After an initial discovery meeting, a prospective client reached out to say they were interested in working with me, they just had one question. Did we need to undertake the life and financial planning stages or could we instead skip straight to the investment stage of our on-boarding process?
The client had an existing relationship with an investment focused adviser with whom they met once a year to discuss portfolio performance, and not much else. It would be easy for me to agree to the request, but I believe financial planning is essential, and skipping it is a “shortcut” clients will regret.
Despite having some great tools at our disposal such as Voyant, financial planning done properly is a time-consuming exercise for advisers. The process also requires commitment from the client, both in terms of their time and thought given to their current and future. Some stages of the process can be a bit of a grind; I know because I have been through the process myself!
Clients may need to dig through the previous years’ worth of bank statements. However, this exercise alone adds enormous value for the client, including enabling us to understand exactly how much is being spent and in what areas.
Later in the planning journey, knowing a client’s financials can enable us to undertake “What If” planning exercises. For example, if a client can reduce their expenses in a certain area without a significant lifestyle change, given prudent assumptions how might it impact their potential lifestyle? For a lot of people, lifestyle is a compromise. With financial planning tools we can bring to life the trade-off between current spending and future lifestyle when they stop working and rely on investment funds.
Finally, we can use an expenditure baseline to estimate future spending. We frequently find with new clients, especially those that are a decade or more from financial independence, that they haven’t thought much about what they want their future to look like or what it will cost. For example, a client might reduce what they spend on their children in later years and instead spend it on holidays and weekend breaks.
This process can take several iterations with the adviser helping to ensure future expenditure plans are realistic and possible scenarios are catered for.
The value is in the planning, not the plan. Over time, circumstances, plans and dreams may all change. This is where the value of the ongoing adviser-client relationship is so important. Forward planning meetings should be about more than investment performance. They are a chance for the planner and the client to look ahead and determine whether the plan still aligns with their goals. Can the client stop work a year early? Can they take on a lesser paying, but more rewarding job? I have clients frequently say how much they value these discussions, and it is a privilege to help them build their future.
I find the planning process also helps greatly during times of market turbulence, with clients being reassured that they have a robust, multi-decade plan in place that is unaffected by short-term market volatility.
For the client I mentioned earlier, I wish I had a time machine available where they could jump into their future. They could see the peace of mind that financial planning can give them. But it is obviously difficult to get that point across to someone until they have actually experienced it.
Imagine if we did not undertake a financial planning exercise. The client might be fortunate fifteen years from now and in the position of being able to stop working at their desired age with their planned lifestyle. However, imagine if this were not the case, and they discovered that they had to work longer than they wanted to or accept a lesser income. Could I really say that I had done my utmost to ensure the client achieved their goals, knowing they could have made changes to improve their outcome when they had time?
Of course, financial planning doesn’t guarantee great outcomes, but it allows clients to bring the future into the present and make small changes now that will have a significant impact a couple of decades down the road.
The financial planning community is doing great work in educating consumers on the value of financial planning. Hopefully we will get to the point where the financial planning exercise is an expectation for those engaging with an adviser.
Noel has been in the financial services sector since 2000, primarily within investment banks. He left the city in 2017 with the aim of working with people planning for retirement in Surrey and London. Outside work, Noel is passionate about rugby, coaching his son’s team and supporting both local teams and the Scottish national team.
