In today’s financial advisory landscape, many advisers find themselves in a precarious position. The majority either work for larger firms where they don’t control the investment proposition or they outsource it entirely. This shift often happens as advisers transition from providing financial advice to wealth management, driven by the pursuit of recurring revenue through assets under management (AUM). However, this path is fraught with risks that many advisers may not fully understand until it’s too late.
When financial advisers delve into investment management, they often step into territory where they lack expertise. The allure of tapping into assets for fees is strong, and it seems like an easy way to secure a steady income. But there’s a significant downside: when things go wrong—and they inevitably do—the legal liability falls squarely on the adviser.
Consider this: when an investment strategy falters or a platform migration fails, it’s the small adviser, not the big firm or the outsourced investment manager, who bears the brunt of the blame. The big firms have contracts that allow them to shift liability back onto the adviser, leaving the adviser to face the consequences alone. The investment manager or platform provider, meanwhile, often escapes unscathed, taking no legal responsibility while still collecting their fees. It’s a system where the risks are grossly disproportionate to the rewards for the adviser.
Let’s look at a real-world example to illustrate this point. Recently, the Financial Ombudsman Service (FOS) upheld a complaint against a regional advice group after a client lost £100,000 due to delays in moving to a new white-label platform. The adviser found themselves on the hook, despite the fact that the migration was handled by an outsourced platform provider. The adviser argued they had done nothing wrong, yet the liability still landed at their feet.
This scenario is not uncommon. As more advisers adopt white-label platforms or take on investment management roles, they unknowingly assume significant legal risks. They may enjoy the short-term benefits—the material trappings of success like cars, holidays, and houses—but when the music stops, they could be left holding the bag.
So, what can be done to avoid this trap?
One alternative is to reconsider the very nature of the services you offer. Rather than taking on the immense risks of investment management, why not focus on being a financial planner? By empowering clients to be their own financial advisers, you can still earn a steady income without amassing the liabilities associated with wealth management. This approach not only provides you with peace of mind, but it also ensures that when unexpected events occur, you won’t be left as the scapegoat.
Being a financial planner allows you to build long-term, trust-based relationships with clients. You can guide them through their financial journey, helping them make informed decisions while keeping the responsibility squarely on their shoulders. This model aligns with transparency, accessibility, and the core values that many advisers strive to uphold.
In the long run, this approach isn’t just about avoiding risk; it’s about sustainable success. By focusing on financial planning and letting your clients take control of their investments, you can create a business that thrives on trust and integrity. You’ll sleep better at night, knowing that you’re not shouldering unnecessary liabilities. And when challenges arise—as they inevitably will—you’ll have the confidence of knowing that you’re not the one at fault.
The financial industry is changing, and advisers must adapt to survive. By choosing a path that emphasises planning over wealth management, you can build a resilient, ethical practice that stands the test of time. So, why not take the road less traveled? Become a financial planner who empowers clients, avoids unnecessary risks, and creates a legacy of trust and transparency. The rewards, both personal and professional, are worth it.
Q&A: Understanding the Risks and Opportunities in Financial Advisory
Q: Why should financial advisers reconsider offering investment management services?
A: Investment management can seem like an attractive way to boost your income through recurring fees. However, it comes with significant risks. When things go wrong—like a platform migration fails or an investment strategy underperforms—the legal responsibility often falls on you, the adviser. By focusing on financial planning instead, you can still earn a steady income without shouldering these heavy liabilities. This approach allows you to build lasting, trust-based relationships with your clients while ensuring your peace of mind.
Q: What are the potential risks of outsourcing investment management?
A: Outsourcing investment management might appear convenient, but it can leave you vulnerable. When you outsource, you may not have full control over the outcomes, yet you remain legally responsible if things go awry. The big firms and platforms involved often avoid liability, leaving you to deal with the consequences. This situation can lead to significant financial and reputational damage if a client files a complaint. By staying within your area of expertise—financial planning—you can avoid these risks and maintain a stronger, more secure business.
Q: How can becoming a financial planner help me avoid legal liabilities?
A: As a financial planner, your role is to guide and empower clients to make their own informed financial decisions. This means you provide the expertise and tools they need without taking on the responsibility for managing their investments directly. By doing this, you avoid the legal liabilities that come with investment management. When unexpected events occur, you won’t be the one held accountable. This approach allows you to focus on what you do best—offering valuable advice and building trust—while enjoying the peace of mind that comes with reduced risk.
Q: What are the long-term benefits of focusing on financial planning over wealth management?
A: Focusing on financial planning offers several long-term benefits. Firstly, it helps you avoid the legal and financial risks associated with wealth management. Secondly, it allows you to build deeper, more meaningful relationships with your clients, based on trust and transparency. Your clients will appreciate your role in guiding them, and you’ll enjoy a sustainable, rewarding career that’s free from the stress of potential liabilities. Lastly, this approach aligns with a business model that’s ethical, resilient, and built to last.
Q: How can I transition from wealth management to financial planning?
A: Transitioning to financial planning is a positive and achievable step. Start by educating your clients on the benefits of taking control of their own investments, with your guidance. Shift your focus from managing their assets to empowering them to make informed decisions on a fixed-fee basis. You can still charge fees for your advice and planning services, but without the added burden of managing investments directly. This change not only reduces your risk but also enhances the value you provide to your clients, leading to a more fulfilling and sustainable practice.
Q: What if my clients are used to me handling their investments?
A: It’s natural for clients to be accustomed to you managing their investments, but this doesn’t mean they won’t appreciate a shift towards a more empowering approach. Explain the benefits of them taking an active role in their financial decisions, with you as their trusted adviser. Emphasise how this change protects both you and them from potential risks, while still ensuring they receive expert guidance. Most clients will respect your honesty and value the opportunity to be more involved in their financial future.
Q: How can I maintain my income if I stop managing investments?
A: You can maintain, or even increase, your income by offering comprehensive financial planning services. Your clients still need your expertise—they’ll rely on you for personalised life and financial plans plus generic advice, strategic planning, and support as they navigate their financial journey. By charging fees for these services, you create a stable and sustainable income stream without the risks associated with managing or advising on specific investments. Plus, with your reduced liability, you can focus on growing your business and delivering even greater value to your clients.
Academy of Life Planning 
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