Is financial planning for most advisers an academic exercise?
Is financial planning for most advisers an academic exercise?
I ask this question as the result of two observations. The first is my experi-ences with my own adviser (who is a CFP) over the past 18 months and the experi-ences of a number of people I know who are in a similar situation to myself. The second observation is that it appears that very few people (including advisers) in our industry actually use an adviser. It follows that their experience of fi-nancial planning is academic.
This latter observation is not unexpected, but there are many management and marketing books that argue that you should be constantly trying your own prod-ucts and services to ensure they are meeting your customer needs. My own experi-ences have reminded of the movie called The Doctor, starring William Hurt.
It was over two years ago that I first went to an adviser, at the behest of my wife. The real value in that exercise was that it made us do some planning and budgeting. The plan, which was very long, was double Dutch to my wife, which I think they would be to most clients, given the technical and turgid style they are written in.
When I was exiting Godfrey Pembroke (GPL) last year, I worked very closely with my adviser on structuring my severance payments. About the same time, I moved the administration of my self-managed super fund. The adviser was very helpful in facilitating this.
I paid fees for this advice and subsequently agreed to an on-going fee. The ad-ministration service I am using has had some problems, but in the main it has been me, not my adviser, who has picked these problems.
I was fortunate to have some shares in GPL when MLC made its moderate offer a few months ago and more fortunately I had most of my shares in my self-managed super fund. Once again I discussed this matter with my adviser. But what has happened since the sale, now that I have a super fund that is mainly in cash? You may be surprised to learn that it is nothing!
I do not count the standard letter from my adviser, advising that he would like me to contact him for my annual review at the end of June. What about the sig-nificant event that happened in July, that provides me with more cash to invest than I ever have had. Do I have to wait for next year’s review to find out what I should do with it?
My experience is not unique. It appears those few in the industry that do use an adviser are in a similar situation to me. They have received a severance pay-ment, sought advice and were initially satisfied, but have become quickly disil-lusioned.
It appears that most advisers do not know how to service wealth accumulators. The proscribed process that is demanded by both the Australian Securities and Investment Commission (ASIC) and the Financial Planning Association (FPA) fur-ther exacerbates this.
The very expression financial planning encourages the focus to be on the process rather than the outcome. The FPA promotes the six-stage process. But is this what should be promoted?
This is the mechanics – the necessary tools of the trade. Wealth accumulation is about wealth creation, risk mitigation, portfolio administration and relation-ship management. For the wealth accumulator, wealth creation is not as much about the return on dollars invested but more about the net amount available for investment (income and expense management).
But how many advisers just worry about the investment advice? Most I would ar-gue. Once again, investment advice is not an outcome but one of the tools of the trade – and one that is quickly becoming commoditised.
However this is not the real issue with wealth accumulators. They are time poor so they want a pro-active adviser; one who understands their situation and works with them to build their wealth. They want an adviser who brings critical mat-ters and opportunities to their attention in a timely manner. They want to be able to contact their adviser to get quick advice.
Most advisers are used to dealing with retiring/retired clients who in many cases are time rich. They are so locked into the way of providing advice to these types of clients that they do not seem to be able to adapt to wealth accu-mulators.
And this is not just me extrapolating from my own experiences. One of Austra-lia’s largest dealer groups surveyed their clients last year. The most dissatis-fied group of clients was the wealth accumulators, who indicated their adviser did not understand them and did not listen to them.
It intrigues me that advisers do not have more empathy with wealth accumulators as most are accumulators themselves. Two reasons come to mind. First, they are in their retiring/retired client advice rut and secondly they have never used financial planning services themselves.
An issue for advisers with wealth accumulators is that many will not want to pay on-going fees. Although they are time poor, they do want to be in control and many will fit into the category of validators. They will seek advice when they want it and they will only want to hear from their adviser when she has some-thing meaningful to offer. For this, they would prefer to pay a one-off fee or have the adviser take a commission if a transaction is involved.
This last statement runs contrary to current orthodoxy. Whose benefit is on-going fees? Advisers see on-going fees as away of securing the viability and value of their practice.
But what about the client? Some advisers would argue it provides the client with security. This would be true for some clients, but advisers have to let clients choose how they want to pay. They may choose an on-going fee based on assets un-der advice, however, others may prefer to be charged an annual flat fee or an hourly based fee. Some may even want the adviser to be renumerated by commis-sion.
In the future, even now, wealth accumulators are having more and more choices about how they seek advice and conduct transactions. Unless advisers can provide the wealth accumulator with what she wants, and in the way they want it (includ-ing pricing), their future is very limited.
Finally, for those of you who are wondering, my adviser has seen a draft of this article. His response was: “you’re a difficult client….we need to talk more”. What he agreed he meant was that he has to spend more time on the relationship and less time on the mechanics.
This gets me back to my opening question. Is financial planning for most advis-ers an academic exercise? I have been in the industry for 21 years and for 19 of those years I was an academic also. It is only in the last two years, since I have become a user of financial planning, that I been able to develop any prac-tical understanding of what I really want out of financial planning.
If ever I decide to change my adviser (and I have no intention at this stage), my first question will be: Do you, Mr Financial Planner, have a financial plan and do you use and adviser?
