Empowered Financial Planning: Unleash Clients' Potential and Transform the Advisor-Client Relationship

What do clients served by traditional advisers really want?

According to Vanguard Center for Analytics and Insights, 2019. A Vanguard survey of 1,750 clients served by traditional advisors found empowerment to be the most important attribute of clients’ relationship with their advisers. Yet most advisers have been taught to seek wealthy delegators for an easy life tapping into assets for fees. What is easy for the adviser is perhaps not a great outcome for the adviser or their clients. Here’s why.

Here is what clients said about underlying needs ? I need to feel like I have taken charge of my financial future. ? I need to feel like I have complete control over all of my financial decisions. ? I need to feel that I am on track to meet my financial goals. ? I need a financial plan that offers me financial freedom.

Here is how the delegated model works.

The adviser does the financial plan for the client.

The meetings are one-to-one, and the adviser exchanges time for money. It takes 10 to 15 hours per client, plus there are high operational costs to ensure regulatory compliance. The cost to the client is high.

The adviser can only service 150 clients maximum.

Therefore, The adviser sets a minimum threshold on investable assets for it to be valuable for the client and worthwhile commercially for the practice. To grow revenue, the firm sheds smaller clients and seeks wealthier prospects.

The planner assumes a lifetime liability for the recommendation with no long stop, which they take to the grave.

It takes into consideration the individual circumstances of the client, and the outcome is to recommend a particular product. This behaviour is “distribution” and is regulated by the FCA, SEC, FSCA, etc.

Financial planning is delivered with a view to intermediation; the plan assumes the outcome is to buy a product. There is a subconscious bias not to pay down the mortgage or gift to the kids.

The outcome is not wealth generative for the client. With investments, only if you catch the client at a young age and they make it a lifetime habit of regularly contributing to their investment will the miracle of compound interest generate wealth in their old age. Few people fit this profile. Their net worth is below the adviser’s threshold even if they do.

For the rest of us, the miracle of compound interest and time is not on our side. Investing is, at best, a zero-sum game, at worst, a losing game. Fees, taxes, and inflation offset the gains we make on investment returns. It used to be the case with pensions that two in three members paid lower taxes in retirement, so the tax system worked in the member’s favour. Today, the opposite is the case with successive government’s raids on pensions through taxation, drawdown taxes, and lifetime allowance taxes. The loss of a lifetime of liquidity pays little reward. Members would be lucky to get back what they paid in real terms.

In short, our return on investment is what we paid in – there is no wealth generation here.

What value add do older, wealthier investors really receive from the delegator model? I don’t believe a clever asset allocation offsets the adviser charge; a higher return is simply a higher risk premium. I can’t see advisers delivering market-beating returns.

Behavioural education and tax education add value. I get it. But, of course, that is not a regulated activity unless it is delivered during a regulated activity. In other words, the value-adding service of financial planning merely offsets the value-losing service of financial advice.

Compared to the young and thrifty, the rest of us generate wealth by taking intangible assets (productive assets), leveraging entrepreneurial activity, and creating a sustainable livelihood. There is not a regulated investment product in sight.

When we look at the additional life savings pots of clients of regulated advisers, we are looking at 1) money the clients made, not their advisers, and 2) a selection bias, as advisers choose wealthy delegators. This logic does not justify regulated advice!

Now let’s look at the empowering model.

The client does the financial plan for the adviser. The adviser provides the financial planning app, the financial education library, and bottomless Q&A support.

Ninety per cent of the time, the client creates and maintains their own financial plan with this support. In times of stress or change, the adviser steps in to do the plan for the clients.

After the financial plan, there is the option of the value-losing financial advice route or the educated self-directed option in what is a commoditised market.

Ninety per cent of the adviser’s work is one-to-many (done with the clients in groups) or none-to-many (done by the clients in an educational video-on-demand model). The adviser is exchanging know-how for money. This approach lowers the cost to practice, margins can be retained, and savings can still be passed on as reduced fees for the client.

The number of clients the adviser can service is unlimited.

The adviser’s service is accessible to all. To grow revenue, the firm grows its client base.

There is no lifetime liability on the adviser as no recommendation is made; the adviser sleeps at night.

The adviser delivers generic financial planning advice. The client is empowered, their financial activation levels are increased, their financial literacy levels are increased, and they become more tech-savvy, which results in better outcomes. The clients are signposted to publicly available surveys, courses and literature. Conflicts of interest evaporate. Here there is no advice or guidance relating to particular products. It is the client that takes into consideration their own circumstances and chooses a particular product. Educational financial services are outside the perimeter of the FCA, SEC, FSCA, etc.

Advisers argue clients can’t learn that way. I say you did. They’re interested. It could take a year or two, and in the meantime, they listen to the views of well-informed trusted public communities that we have created as an industry, the views of highly respected publishers and authors. Such as, Which Money? Money Saving Expert, Money Helper, etc.

When financial planning is not delivered with a view to intermediation, the plan opens up to wealth creation strategies. It’s no longer a plan to live your best life with the money you have. Now what is your favourite future, and here is the plan to create wealth to support that.

Regardless of age, sustainable livelihoods are created. Into your 60s, 70s and 80s, work that doesn’t feel like work that creates eudemonic well-being, from which you never wish to retire. You live longer and better. And exchanging know-how for money creates passive revenues.

The client gets the financial plan that you get, an asset with a value the multiple of recurring revenue dropped into their cash flow forecast.

The client is satisfied, and they are wealthy, healthy and happy. The adviser is happy; they get to sleep at night, have a great work-life balance, have a great business model, and enjoy what they do. The DWP are happy as poverty in old age becomes less of an issue (resources can be focused on the more vulnerable communities with less capability to be economically active). The Treasury are happy as economic activity is taxable. It’s a win all around.

Here there is true wealth generation – intangible assets crystallise into tangible assets.

The public invest in themselves – building savings with market returns as a secondary goal.

We use proposition development frameworks and advancing technology to optimise money flow growth and reduce risk.

We deliver this low-cost model at scale direct-to-consumer, in the workplace, and in communities worldwide.

We go a considerable way to meeting the United Nations Sustainable Development Goal number one, Agenda for 2030, to eliminate world poverty in all its forms everywhere by identifying productive assets, leveraging entrepreneurial opportunities, and creating sustainable livelihoods.

Can you see the benefits of changing from the delegator financial planning model to the empowering financial planning model sought by four in five investors?

For further information for financial planners on transitioning from intermediary to non-intermediating financial planners, visit our website, and download the free starter pack.

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