Last June, the Financial Conduct Authority (FCA) found that only 39% of adults in the UK trust advisers to act in the best interest of their clients. Casey, our Financial Planner, explains how things can change…
Having worked in financial services all my working life, I can completely understand why people don’t trust, understand, or feel they need advice from anyone purporting to be a ‘financial adviser’.
Now, this might sound very strange and potentially contradictory as I am, in fact, an independent financial adviser myself. However, I still stand by this statement.
Commissions and fees are commonplace
I have been in the fortunate position to work for two large insurance companies supporting financial advisers and seeing how they work with clients.
I have also spent the last seven years providing financial advice to clients directly, whilst also working with three retiring IFAs as they transitioned their clients over to our business. I believe this has given me a unique perspective on the financial advice industry/profession.
Now, don’t get me wrong. There are many IFAs that always work in the best interest of their clients, but there are also many who focus mainly on transactional product advice (sales). Here, high implicit and explicit commissions and fees are commonplace.
Again, I don’t have anything against professional advisers being paid very well for delivering a service that is greatly needed.
But my question is: would that same ‘professional advice’ be given if the client had to pay the fee directly and there wasn’t a product payment facility? In other words, if you took the product out of the picture, would the advice and the fee structure change?
In every other profession, the client pays a fee directly to the professional service company or individual for a valuable service.
What we have in financial services (and with the provision of financial advice) is a payment mechanism that is still founded in the days of ‘commission’, highly trained salespeople, and a remuneration and reward system that was focused on selling the most of something for the highest price.
Real change is possible
This may come across as an entirely negative view of financial advice, and financial advisers.
But this is not the case.
What I have seen in the past seven years is real change, where some parts of the financial advice industry are trying everything they can to clamber out of the old world to create a new financial planning ‘profession’.
Where products become the end and not what everything revolves around.
Where fees for a service are charged explicitly and do not depend on a product transaction in any way.
This will be a long journey. It’s not for the faint-hearted and not everyone will want to travel together. It’s not simply an opportunity to just shine and buff the existing industry, renaming it ‘financial planning’.
It’s also not about selling new ‘products’ such as cash flow planning, financial plans, lifestyle financial planning, life coaching, holistic financial planning and meaningful long-term relationships. This, again, is already happening (in my humble opinion).
There needs to be a real change where the new profession of financial planning is started with a blank sheet of paper and where any old ways are completely forgotten.
Based on the past and from my own experience of financial services this will be hard. For the majority, this is unlikely to happen.
It is more likely that the majority will re-shine and buff what they are already are doing. They will all become ‘financial planners’, espousing the use of cash-flow modelling, referencing evidence-based investing and attending seminars that talk about true meaning and life planning.
But they will go back to gathering assets, selling products, taking on more and more clients, charging for transactions and then ultimately selling their clients down the river to the latest asset gathering consolidator that has the deepest pockets.
This, again, may sound extremely depressing and overly negative but, in my humble opinion, it is the truth. I have met too many, very good, highly technical, extremely knowledgeable financial advisers talking about… the fees they generated last month, the volume of assets they have gathered, and their income last quarter. Where in all this is the client?
Again, I would temper this with; there are some advisers/planners that are delivering something more than transactional financial advice. They are trying to provide a true financial life planning service that provides real life-changing tangible outcomes.
Financial advice is at a tipping point
In summary, it feels like financial advice is at a tipping point in the UK, especially when considering what has happened in the Netherlands and, more recently, in Australia.
This tipping point is a huge opportunity for an industry that has been tarnished with the slick, overpaid, commission-hungry salesman and many different mis-selling scandals.
It is an opportunity that may need another huge grenade thrown into it to force change; whether that is the removal of contingent charging, increasing qualifications or something else. But, for the brave few, a journey to a new Financial Planning profession beckons.
A profession… that can bridge the relationship between accountants, solicitors and their clients.
A profession… that builds relationships with people and their families for 20, 30, 40 years and beyond.
A profession… that makes a profound difference to peoples’ lives.
A profession… that is proud, confident and positive about the future.
A profession… that embraces change and does not look back into history for answers and solutions.
This is the Financial Planning profession.