent trust among the general population, financial services providers and distributors remain the least-trusted sector measured by the Trust Barometer.
Investment advisers affiliated to investment firms, no-matter how tenuous the connection, in general, take pole position as society’s pariahs. When it comes to trusted financial planners, that is a combination about as toxic as you can get.
If the Australian market is anything to go by, many investment advisers in the UK aligned with an investment firm, by either “asset-based” fee affiliation or vertical integration, may face a private hell in the months that lie ahead.
We need to explore the “asset-based” structural flaws to better understand how in Australia these flaws and ensuing price wars prompted investment firms to force hundreds of their own investment advisers out of business, with many advisers at risk of losing their homes as firms slashed the amount they were willing to pay for buying out businesses.
The most obvious flaw is the conflicted payments of “asset-based fees”, raised in the UK as an issue by the FCA in PS20/06 as recently as June 2020, which could be explored further under their Assessing Suitability Review 2, early 2021.
Conflicted payments require an investment sale — such as contingent adviser charges, and so-called “asset-based fees”, which are commissions by another name.
The choice between interest and duty is resolved, more often than not, in favour of self-interest.
The less obvious, yet more fundamental flaw, is the actual service delivered by most financial planners. In contemporary financial planning, a financial product is rarely the solution to a client’s problem. So, if all you have to offer is product, your service will more often than not fail.
You see, the thing about a product is, that no product in the world creates wealth. It is the client that creates wealth. The product simply manages wealth.
Let me demonstrate this with reference to business planning. Have you ever seen a business plan where the business was to give its capital away to another business to look after and then see it returned many years later with profit added? A shell investment company perhaps? The truth is, most businesses utilise working capital to follow a purpose, serve people, care for the planet and create profit through daily industry. Why should personal financial planning be any different?
I produced countless business plans in the banks for market-leading propositions. The time horizons seldom went beyond five years. The 5-year plan. The 3-year plan. Which coincidently is a time horizon in which no investment adviser works, but almost all their clients would want to see positive life change happen within.
Contemporary financial planning is about including a short-term plan for ‘the business of you’ in the lifetime cash flow forecast to make good shortfalls.
Once the business plan is embedded, the best planners will help the client navigate themselves out of their business. What I mean by this is a business often begins as a lifestyle business, where the business owner is exchanging time for money. Time is limited, so is the business. By productising services with the introduction of books and courses, say, the business owners begin to exchange their knowhow for money and creates what is referred to as nocturnal income.
Equity based businesses achieve higher valuation multiples than lifestyle business.
Creating significant earnings while you sleep is a great retirement plan. Better than any pension product. What I call it, is your path to financial freedom.
Are you including plans for the ‘business of you’ in your financial planning service?
Many clients would benefit from ongoing service of a plan for the ‘business of you’, for which an ongoing fee can be straightforwardly levied under a fee for service arrangement. Whereas for a financial product that is often not the case. The FCA’s view is that many consumers would not benefit from ongoing (product) advice as their circumstances are unlikely to change significantly from year to year (PS20/6 s3.10). For this read – yearly opt-in.
In Australia, the regulator challenged suitability of product advice and whether the firm had acted in the best interest of their clients. They banned conflicted remuneration, such as asset-based fees for unregulated or no activity, and introduced yearly opt-in.
Customers had been charged for investment advice they never received. Such as, customers who did not receive an annual financial check-up that they paid for. Even for customers who had died, fees were taken. Advisers thought mistakenly that there was no legal obligation to provide any ongoing service.
There was nowhere to hide.
“Just a few bad apples”, the industry had constantly told everyone as scandal after scandal was revealed, and people’s financial futures were ruined.
The regulator showed that up for what it is — a bald-faced lie.
Those at the top knew exactly what is going on.
“A culture in which conscious decisions were made to protect the profitability of the investment firm and put the interests of shareholders first, at the expense both of the interests of clients and of complying with the law”.
‘The root cause is greed’
The conflict-riven, asset-based model has lost its social licence to operate.
The investment industry has fought genuine customer-focused reform at every step of the way over many years.
It’s now lost control of its future.
Adviser charges on investments go to the heart of all that remains wrong with the investment advice industry.
If you are ready to launch a non-intermediating financial planning firm, then join us.
Contact us today to find out how the Academy of Life Planning can help you transition from Investment Firm (Regulated) to Non-Intermediating Financial Planning firm (non-regulated).
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