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Phil Wickenden: Financial planning must go hand in hand with investment management

Phil WickendenThe reason the customer is always right is because if you insist they are wrong, they stop being your customer. Most of them, at least. But that doesn’t mean you can’t or shouldn’t challenge them.

What clients value from financial advice is, broadly, the trust that their finances are being taken care of by someone who has the expertise and ability to plan and enable the achievement of their life goals.

When we combine this with what existing clients tell us about the specific components of service they value most, the case for combined financial planning and investment management is clear. But there remains are a high proportion of investment management clients who do not have a proper financial plan, or planner, in place.

The achievement of life goals, through expertly managed finances (and the subsequent confidence and peace of mind it brings) cannot be achieved with either just financial planning or investment management in a vacuum. Providing one without the other will not satisfy client demand.

Where investment management operates in a vacuum, independent of any discernible financial plan, the risk is that key questions in relation to the following are not addressed:

  • Personal taxation – now and in the future;
  • The importance of access to capital;
  • Extent to which tax efficiencies have been used– notably in Isas and pensions;
  • Estate planning aspirations;
  • Financial goals;
  • Plans for future residence or domicile.

Without these financial planning-led questions, investment managers can fall foul on each question in turn. They may not:

  • Make the right wrapper choices – Isa, pension, collective, bond;
  • Make the right wrapper choices a second time – for example pensions as opposed to others with greater access;
  • Take available pension or Isa opportunities;
  • Take estate planning, gifting, or trust structure opportunities;
  • Make sure the investment plan does not operate in a vacuum;
  • Meet a key planning or structuring need.

This may all lead to significantly sub-optimal outcomes for clients. Without the integration of financial planning, the very things that consumers value about advice and aspire to are far less likely to be met.

As such the challenge is for financial planning to demonstrate to investment managers and prospective clients alike their planning alpha and the material difference it makes to the achievement or lack thereof of financial goals.

Phil Wickenden is managing director of Cicero Research


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