Holistic financial planning is all the rage, but what does the term really mean? Edward Murray looks at the concept behind the name tag we have become so focused on labelling and categorizing everything these days that it sometimes feels as if we have forgotten the substance of what actually underpins all of this fervent activity.
As an example, what sort of financial advice do you offer clients? Are you independent, tied or multi-tied? Are you directly authorised with the Financial Services Authority (FSA) or do you operate as an authorised representative? Are you commission-based or fee-based? Are you… well the questions could go on, couldn’t they?
Firms brand the style of advice they offer clients in seeking to distinguish themselves from their peers; perhaps the most common description to get banded about in recent years is “holistic financial planning”. But just what does this mean, how does it differ from other approaches and does it lead to significantly better results for clients? Indeed, are those purporting to offer holistic financial planning actually doing so?
Holism is the philosophical theory that the whole is greater than the sum of its parts. In medicinal circles it is the idea that in treating a patient we should treat the whole body, rather than just the illness in isolation.
In terms of financial advice, therefore, holistic planning is about looking at the needs of the client in full and creating a patchwork of financial instruments and advice that works in combination to deliver the very best result possible for both their present circumstances and their future aspirations.
“It is about sitting down and talking to somebody about their financial situation and their goals without giving any regard to a particular product,” says Alan Steel, chairman at Alan Steel Asset Management.
Whatever the phrase that happens to be in vogue, Steel believes that this is the way financial advice should always be offered and is adamant that advisers should distinguish themselves as agents of the client, always operating in the client’s best interests and working to long-term objectives. ……
This is all very well, but the fact of the matter is that there are still a lot of people in the UK who do not receive good advice. Many end up buying products that are totally unsuitable for their circumstances and paying too much for them to boot.
As Steel bluntly puts it: “People are cynical and in a mess because they have been screwed rotten for years.”
The point is that some advisers simply care about making the sale, rather than what the product they are selling will actually do for the client. Once the sale is complete, they up sticks and move on to the next person and the idea of working with clients on a long-term basis, or operating in partnership with them to attain their financial goals, is simply not of any interest.
Indeed, there is some weariness among many practitioners who believe that tags like holistic financial planning are merely picked up by those seeking to camouflage their activities and give them the cover they need to sneak in under a client’s defences. ……
This is one of the core tenets of the Retail Distribution Review (RDR) and once its edicts come into play in 2013, it will be interesting to see just how much difference adviser remuneration makes to the type of service clients get.
Many are cynical that the RDR is just an academic exercise and does not address the issues at hand. Those that want to offer an all-encompassing service based on the best interests and long-term goals of their clients will do so, while those who do not will find a way around the regulations in place.
Equally, it has to be said, not all clients want to put in place a long-term relationship with their financial adviser and many just want a one-off product to cover a particular situation or meet a specific need. Therefore, a holistic approach is not always what the client needs and a product-led approach should not always be vilified. The problems arise, however, when one is passed off as the other and clients looking for advice that will stand them in good stead get sold products that are wholly inappropriate rather that holistically viable.
How well the regulatory changes guard against this eventuality remains to be seen, but there is a feeling that perhaps the FSA is focusing on the wrong thing in trying to address some of the issues.
Of course, the likes of remuneration and adviser qualifications are important components in assuring the way clients are treated, but they do little to address the dearth of knowledge that the man in the street has about the financial services industry.
Without such knowledge, it becomes very difficult for people to realise the scale of the challenge that achieving financial security for themselves and their loved ones represents. For those unsure about financial services, it is also difficult to recognize the huge difference that exists in the various levels of service and value that are currently on offer from both advisers and product providers.
On top of a focus on client education that would help deal with these issues, Steel would like to see better efforts made on disclosure. He says: “The FSA needs proper and effective controls on disclosure. It is too easy to doctor a file so that a client can be ripped off.”
Rather than focusing on the records held by advisers and providers, he says, “you have to do spot checks on the people that have actually bought the products”. Only then will the regulator know what sort of service they are receiving and whether they understand the products, fees and commission structures in place.
Even where advisers are offering what could be genuinely termed as holistic financial planning, there are those that question whether this is really the gold standard that so many claim. ……
Whatever the truth in the definition of holistic financial planning, the more important debate for the industry is whether the various name tags it uses actually help in consistently delivering the best outcomes for clients.
Too often they do not and, call it what you want, this inconsistency has created the lack of trust that so many clients feel for financial services, and which so many financial advisers struggle to overcome in return.
Quote courtesy of Financial Solutions
March/April 2010
