There are two types of financial planners. The one you used to be and the one you could be.
The one you used to be. International Standard ISO 22222:2005, Personal Financial Planning, is aimed at increasing client confidence by providing an internationally agreed benchmark for a high global standard of service.
The standard defines six steps in the personal financial planning process:
- Establish client/planner relations;
- Determine goals and gather data;
- Evaluate the client’s financial status;
- Develop and present the financial plan;
- Implement recommendations;
- Monitor the plan recommendations.
The standard is used to sell investment products.
Step 1 is to agree on the adviser fees. Occasionally a fixed fee is taken for steps 1 to 4. Virtually always, a percentage of the investment is taken at step 5 (average initial 2.4%) and step 6 (average ongoing 0.8% /annum).
You used to be a 1 to 6 adviser. Future advisers may be 1 to 4 advisers. Here’s why.
An advice-only financial planner’s initial assumption is that most clients can take steps 5 and 6 themselves, with the proper support, in what is, after all, a commoditised market. They take a fixed fee.
The ISO standard also takes a minimal view of financial planning. It assumes that financial planning is the consideration of a client’s circumstances to recommend a particular investment.
Financial planning is, as it says on the tin, FINANCIAL PLANNING!
And FINANCIAL PLANNING adds far more value to the client than “minimal view” financial planning.
You see, “particular investments” make up less than 5% of the wealth of the average Brit (source ONS Wealth & Asset Survey). The most significant tangible assets are occupational pension, property, business assets, and savings.
Indeed, if we are planning our client’s finances, we should consider total wealth. At the very least financial planning should be about all of the finances.
And it should be as much about creating wealth as saving wealth you’ve already created.
You used to determine goals to define your client’s favourite future. The future self has a price tag attached to it. The data is your client’s circumstances and all their finances. The financial status evaluation looks at shortfalls. Your old plans considered using “particular investments” to plug the gaps.
The sale is made.
I have yet to consider your biggest asset.
You possess terrific intangible assets that can be converted into financial assets, far greater than any assets you’ve considered. Your biggest asset is the vision you hold of your future self. A plan can only be considered suitable with considering your most significant asset!
This intangible asset conversation is the more important one.
What asset strategies will I use to create my future self? What intangible assets am I willing to exchange for financial assets? What financial assets am I willing to exchange for intangible assets? What is the compounding effect of investing in a broader portfolio of total assets? What is my optimum strategy for maximising return and minimising risk?
Has your financial planner discussed this with you?
According to London Business School professors Lynda Gratton and Andrew J Scott, authors of The 100-year life, living and working in an age of longevity, we each have three types of intangible assets where we must gather data, evaluate status, and form strategies in financial planning.
Productive assets: help an individual become productive and successful at work and boost income (and create wealth), e.g., skill, knowledge, location, time, energy, contacts, character, etc.
Vitality assets: mental and physical health and well-being, e.g., friendships, positive family relationships and partnerships, personal fitness, and lifestyle choices.
Transformational assets: self-knowledge, capacity to reach out into diverse networks, openness to new experiences.
The adviser you used to be might determine the client’s goal of remaining on the treadmill of work existence for the best part of 50 years, taking the bet they can buy happiness in the last 16 years with a pension pot.
The adviser you could become might determine goals in every area of your life: mind, body, heart, and spirit. Gather data on tangible and intangible assets. Evaluate the status of all assets (not just particular investments). And the strategy might be a financial plan that helps your client to live a values-driven, purpose-driven life of crescendo for longer and better.
According to the United Nations Sustainable Development Goal #1, end world poverty, the way to create wealth is to identify productive assets and leverage entrepreneurial opportunities (requires vitality and transformational assets) to create a sustainable livelihood (financial assets).
The optimum strategy is to do what you are good at, what you love, and what the world needs and will pay for.
This route to financial security can be continued to freedom and legacy. Research suggests that we live longer and better in retirement if we make a meaningful contribution to ourselves and our communities.
“Your most important work is always ahead of you.” From Cynthia Covey Haller’s Live Life in Crescendo, a book co-written with her late father, Stephen R. Covey.
Are you up for delivering your most important work?