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In praise of planning

Like most of the commentators in these pages, I tend to criticise, so for a change I want to celebrate. The excuse is the publication of The Process of Financial Planning, a Taxbriefs Guide I co-wrote with Danby Bloch.

It aims to explain everything you need to do as a financial planner and the processes you need to use to do it well, which tells you that Danby and myself are not afraid of big challenges.

Back in 1980, I wrote a book titled Personal Financial Planning, aimed at helping individuals to navigate through overcomplex taxes and confusing investments. Ever since, I have believed that the practice of financial planning should be seen as a profession and, in this respect, I am glad to say we are getting closer to reality.

What cheered me most at the Personal Finance Society conference last autumn was that the breakout session on professional ethics was crammed to the walls. Those who have reached chartered status (or IFP equivalent) understand what professional standards imply and are taking it forward to the next stage. Terrific.

What the exams do not tell you is how to put it all together in a process. To enable a new generation of financial planners to learn how to do it methodically, we have to break it down into steps and processes, which forces you to think about how it all fits together.

Condensing the vast, tentacular, multi-dimensional field of financial planning, with its ill-defined edges, recursive loops and sensitivity to small differences in circumstances and legislation into a manageable series of steps reminded me just how difficult it is to do real, all-round financial planning.

For example, Danby and myself both expected writing the sections on fact-finding to be easy but realised that, as is so often the case in financial planning, there are loops. The questions you need to ask to give the right advice are dictated not just by the client’s circumstances but also by their goals, yet the goals often do not become clear until the adviser has had several discussions with the client.

That is typical of the way that financial planners have to work, repeating one or other stage of the process several times before being able to nail it down and say that step is complete.

So to those of you who delight in algorithms and decision trees and believe you can manage the process with a suite of online tools, I say – dream on.

Read The Process of Financial Planning and you will understand why real financial planning has to be done face to face by a fully qualified adviser with considerable interpersonal skills – and why under- standing a client’s capacity for risk can never be derived from a risk questionnaire.

I do not believe everyone needs financial planning. The vast majority of people can get by with one-off specific advice at key points in their lives and that form of advice can be provided by decision trees and online tools. Financial planners are an elite and should command fees higher than those charged by lawyers or accountants for personal (as opposed to corporate) work.

Writing The Process of Financial Planning was hell. Not because of my ever urbane and charming co-author, but because – contrary to everything we say in the book – we completely failed to plan the writing job realistically and had to slave madly to meet the deadlines. I hope the book will help practitioners to do better.

Chris Gilchrist is director of Churchill Investments and editor of The IRS Report


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