The financial planning industry is facing a perfect storm of regulatory change, new legislation and increasing demands from clients, which is placing transparency at the heart of activity and forcing firms to adapt.
In 2012, the RDR prompted greater transparency at every stage of the advice process to restore consumer confidence and promote fairness in retail investment. Mifid II has also put the onus on planners to clearly and prominently explain their charges; often a large percentage of investment returns.
These changes, coupled with the rise of robo-advice, means planners have to focus on being able to demonstrate their value-add.
Value can be demonstrated in a variety of ways: most importantly with human interaction and empathy, but also by offering specialist knowledge and using technology to empower clients to make more informed decisions with greater confidence and clarity.
By focusing on enhancing value-add activities, firms can significantly strengthen the client relationship and can also differentiate themselves from the ever-improving robo offering. Evolution is key and firms will have to embrace this new way of working or risk becoming extinct. The good news is that most appear to have already made this change or are in the process of doing so.
Transparency has been the catalyst and both planners and clients will be the beneficiaries. The obvious and immediate benefit for the client is that transparency leads to reduced charges but, more importantly, it results in an improved and more efficient service.
It is also crucial the client is transparent with their planner about their financial situation and goals for the future. Extracting a client’s honest thoughts sounds easy but often involves a different relationship approach to that exercised in the past. Many now consider planners to be as much a life coach as an adviser.
Ensuring transparency flows in both directions also means clients know what planners can and cannot control when it comes to potential outcomes. For instance, investment returns are just one part of the puzzle and often out of a planner’s direct control. Explaining this early on in the relationship removes potential stress points when things might not go as expected and poor returns can be put into context and offset by value added elsewhere.
The benefits of transparency can also be amplified using cashflow modelling technology, as planners are able to directly engage clients in the decision-making process.
This helps to build trust and strengthens the relationship as the risks and rewards of different decisions can be fully discussed interactively. Cashflow modelling also helps to remove client inertia and quantify the value planners are adding. This ensures clients understand the process, are invested in the outputs and value advice in the context of long-term lifestyle planning.
Gone are the days planners are judged only on investment performance – a position that will increasingly be under threat from robo-advice. Greater transparency helps make the planning process more engaging, improves the value of advice given and increases the confidence of clients in their plans. Additionally, planners are able to mitigate against threats and transform the way they work to drive better compliance and profitability.
Mark Harman is chief executive at i4C