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The essence of financial planning

September 6, 2017

 

There’s a fascinating, and occasionally heated, debate taking place in the UK trade press just now about the role of the financial planner. How exactly is he or she really add value? And what sort of things should they be spending less time on, and perhaps not meddling in at all?

 

 

I was particularly interested in a recent article by Alistair Cunningham in Money Marketing. In a rush to differentiate, he argues, many firms are straying into areas requiring completely different skillsets. Alistair is particularly sceptical about the concept of the adviser as life coach.

 

 

He writes: “I have heard some advisers proudly boasting of invoking emotions in their clients at both ends of the spectrum: joy and tears. I find it strange that this is desirable.

 

“There is a perception that if you are not focusing on the ‘big picture’ emotional stuff then you are not doing the right job, irrespective of your qualifications.”

 

 

Money Marketing has now published another article, by Chris Budd, a financial planner and personal finance writer, which puts the opposite point of view.

 

“Coaching,” writes Chris, “has huge advantages to the adviser/ client relationship, especially if in doing so you help the client understand themselves better. Alistair finds it bizarre an adviser would want to use such skills. I find it bizarre they would not.”

I must say, I can see both sides. Like Alistair, I’m concerned that advisers who act as life coaches lack the relevant expertise — although, to be fair to Chris, he agrees that much more attention needs to be given to training advisers in so-called “soft skills”.

 

I’m also very wary of any insinuation that someone’s happiness and fulfilment are directly connected to their financial situation. Of course, having enough money is crucial to our mental and emotional well being, but we’ve all met people who appear to have everything going for them — money, possessions, holidays and so on — and yet who are deeply unhappy and insecure.

 

That said, I do agree with Chris that coaching is an important part of the financial planner’s job description.

 

 

By far the best article I’ve read on this subject lately was by Tim Maurer for the Advisor Network on Forbes. In it, Tim explores George Kinder’s assertion that “the whole life planning process is wrong”.

 

He starts by breaking down the work of a financial planner into two different elements, which he calls quantitative analysis and qualitative analysis.

 

“Quantitative analysis,” writes Tim, “is the more tangible, numerical and objective. It’s where planners tell clients what they need to do and, perhaps, how to do it.

 

“The qualitative work of financial planning is the intangible, non-numerical pursuit of uncovering a client’s more subjective values and goals — their why.”

 

Whatever terms you prefer to use — quantitative and qualitative, or perhaps below the line and above the line, the term used by Barry LaValley and David Haintz in their new book, The Life-First Advisor — this is a very helpful distinction to make.

 

Of course, the quantitative or below-the-line side to the job is a major component of financial planning. But it’s not the most important one, or the one which adds most value.

 

Unfortunately, though, it’s the quantitative side of the job that, historically, advisers have tended to focus on. It’s also where they’ve felt the most comfortable and received the most training. Sadly, there are still far too many advisers who see their investment expertise and their ability to pick the right funds and sectors as the core of their value proposition.

 

The problem with “traditional financial planning”, says Tim Maurer, is that it presumes that clients already have a clear and objective understanding of their goals and priorities. But, as most financial planners  know, clients often don’t, and even if they do, they struggle to articulate those goals and priorities when prompted.

 

“We know that personal finance is more personal than it is finance,” says Tim. “Many of us, however, don’t have the training, experience or even the language to skilfully guide our clients down this path of self-awareness.

 

“We must recognise that life planning is an essential part of financial planning. It’s not a niche or a club. It’s the essential process that must be done before a financial plan can begin,’ says George Kinder. Or, more simply, it’s financial planning done right.”

 

No, you don’t need to be a life coach, but successful financial planning starts with life planning, and that does involve an element of coaching.

 

So if you need to brush up your coaching skills, get yourself trained. In the meantime, Tim Maurer’s directive says it all:

 

“Listen. Stop talking. And listen.”

 

 

 

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“There are very few people in the world who understand financial advisors and great advice as well as Barry and David. Their lifetimes of learning are now documented to help others provide the care to the folks who need it most. This is a must read for those who simply want to improve their care to clients.”

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