In my previous article I made the case for embracing lifestyle financial planning – not only on its own merits but also because it adds value for our clients that cannot easily be undercut by discount brokers.
I did not convince everybody and an anonymous commenter suggested I had a rather narrow view and there was a “planning myth”. In short, I should get some perspective and move out of my planning bubble.
Definitions vary but I make a distinction between financial advice and financial planning. Financial advice is often regarded as an arena of hard facts, number crunching and finding quantifiable solutions. Financial planning does not discount those essentials but it also emphasises a much deeper understanding of clients’ wishes, objectives, hopes and fears.
Some planners take a rather evangelical approach to this, which has helped foster the reputation of financial planning as a bit new-agey, a bit American. That can put advisers off the idea but there is no need for it to be like that at all.
There is nothing airy-fairy or vague about what I do; it is just about me helping clients to identify the lifestyle they want.
The reality is that these two approaches are not mutually exclusive but intertwined and complementary. Good advisers have always understood the hopes of their clients but financial planning will probably have been done behind the scenes. The big difference is that those who consider themselves financial planners are actively engaging their clients in that process.
My experience is that this client engagement makes an enormous difference to how the client values the professional relationship – so adding value and ultimately securing our own future as a profession.
That is not to say that the resulting action points will be very different (although they may be) but the clients certainly have a much greater degree of understanding. They also feel that I am focusing on them rather than just their money.
Having identified the lifestyle points, we use cashflow modelling interactively with clients so they can see their financial future. Like many, I have used this modelling behind the scenes before but it is the decision to use it in front of clients that really works.
Potential problems of running out of money due to overspending or being too cautious are immediately visible to clients. Alternatively, they may see how their capital never dips below a certain level and this can give them the confidence to spend or gift more during their lifetime.
Of course, there are caveats. Some clients will not understand or fully appreciate financial planning. Some of our potential clients simply insist that I sort out a specific issue. But that does not mean that for the majority of clients, and advisers, it is not the best approach to take.
Incorporating interactive financial planning means a lot more work for the adviser, and for the client the process takes longer. This may put off advisers who are already busy and successful; some will not want to risk the outlay of money and time that is needed.
However, in my experience the additional time and work is a valuable investment in your client relationships that is more than worth it in both emotional and financial terms.
I would urge all advisers to consider embracing financial planning.
Scott Gallacher is director of Rowley Turton