Those who sell their version of the truth, and deride all else in the process, are no less than fanatics
The activity of financial advice is the process of maximising the purchasing power of an individual, family or enterprise.
Its key features include organising the accumulation and protection of capital, organising clients’ affairs to legitimately minimise the impact of taxes on that capital, and dispersing that capital and its distributions in a sustainable fashion.
Adding the prefix “regulated” to financial advice demands that these principles are performed within a framework of constraints – that the advice is aligned with the client’s tolerance of risk, their capacity to accept it, and that the cost should be proportionate to the anticipated benefit. The process must not be constructed to unnecessarily benefit the adviser, nor the manufacturer of the financial “treatment”.
As with the latter-day versions of the Hippocratic Oath, an adviser – fiduciary or not – should first “do no harm”. There is no caveat relating to delivery mechanisms, styles of investment management, administration platforms or the relative merits of independence or restriction. You just do what you consider to be “the right thing”.
There are, of course, myriad ways to do the right thing; to fulfil these principles and exemplary outcomes delivered. However, those tenets are also open to interpretation and revision by practitioners competing for some intellectual – or worse, moral – high ground, with an almost inevitable result that their right way becomes the only way.
Yellowtail Financial Planning managing director Dennis Hall recently shared a fascinating blog describing the “God Complex”, where an individual or group possesses an unshakable belief or philosophy illustrated by consistently inflated feelings of personal ability, privilege or infallibility. Being right, regardless of the evidence.
There are factions within the advice community that are increasingly exhibiting these symptoms. Unfortunately, the upshot is clients may find themselves constrained to a dogmatic approach without realising there are other options.
The richness of the advice industry is less about doctrine and so much more about technical knowledge, creativity and relationship management. The very essence of advice – suitability – is simply a recognition by a client of the benefits of a proposal, when all the relevant facts have been disclosed and understood, supported by a regulator for the most part focused on principles, rather than rules, or investment doctrines. Yet, even here there are competing interpretations of the regulatory imperative.
Without any strong and respected trade leadership to speak of, the advice community struggles to speak with one voice. Various approaches to investment advice, financial planning and even its remuneration are being propagandised as “the right way”.
Cashflow modelling versus not and outsourcing to discretionary managers versus advisory models or multi-asset funds are among the less contentious factions. Others exhibit a more political (if not religious) fervour; a teen-romantic attachment to academia and an almost hysterical antipathy towards active investment management exemplifies another more vocal group whose apostles share their doctrine uncompromisingly, berating any alternative view.
As with touring Bible-belt preachers, the movement additionally benefits from the ability to draw in a fee-paying crowd of potential disciples.
Fortunately, the majority of the 26,000 advisers in the UK do not use Twitter as a pulpit, nor do they seek some insubstantial fame by their media exploits. They do not choose to be devotees of one faction or another or embarrass themselves by appending trade magazine articles with inane comments.
They could not care less about artificial intelligence, robo, fintech and other intellectual catnip that intoxicates commentators rather more than the rank and file.
All shades of regulated adviser are entitled to plough their own furrow.
Some will swear by DFMs, while others will swear at them. Some will run their own money, others will use multi-asset funds. Many will use cashflow modelling, while others may choose an alternative way to plan. Passive funds may appeal to cost-conscious clients or beta advocates. Active funds will interest investors preferring selectivity. Flat-fee platform A may suit one adviser, ad valorem B another.
The industry has one police force: the regulator. No faction has the right to dictate to others what is appropriate and what is not, and certainly not to berate other views.
So, beware factionalism raising its head in the advice industry, with various versions of what stands as “truth” or “professionalism” promoted relentlessly, and alternative views shouted down.
In any area of society, factions that sell their version of the truth, and deride all else, are no less than fanatics. Financial services – and especially advice – can do without it.
Graham Bentley is managing director of gbi2