Julian Parrott, partner at Edinburgh-based Ethical Futures, reflects on a recent survey that said short-term financial planning was apparent among eight out of 10 individuals who didn’t get professional financial advice.
A relatively small percentage of the population seeks independent financial advice, and of those very few are actually planning for the long-term.
For most people, the engagement with a financial adviser is event driven and reactive, spurred on by a new job, redundancy, moving house, marriage, birth of children, inheritance and so on. Even then, very few clients are actually in real planning mode.
The public’s attitude to money is that they have a problem (they wouldn’t actually say that; it’s how they treat it, as they don’t know what to do with it) which you can solve by advising or selling them a product.
- Sustainable Investment Bootcamp, Edinburgh – review
- Gaeia, Barchester Green and financial advice on ‘sensible investment’
- UK gets largest ethical investment business as Gaeia and Barchester Green join forces
- Sustainable financial advice: IFA Tanya Pein on investors having a ‘moral compass’
- Sustainable financial advice: shouting about sustainability with IFA Richard Essex
A simple transactional approach is much easier for a client because they can deal with it once, then put it away in a draw and not think about it for a while.
The difficulties occur when they realise after a while, that the problem that they solved wasn’t actually the problem that they really have. Hence, the product was the wrong solution. Cue complaint or disillusionment with financial advice.
Advisers often fall into this trap and are also attracted to the quick hit. We need to train and coach clients to change their perception of financial advice and the need to plan.
They don’t have to go to an adviser – there is plenty of information on the web, such as the Money Advice Service, but very few clients are that engaged that they will go through the whole planning process unprompted.
When you do plan for yourself, you have no-one to act as a devil’s advocate or to ask the hard questions. The problem here is that the outcome can be self-fulfilling: you want to start a savings plans, so you ignore the issues of personal protection in the planning process and set yourself up a £50-a-month ISA when you should really have started an income protection plan and a ‘rainy day’ fund.
Over the years, I have found this to be a challenge with clients. Many advisers only want to do planning for high net-worth individuals with lots of cash, and if they do cash flow planning, prefer to do complex solutions for which they can command high fees.
For the past few years, I have been using some simple cash flow modelling software to try and bring some planning guidance into my consultations with ‘ordinary Joe’ clients. The results have been really positive: clients enjoy getting an answer to the key question, which is usually, “Have I got enough?”
What I have realised is that you have to start to work with clients to think of the actual time spent with an adviser as an investment in itself. So rather than invest £50,000 in an investment portfolio, why not take £1,000 of that and first of all ‘invest’ in making a plan – from which you may get much greater insight into your planning needs.
Julian Parrott is a partner at financial advisory firm Ethical Futures, based in Edinburgh.