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Financial planning is the key to the 1% challenge
by Nick Cann on Jan 25, 2013 at 12:45
The move to fees is over but the battle to justify a 1% charge has just begun, and financial planning provides the weapons you need to show you give value for money, writes the Institute of Financial Planning chief executive Nick Cann.
Whatever your state of readiness for the post retail distribution review (RDR) marketplace, these are certainly interesting times for our profession. It is particularly interesting to see how business models have evolved as advisory firms tackled the RDR’s demands in an attempt to be somewhere near the regulatory requirements ahead of the 31 December implementation date.
In recent years, the historic norm of 0.5% trail has been increasing to 1% for ongoing service because, for many, this more closely matches what is they need in return for the service they provide. Some advisers will be providing a service to that value and others will be delivering even more; but there will also be some whose service does not live up to their clients’ expectations.
While a 1% charge may not sound a lot, it is easier to apply when markets, and hence the value of clients’ investment portfolios, are rising strongly. In the current environment, where investment returns remain under pressure and in many cases the investment has been outsourced, the situation might be different. Add in the need for greater transparency, a pounds-and-pence translation of the 1% and an increased interest around cost, and the task becomes more challenging.
The core of success
Many accredited financial planning firms and others, such as certified financial planner professionals who have already been operating a fee-charging model, have been dealing with this for years and continue to grow successful businesses.
At the core is the provision of a comprehensive financial planning service. But not all advisers are financial planners. They need to shift their focus from the recommendation of products and investments to the genuine requirements of the client, beginning with the end goal firmly in mind. In this model, the value has already been transferred to the planning rather than the regulated activity of selecting products.
Yes, the products remain important but only from the perspective of allowing the client to achieve their goals and objectives.
The planner needs as close to 100% of the client’s relevant information as possible. This provides the platform to build a long-term relationship based on trust and which continues to add value throughout the journey.
The focus is firmly on the client and the likelihood of them being able to achieve their goals. There will be defined priorities and actions. There will be commitment on both sides and there will be a clear delineation of roles and responsibilities, which will include the client’s expectations.
The ability to use cashflow modelling or, at worst, the shortfall analysis that a financial calculator or Excel spreadsheet can provide, opens up the possibilities for a client. Once they trust the planner and the firm that they work for, they are prepared to engage fully with the process and what is genuinely important to them.
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