It’s Time We Did What It Says On The Tin

A Twitter discussion has highlighted a significant issue we financial advisers have in engaging with the public.

Or do I mean we financial planners?

It seems the financial advice world is polarising into two broad camps. It’s time we made it easy for the public to tell one from the other, and therefore which is right for them.

How To Tell Black From White

Henry Tapper, an ex-IFA and a big name in the pensions world, wanted some advice. So he approached three wealth managers. Here he describes his experience.

Now, the first thing I thought (and tweeted) was along the lines of “You need financial planning, why did you speak to a Wealth Manager?” Trouble is, the public don’t understand what a Wealth Manager actually does. In fact, I’m not sure I do either! (I’ve written on this before).

The discourse continued with this question from Sam Pickford (@pickfos): “How does the average bloke tell a financial planner from a wealth manager? unbiased/vouchedfor don’t distinguish”.

It’s a great question. So why don’t we, as an industry, make it clear to the public what different names mean.

What Do The Terms Mean?

Why don’t we set some rules in place about what different descriptions mean? The FCA can enforce it to make sure the service someone receives matches their marketing.

To get the ball rolling, I’d suggest the following:

Financial Planning: The provision of a financial plan, probably involving cashflow forecasting (whether it’s some figures in a report, a spreadsheet, or specialised software). This to be followed by the provision of financial products, tax planning and investment management to realise that plan.

Financial Advice: The provision of financial products to suit client needs. May be online.

Wealth Management: The provision of investment management.

Financial Coaching: The provision of financial guidance to help people understand their relationship to money. Not regulated.

Oh, and I’d outlaw the term ‘Robo Advice’ completely!

A firm would then have to name themselves according to the predominant service they offer.

Restricted And Independent

The definitions Restricted and Independent have no relevance to this debate as it has no bearing on the type of financial advice given. A Financial Adviser could be independent, a financial planner could be restricted, and a financial coach doesn’t care about products at all.

I’d also argue the public aren’t that interested in whether a firm is restricted or independent. There is one very large national practice who are restricted yet seem to be doing pretty well!

Meat On The Bones

Let us agree these definitions amongst ourselves and present them to the FCA. We need to be clear to the public what they are signing up for.

To give a few examples:

  • A DFM who has a small team of financial planners would be called Wealth Managers, as planning is not part of the core proposition (I came across one DFM that said it provided ‘holistic financial planning’ because they had two financial advisers in the London office.)
  • For a firm to call itself a financial planner it MUST have a process by which it seeks to meet with clients at least once a year. Perhaps their T&C scheme must include a minimum number of hours for interpersonal skills training
  • A firm who has an historic client bank that they do not service other than a regular newsletter would not be allowed to call themselves financial planners

I’m pretty sure we could come up with a document which describes, in general terms, the service a client could expect to be offered by each firm type.

Getting It Across To The Public

Such definitions are all well and good, but how would we get this out to the public?

Unbiased and VouchedFor would have a part to play. The definitions could be outlined on the home page, then be highlighted on each firm or individual’s listing. Likewise other people who make comment on advisers such as Which?, Paul Lewis and Jeff Prestridge.

The important thing would be that marketing would not be allowed to circumvent the definitions. The whole point would be to provide clarity for the public – a financial adviser firm shouldn’t call itself ‘XYZ Wealth Management’ unless it really does provide DFM type services as its main focus.

Conclusion

We can debate these definitions (I know some will argue that you can do planning without cashflow, for example), but that would be to miss the point at this stage.

How do we answer Sam’s question? Our marketing has confused the public and they no longer know where to go for the right type of service for them.

If an industry professional such as Henry is getting confused with the current position, what chance do the public have? How many people are being put off taking advice at all as a result?

Share:

2 thoughts on “It’s Time We Did What It Says On The Tin

  • I find these titles very helpful Chris, I like financial planners who help me take decisions and I worry about wealth managers who kid me I’m wealthy to relieve me of my money! I thought I was talking with financial planners but they turned out to be wealth managers in disguise, I was a financial adviser, i flogged products for a living, never got paid for the planning (which was free!).

    Nowadays we do this coaching thing, it’s a very good word – much better than “education”.

    Sam is right to ask the question, I’m not sure I could get things right next time around. A lot of fees from planning seem to be waived if I subscribe to the wealth management service. I believe this is now called a “contingent fee”, it blurs the lines for me (and i suspect Sam).

    Then there’s all that sophisticated stuff you get about VAT, I’m not VAT registered though my companies are, I pay VAT as an individual because it’s the law. I really don’t get how using a certain type of tax-wrapper turns off the VAT!

    Finally, ask the question, “how many people will ask the question”. All this comes to light because I blab about my financial decision making on a blog – and tweet the blog! How many people are dull enough to do that!

    I don’t know what the answer to all this is. The advisory community spends so much time thinking of new ways to get paid but I find that most advice is still being paid for from ad valorem raids on people’s investments. Apart from the PI aspect, I can see no reason why advice becomes more expensive the more money you have! The hardest people to advise are the ones who’ve got no money at all!

    I guess all this tells you why I’m a failed financial advisor!

    Reply
  • Very good Chris I fully agree with the distinctions between the four roles when it gets really confusing is when an individual or firm does all four.

    A Financial Planner will very often provide financial coaching as part of that, then they will become a financial advisor to provide the products an solutions to put the plan into action and the investments held within those may be in house portfolios so they can be a wealth manager as well.

    The danger is I suspect that Financial Planner will be seen as the gold standard, I think it already is, so many will try to claim it even if they don’t actually do it. Protecting and regulating the titles will be the difficult bit.

    Reply

Leave a Reply