Authors: Ian Beere and Debbie Netto, Financial Planner of the year, 2001
Article published in "Blue Chip" Magazine
THERE’S a story you hear in professional circles when clients grumble about what they have to pay lawyers, doctors and other service providers whose intellectual capital is their greatest asset. It goes something like this:
Picasso was asked to sketch a lady’s picture. He did so in 15 minutes. The lady was delighted at his work. He asked for a hefty sum of money for the sketch. The lady was most upset at the price she was asked to pay. “But it only took you a few minutes to do the sketch”, she exclaimed. “But it took me 15 years of training to be able to complete it so well,” replied Picasso.
Clients of most professionals are generally only too happy to pay up once they understand the ability to provide sound advice is built on years of education and experience. Yet, when it comes to financial planning, full disclosure of costs sometimes leads a client to walk away.
That’s puzzling when you consider the vital importance of having a competent financial planner on your side. It is as critical to take care of your financial health as it is your physical wellbeing, but people often put long-term financial requirements on the backburner.
As financial planners, we are one of the few professions that need to take a pro-active role in our relationships with our clients. Most professions act reactively.
Clients generally only seek the services of an accountant, for example, when they need to file a tax return. Financial planning, on the other hand, is something you can put off easily as there is no requirement for instant gratification – unlike if you have a pain in your body.
However, just as putting off visits to a doctor can lead to huge complications, so can delaying an annual check-up with a financial planner. If a visit to a financial planner is put off for too long, it is always too late!
We need to be clear about what our services are and what we charge for them. Here are some of the areas where financial planners add value:
Choice
Financial planners research the world of financial products and service providers to come up with a short-list, and recommendations, of the best possible options for each client. In the investment arena, the choice of funds, fund managers, products, platforms, tax vehicles and fee structures has multiplied exponentially. Risk cover is now available with a host of benefit options as well as costing structures, guarantee periods and discount/rebate options.
Information
The amount of information available to the average client on investments, markets and insurance is extensive. If you read all the research available today on international markets, it would be out of date by the time you got to it.
The press also supplies a lot of information, which can be confusing. While some of the reporting is helpful and informative, a lot of it is distracting.
Headlines like “markets soar on weaker rand” to “markets plummet on news of interest rates” give a sense of success and disaster, but in fact refer only to daily volatility which will have little impact in the long term.
Financial planners cut through this noise for clients with a view to developing and adjusting personal financial strategies.
Compliance
Clients today are more demanding in terms of the level of technical competence they require. The re-structuring of costs and commissions as well as the implementation of the Financial Advisors and Intermediary Services Act is evidence of this. Advice needs to be clear, objective and appropriate with evidence of a systematic, effective process.
Adaptation
Financial planners need to keep tabs on new laws and developments so they can adapt personal financial plans for clients where necessary. With the massive shift in our world in which employers have effectively washed their hands of the responsibility of ensuring employees’ financial stability in retirement, it’s more important than ever to help clients achieve the goal of financial independence.
In the days of defined benefit funds and jobs for life, most of a client’s financial provision and protection was through a pension fund. Clients are increasingly called on to make far-reaching decisions about their retirement capital and risk cover provision.
The Human Factor
We are all emotional about our future and therefore about our cash, which has a significant influence on our future. While emotions can be a positive force, they can also be destructive.
Take for example, all those people who followed the herd into money market funds about two years ago. If they had resisted the fear of the equity markets and had kept to their balanced portfolios, their returns would have been considerably higher while keeping a lid on risk.
It’s not just investor emotions that can cause havoc in an individual’s financial affairs. There are also times, like after a death or divorce, when it is important not to rush decisions. Financial planners can help take the emotions out of financial decisions so individuals can stay on course to meet financial goals.
Continuity
A good financial planner should put in place a plan and have systems in place that ensure the client’s plan will not run off course without the financial planner. The planning practice should operate in such a way that plans are not dependent on personalities.
A practice should be well-funded and well-managed, with a transparent yet confidential process that can be applied by all financial planners in the business. Advice should be consistent and based on a set of values that focuses on client outcomes.
Independence
There is no doubt the cost of providing advice has increased significantly. Costs include professional indemnity insurance, compliance services, risk analysis and client management software, not to mention staff, training, IT and other operational overheads. The client expects independence from financial planners and impartial advice.
Values
Managing finances requires a clinical approach, but the element of pro-active caring still needs to be there. Financial planners need to have the right qualifications and ongoing training to ensure they keep up-to-date with developments – but they also need to have empathy with their clients.
As financial planners we need to be able to read the situation correctly, whether there are technical or emotional factors to take into account. This way we can create a certain future for our clients and meet their needs in an environment where markets and investment products are in a state of flux.
 | Debbie Netto (CFP), Financial Planner of the year 2001, and Ian Beere (CFP) |
