Financial planning to solve a problem is very different to financial planning given during or in preparation for buying or selling a regulated investment.
When I demo HapNav – our end-user financial planning app – the “fix it” function suggests potential solutions. An array of diagnostic simulations are executed every time a user clicks on a low-performing goal on the output screen and is shown in the goal details area below the goals chart. We currently have 46 distinct diagnostics, each one to identify a different factor that may be causing the goal to perform poorly.
Suppose any of those diagnostic simulations improve the goal achievability by at least 5%. In that case, a concrete action is suggested that the user can directly implement by choosing that action.
16 distinct diagnostics potentially relate to regulated investments, 12 relate to taking too little investment risk, and 4 relate to contributions.
Two-thirds of the factors causing the goal to perform poorly do not relate to regulated investments.
Regulated investments are a commodity. Our initial assumption should always be that the investor can buy or sell a regulated investment with the right support. That right support is generic or general advice supported by financial planning.
Regulated investments make up a tiny fraction of client wealth. According to ONS, that fraction is five per cent for the average British household before considering business assets.
Regulated advisers recommend how to save money already made instead of making money in the first place. Most people would like the financial planner to show them how to make wealth. According to ONS, ninety-five per cent of households hold less than £100,000 in financial assets. And most of that is in cash products, such as savings accounts. This amount is less than the typical investable asset threshold of a regulated investment adviser.
I’m confident that ninety-five per cent of households would like their financial planner to show them how to make £100,000 in financial assets.
The advice gap is widening. Thresholds look set to rise. A recent study found that 66% of IFAs were worried about consumer duty’s impact on the advice gap. They think it will be easier to evidence the benefits of advice provided to clients with larger portfolios and more complex needs than it will be for other clients.
A financial planning problem concerns the client’s life more than their money. Examples:
· Will I have more month than money?
· Will I outlive my capital?
· Will I have enough?
· When can I do this or that with my life?
· How do I improve my work-life balance?
· How do I quit the rat race and set up my own business?
· How does well-being relate to financial well-being?
· Can I stop working? What impact will this have on me mentally, physically, emotionally, eudemonically, and financially?
· Life expectancy is 79.5 for males and 83.1 for females. Healthy life expectancy (the number of years lived in self-assessed good health) is 63.4 for males and 64.1 for females. How do I live longer better?
The answers to these questions require that the planner plans the client before they plan the money. They must show the client how to make money, not simply save money they have already made. Make money by leveraging intangible assets. They require the planner to plan all tangible assets, not just financial ones or regulated ones.
The financial planner needs to learn how to plan groups of people all at once and not simply one by one. And how to make videos to be viewed on demand that can be provided with end-user financial planning apps so clients can manage their finances.
Don’t get me wrong, everything you learnt as a financial planner is functional. But you need to add to it entirely new skills.
A regulated investment adviser can’t simply quit buying and selling regulated investments and expect their financial planning skills to solve client problems. They cannot expect clients to value and pay for such a limited service. New skills are required.
Let us show you how so you don’t have to spend ten years trying to figure it out as I did!
We teach advisers those new skills at the Academy of Life Planning. Could you ask me about fast-track accreditation? Here we train you on a one-to-one basis in the required skills in three months.
Please contact us if you are a regulated investment adviser looking to become an advice-only financial planner.