There are two ways to do financial planning.
The traditional way is financial planning with a view to intermediation.
This way has loads of financial advantages. The view to intermediation makes the fee VAT-exempt. The distribution makes it an FCA-regulated activity. This affords protection from the Financial Ombudsman and the potential to make claims against the Financial Service Compensation Scheme where the distributor owes you money and falls into default. However, you do not have a Private Right of Action against the distributor. Also, your claims are against the distributor firm, not the individual. And FOS has no power to enforce claims, and where the distributor firm is wound up FOS have no power to act, and claims are thrown out. But adviser fees (previously referred to as commission) can see deductions facilitated from the product, which has tax advantages when deducted from tax-deferred or tax-favoured products (no products are tax-free).
Here the financial planner looks at Means with the completion of a Factfind, and then the Execution, aiming to complete on the second meeting, with a needs and shortfall analysis, a recommendation, if you’re lucky, a cashflow forecast, and always a product sale (advice fees are typically contingent on product sales).
Let’s call this the ME system … Means & Execution.
The second type of financial planning, often referred to as holistic or proper financial planning, has extra stages to it. The financial planner plans the client before they plan the money. They treat the client as the customer, not the money.
Planning the client involves creating a life plan. This includes Goals, Goal Setting, and Actions, which is project planning.
This type of financial planning can be offered as a stand-alone service in its own right. Where it is not
“given in the course of or in preparation for”, or
“prior to or in the course of carrying on the”
… financial advice. This makes it not an FCA-regulated activity.
You lose the VAT exemption, FOS & FSCS protection, and the facilitated deduction of fee from product.
The removal of FCA-regulated oversight lowers cost of delivery and cost savings can go some way to offset the tax advantages of the ME system
However, here, the client has PROA rights against the planner under fair trading regulations.
The addition of the life plan broadens the scope of the financial planning. Solutions are presented that solve life problems. For example, recommendations are included to make wealth, rather than simply save wealth you have already made. This is great news for the 92% of the population who don’t have enough investable assets to meet the ME financial planner’s investable asset thresholds.
We call the holistic financial planning system the GAME system.
The GAME system includes “personal development”. It is personal and challenging and may touch on sensitivities physically, emotionally, mentally, and spiritually. It is quite a testing journey for the client. However, as a result of following the GAME plan, the client is delivered to their “favourite future” with the right financial architecture in place to support them.
GAME doesn’t compete with ME.
Where the outputs from the GAME Plan require the implementation of FCA-regulated investments, the client is presented with two routes to market: the advised route or direct-to-customer (D2C) platforms.
As Christopher Woolard, former CEO of the FCA said:
“The overwhelming majority of retail investors are best served by readily understood, well-diversified and low-cost investments which are already available from a range of providers, but many retail investors don’t choose these.”
This suggests that suitable investment options are available, but consumers often overlook them.
The GAME Plan practitioner would refer the client to either an FCA-regulated financial adviser, or a survey of D2C platforms, such as that provided by Which Money?
The GAME Plan practitioner is also an educator, available to answer questions in a neutral way without offering opinions that can be construed as regulated financial advice. Comprehensive guidance on how to offer generic advice is contained in the FCA rulebook (PERG 8.26, and Annex 8).
Here’s the thing…
Let the customer decide.
When a client comes to you asking for financial planning, offer them the choice of GAME-type or ME-type financial planning. Explain the pros and cons, as I have done. Let the customer decide.
Nine times out of ten, ME-type isn’t an option (insufficient regulated assets, property entrepreneurs, business owners, Occupational Pension Members, DIYers, overseas investors, etc).
Even where ME-type is an option. Given the facts, consumers choose GAME-type financial planning.
If you would like to know more about becoming a GAME-type financial planner, would like to become one, or would like to meet an accredited GAME Plan practitioner, why not come along to our Town Hall. Every Friday at noon. It’s free.
DM me for the link.
Academy of Life Planning 