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There have recently been several discussions on social media around the names that ‘financial advisers’ give themselves for the jobs that they do. This piece is an attempt to lay this debate to bed once and for all.
Why This Matters
As the role of the financial adviser developed, so different terms emerged to describe the new type of service.
This prompts some others to use the term even though they have do not offer this new level of service. This is called marketing!
This is very irritating for those who genuinely do offer the new service. It also prevents the public understanding the difference.
A Reflection of Becoming Professional
Financial advice is not the only profession with this problem. What is an accountant? Chartered accountant, certified accountant, management accountant, financial controller, financial director, corporate finance.
The word accountant is used by a wide array of individuals who do extremely different jobs. In this case, however, the title describes the job. A management accountant would never offer an audit, for example.
In some ways this issue is reflective of the enormous strides ‘financial advice’ has taken in turning into a profession. Just the fact that these debates happen is reflective of the broad scope that financial advice now covers.
The Definitions
There are, I believe, three key definitions, and one rogue definition, that need defining. Here goes:
Financial Advice. A mainly technical role, financial advice involves solving problems, usually related to tax, investments, and/or financial products. The client will present their problem to the financial adviser, who, after due research, will then provide a solution which will improve the clients financial position.
Financial planner. The role of a financial plan is to create a path to a financial future. This will involve cash flow forecasting in some form. The planner will receive instruction from the client as to their desired future, and will then plot a path to see this is affordable. They will then apply financial advice to help the client achieve their objectives.
Financial coaching. A coach will help a client work out what they would like the future to look like. They will also help the client understand their relationship to money. Financial planning is then used to plot a path to this newly discovered future, and then financial advice will help get them there.
Some individuals and firms will offer one of the above services, some may offer all three. All three are important, however they should be performed in order i.e. coaching first, then planning, then advice. Not all clients will require all stages.
Skill Sets
It should be noted that the skills required for the three different types of service are also very different. For example the financial adviser will need the technical qualifications typically offered by the CII. The planner may need some of those skills, but will also require the ability to use cash flow forecasting. Finally, the coach needs specific training in listening and questioning techniques.
The other crucial difference is that planning and advice are about solving problems, whereas coaching involves searching for options and facilitating thinking. This is why advisers and planners must be trained in coaching skills if they are to offer coaching.
Real Financial Planning
One term which can raise the hackles is ‘real’ financial planning. ‘Proper’ financial planning is also used. This term emanates, I believe, from coaches and planners who see advisers claiming to do planning.
It can, however, be used to suggest that only planning has validity. It can appear superior; sometimes deliberately so in order to sell services to advisers. This is not helpful.
Let us nail this once and for all: ‘proper’ financial planning (what I’d define as coaching then planning then advice) is not better than just advice. Some people only need the advice part of the process. However providing just advice when a person actually needs ‘proper’ planning is to not provide an appropriate service.
There isn’t ‘proper’ financial planning; there is just financial planning.
The Rogue Term
One further expression has grown in popularity in recent years: Wealth Management. It originates, I believe, from America, where it specifically described an investment only proposition.
I confess that I wish this term had never crossed the pond, as I do not think anyone really knows what it describes. Some Wealth Managers are advisers, some planners, some coaches. This confusion needs to be sorted out.
Don’t Forget The Client
The only thing that matters is that customers get what they think they are buying. At the moment, this is not always the case.
I would propose that the above distinctions are accepted and adopted by the industry. It would be nice if we could do this ourselves, perhaps via the PFS, rather than the FCA having to force it upon us.
Currently, you cannot call yourself a Financial Adviser unless you have the technical qualifications. Let us extend this. Let us agree that you cannot call yourself a Financial Planner unless you offer cash flow forecasting. Let us agree that you cannot say you offer Financial Coaching unless you have had some level of formal coaching training.
We might even agree that the term Wealth Manager can only be used by firms offer the ‘full’ coaching then planning then advice service.
Either way, it is time for clarity. Individuals and firms must not use inappropriate terms to describe their services, and the customer must clearly know what it is that they are buying.
Looking forward to reading your comments!