Let's separate product from advice

The financial planning industry is coming under increasing scrutiny these days. On the regulatory front, the Ontario government has announced plans to develop legislation that would regulate financial planners in Ontario. Under the proposed framework financial planners would be required to meet specified proficiency requirements. Additionally, the government indicated that it will take steps to reduce consumer confusion created by the wide variety of titles used in the financial services industry by restricting the use of titles related to financial planning.

While a start, there are calls from some consumer groups to more clearly separate product sales from advice. What people really need to get from a planner is an answer to the question, am I on track? Planners should focus on getting to know their clients and helping them to simplify, declutter and remove their financial anxiety. Investment managers are qualified to keep clients up to date on portfolio returns but returns are only part of the picture. How many people, irrespective of income or net worth, genuinely know if they are on track to achieving their goals? This is where financial planning specialists can really help. Advising on products and investments is not financial planning. Investment advice should follow a properly developed financial plan. Financial planners should help clients to understand that financial products and investments are tools that only need to be used if required. Proper financial planners should only use products to help implement certain strategies. With that approach consumers will finally come to understand what proper financial planning really is and how they can benefit.

The investment industry’s main focus has traditionally been to gather assets and build assets under management (AUM). Historically financial advisers have been money managers. This model has been in place for decades although there has been a shift from transactional fees to fee based accounts. When advisers meet and swap notes, one of the first questions asked is, “how much do you have in AUM?”. There certainly is a client need for some basic services at low, and perhaps subsidized, prices but at the higher end, professionals should adhere to certain standards such as providing disclosures concerning their relationship with clients. If the consumer wants to be transactional in their relationship this should also be clear to them. The legal profession receives fees for service and they have nothing to sell other than advice. Could the financial planning industry survive without product? Until the value is seen as being for advice and strategy, advisers will continue to sell products.

Regardless of the business model, financial professionals of all types need to be clear on who their optimal client is, what their client experience will be, how they are structured to support this experience and how they manage to do it profitability. They need to answer the key strategic questions around why they exist in financial services, regardless of which regulatory structure they operate under. As the financial industry continues to evolve, more advisers are likely to view themselves as financial planning professionals and not product distribution outlets.

What clients should look for in a Financial Planner

•  They have studied financial planning to a high level,
•  They are keeping current with the latest trends in the industry,
•  They will tell you what you need to hear, not what you want to hear,
•  They will not receive financial remuneration for any products they recommend and, most important of all,
•  They will act in your best interests at all times.

Enshrining the term ‘financial planner’ is a step in the right direction. In most jurisdictions these days anyone can call themselves a financial planner, whether they are licenced or not. In conjunction with the proposed Ontario legislation the media and public will need to be educated to understand that there are qualified and ethical financial planners, many of whom are CFPs, in the financial industry. There are many compelling reasons to seek financial planning advice, not only as a one-off, but ongoing, however few people do. If the planning industry doesn’t change, then the interest of ordinary people utilizing the industry’s services won’t change either. People will handle life’s financial challenges the way they have always done it for the most part, without financial planners. There are many very good financial planners and there is great advice provided to clients but it needs to be complimented by a product sale or by building up assets to enable the adviser to be remunerated. Going forward, consumers need to be better educated about the need to stay on track with a plan and be willing to pay for it. There needs to be a clear separation of advice from product if the financial planning industry is to become a true profession. While it may be a long way off it seems likely that this overdue separation is coming.