04

What does the future look like?

Financial planning 2030

Taking all the previous points into account, as well as the debate they've generated, the obvious questions are these:

What does the future look like? And how does financial planning need to evolve for the next 10 years?

Phil picks up again to give us his views on the future of the profession.

There are some trends we can project forward for the financial planning practice of the future.

I would contend that firms will continue to move away from the old ‘hunter/administration’ model, and we’ll likely see a broader acceptance of the ‘finder/minder/support’ model as illustrated below.

This will often mean that the ‘finders’ who brought in the business in the past will continue to evolve into rainmakers and strategic business leaders, rather than purely the biggest fee earners. In short, their job may be to fill other people’s diaries, rather than taking on clients for themselves and merely cascading excess clients and work to others.

On services, I expect these will become increasingly based around an expertise (or at least competence) in understanding behavioural finance, and a focus on financial coaching and financial wellbeing.

Tax planning, legal and trust expertise will be incorporated into financial planning practices, instead of being outsourced to high street accountants and solicitors.

I also believe financial planners will become more niche, or focused around a specialism. This is already happening both inside and outside of our profession.

In other words, they will increasingly develop expertise in dealing with defined groups or demographics, and most of their client activity will take place within that specialism.

There are firms in many countries already operating in this way.

“Those who brought in the business in the past will continue to evolve into rainmakers and strategic business leaders, rather than purely the biggest fee earners.”

The old model

The new model

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“The challenge is to move towards multi-generational firms, supporting multi-generational planning.”

Potential stumbling blocks

But on the road to this kind of financial planning practice for the future, there are some challenges ahead.

Financial planning is more long-term focused than transactional advice. We work with clients over decades, and so a multi-generational approach is needed.

Yet the overwhelming majority of advice and planning firms die on the death or retirement of the founders. In part, this is to create a capital event to fund retirement. But it’s also a reflection that these firms were set up as a lifestyle business, and were never intended to continue beyond the founder’s working life.

So the challenge is to move towards multi-generational firms, supporting multi-generational planning. The recent emergence of employee ownership trusts may help with this. Other mechanisms such as Limited Liability Partnerships (LLP) structures may also be appropriate.

Making a success of a ‘multi-generational' approach is a bigger issue than this paper can address fully, but in the meantime, we have a reality where studies show that many firms do not survive the death of a founder (Source: multiple, but see ‘A Founder Dies’ By David Lansky, PhD March 1, 2018 www.thefbcg.com as an example) and where 96% of UK businesses have fewer than 10 employees (House of Commons Briefing paper Number 06152, 22 January 2021).

Whatever the method, it’s important clients are seen as clients of the business, not clients of the individual planner.

Staying with exit structures for a moment, these tend to be all about assets under management, rather than income earned from financial planning activities.

What this has meant is financial planning firms tend to have sold for around three times underlying income.*

So there’s a real risk that in transitioning to the model outlined here, founders may be shooting themselves in the wallet. This circle needs to be squared.

Looking more broadly, marketing investment management expertise to those with £500,000 or so to invest is easier than explaining how financial planning can help clients better manage their relationship with money.

The ‘one-stop shop’ planning model has many attractions, but it may require additional regulators that don’t neatly match each other. Also, a single organisation focused on profitable service delivery arguably may not sit well with a coaching model.

There is an outstanding example of a financial coaching firm which is Wise Monkey Financial Coaching, set up and run by Simonne Gnessen. One has to ask, why is there almost no competition to this firm?

The ‘L’ word

In this case, that stands for leadership.

Leadership in financial planning is scattered, and is striving to achieve several objectives. These include:

  • Working with regulators to balance and offset the impact of over-regulation
  • Increasing knowledge and technical standards
  • Holding members accountable for their ethical behaviour
  • Promoting financial planning and advice to the public and the media
  • Increasing the public’s trust in planning and advice

These are all worthy aims. But will they really lead to a new vision of financial planning?

The danger is professional bodies end up competing for a bigger slice of the membership pie, rather than focusing on making the pie bigger.

“I would ‘unite the belts’. A radical way to do this would be to move financial planning and the CFP marque to the PFS.”

A suggested way forward

Perhaps our starting objectives should look a bit different. For example:

  • Increasing the footprint and role of financial planning in the UK and elsewhere.
  • Punching up to our weight internationally. UK planners are well respected and influential on an individual basis in the international financial planning arena. Let’s build on that.
  • Making financial planning in the UK the business model of choice, and positively impacting many more clients as a result.

So how would we go about it?

Firstly, I would ‘unite the belts’, as they say in boxing. A radical way to do this would be to move financial planning and the CFP marque to the PFS. It appears that over 80 per cent or so of the 830 CFPs are, in fact, already members of the PFS.

That done, I would offer fast track practical assessments to all chartered financial planners to become certified. The objective would be to train those interested in writing a financial plan to CFP accredited standards. I believe this could be done pretty quickly, and without diluting standards.

All this begs the question: do we really need to keep promoting higher educational and technical standards for financial planners, both in the UK and internationally?

It sounds like heresy, but as the number of chartered financial planners continues to increase, I believe we need to move our focus from ‘higher technical standards’ to ‘higher practice standards’.

It’s easy to keep forgetting that financial planning is first and foremost a business model, and by focusing almost completely on the individual, we have lost sight of the business environment that the financial planner works within.

I would advocate that a shift of focus towards how financial planning can actually be delivered will have a greater impact on client outcomes than moving the dial on exam standards ever upward.

Don’t misunderstand me – I am all for high technical standards. But that’s just table stakes, or the price of entry. It’s the business environment where that high level of knowledge resides that really matters.

From a regulatory perspective, regulators can’t create a profession. That’s not their job. They can only make a sales culture less harmful to consumers, as shown in the diagram here.

It takes the profession itself to make a profession.

Final thoughts

As a relatively new profession, financial planners are perhaps still heavily influenced by the culture and beliefs of our investment management and life company heritage. It may well fall on the new movements springing up to truly move us away from those beliefs and business practices.

But there is much good to be derived from our past, and it’d be wrong to dismiss that. Millions of consumers have benefitted, both directly and indirectly, from the sheer hard work that has gone into creating the financial planning process and standards. It turns out that having higher educational standards and clear ethical codes really does matter – who’d have thought it?

The challenge we all have now is: where do we take this next?

These are difficult questions that have been posed here and views that you may (strongly) disagree with. Yet ultimately, the hope from asking these questions is that we open up discussion and debate about the future of our profession and perhaps what is seen as brave and ground-breaking today becomes normal and accepted tomorrow.

If not now, when? And if not us, then who?

How will we take the next giant stride on the road to a financial planning profession that is fit for the future?

“The hope that by asking these questions is that what’s seen as ground-breaking today becomes normal and accepted tomorrow.”

Key questions

  • Most planners don’t earn the bulk of their income from financial planning. How can we start to tackle this?
  • How do we ground the profession in agreed, academically proven standards and measures? For example, making risk tolerance as clear as blood pressure
  • How do we align multi-generation client relationships with single generation firm lifespans?
  • Is it time to focus on higher practice standards, rather than higher technical standards?

Actions

  • Review how your business has changed over the last ten years and how you think it might need to evolve over the next ten. Is it a hunter/administration model or a finder/minder/support model and does it need to change to allow your business to grow?
  • Examine who your biggest fee earners are today and understand how they might need to evolve in the coming years. Would evolving their roles grow the business beyond their personal ability to manage clients?
  • Consider how much tax, legal and trust expertise you outsource and whether you need to change this model?
  • Actively review how you deal with multi-generational advice and whether your business fully supports it and would survive the founders moving on. Is the client a client of you/your advisers or of the business? Test this with your clients.
  • Assess who in your business (if anyone) has a deep understanding/expertise in behavioural finance and focus on financial coaching and financial wellbeing. Consider how this might change the type of service you offer clients.

Next… chapter five

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