Most financial planning advice is attached to an investment adviser's investment recommendation by the investment industry. For most people, regulated investment advice is the only financial advice they get. Even tax planning advice is elusive, given that most people's accountants do their tax returns and nothing more. No one advises on the other financial matters. That is until now.
But that's not financial planning.
Regulated investments make up five per cent of the nation's wealth (source: UK ONS wealth and Asset survey). Financial planning is about planning all your finances, the complete 100%. Also, it is about making wealth, not simply saving wealth you've already made.
Investment advisers are paid by the investments they recommend. That can create a conflict of interest as the adviser can be motivated by the investment recommendation. And those fees can be hidden or buried within the investment. For example, the adviser will receive the ongoing adviser fee (OAF) with mutual funds. That fee is typically 1% of the fund assets annually. The investor will also pay the management fee on the fund, a platform fee, and a product fee.
The investor sees things this way. They would not write a cheque for the investment adviser's fee. They are happy instead for it to be taken out of the investment. They ask, "after your fee is taken do I do better than if I'd left the money with the bank?" To which the investment adviser (usually) replies, yes! The client replies, "then I am happy with your fee."
This deception is taking advantage of an information asymmetry and the financial illiteracy of a vulnerable investor. The perception is not the reality. The comparison of investment versus bank is not fair. The comparison should be between advised investment and direct investment. The evidence proves that 99% of the time the direct investment wins.
Advice-only planners offer conflict-free advice. The client will receive financial planning but no investment recommendation. When you use an advice-only planner, there is a wall between the financial plan and the investments used to reach the financial goals. The fees paid are transparent and disclosed. It is a direct arrangement between the client and the planner.
Advice-only financial planners can concentrate on what they do best and where they can add the most significant value. They will create a holistic life plan. They will help you reach your financial and life goals. The separation of financial planning and investment recommendations makes perfect sense.
Financial planning integrates all aspects of your family's finances, including retirement, tax and estate planning, and investment and insurance strategies. Proper financial planning is a process, not a product.
The title of the financial planner is not a regulated one. So be sure when you hire a financial planner that you are hiring the highest-level professional, a Chartered Financial Planner or a Certified Financial Planner.
Advice-only financial planners are comprehensive advisers who can help you fit all the different pieces of your financial puzzle and don't sell any products.
Advice-only financial planning brings the integration of all areas of personal finance to the forefront and makes it the sole goal of the client-adviser relationship.
Proper advice-only financial planning ensures that the planner and their company are compensated solely by agreed-upon fees paid by the client. This approach means there are no hidden costs, third-party financial motivations or kick-backs – the planner represents the client and only the client.
Objectivity is the name of the game, which is essential in a global financial market that can be fraught with conflicts of interest.
Advice-only financial planning should not be confused with fee-based investment management, where investors pay an annual fee to their investment adviser based on a percentage of their investments. A fee-based approach is simply a way to pay your investment adviser.
Advice-only financial planning keeps advice and potential products separate, so most clients who work with an advice-only financial planner may also have a separate investment adviser and insurance agent.
Some people are reluctant to add another adviser to their repertoire. They already met with their accountant in January to get their income taxes completed. They meet with their investment adviser in March to make their ISA contribution. They have an insurance agent who has arranged their insurance policies. They have a lawyer who updates their wills and powers of attorney from time to time. The problem is, even though these various professionals may be great at what they do individually, there is often little or no integration of their recommendations. The advice-only financial planner is your personal concierge and your personal financial bodyguard, protecting you from conflicts of interest.
Advice-only financial planning fees are charged for comprehensive financial advice based on the expertise required, complexity and time required. Advice-only financial planners are professionals and charge their fees much like other professionals such as lawyers or accountants. The fees have nothing to do with a client's income or assets, meaning every client is just as important as the next, and our advice is unbiased. This approach contrasts the traditional provision of financial or investment advice, where minimum investment levels apply, and compensation is paid to the adviser based on product choices. It means advice-only financial planning is accessible by anybody entirely objectively.
What's the return on investment from working with an advice-only financial adviser? It's hard to say because we never know what we'll find under the hood until we start. In many cases, there are explicit returns by achieving goals like better tax efficiency. Still, most clients would also tout the implicit benefit of working with a trusted adviser with no conflicts of interest who can answer many questions that others cannot or will not.
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