Andy Scott, an Associate Director in Wren Sterling’s Glasgow office explains how clients come to appreciate the full depth of financial planning services, often from the base of a single task or transaction.
It’s very difficult to talk about client journeys in the broadest sense because every situation, every client’s appetite for risk and their lifetime aspirations truly are unique, but I want to explain why many of our clients choose to move towards having a lasting relationship with their financial adviser.
One of the quirks of being a financial adviser is that people don’t often seek you out for financial advice.
Very often clients have been referred by a friend, family member, a colleague or sometimes through their employer. I might be pitched as someone who can solve a single issue – but this isn’t financial advice in the true sense of the word. For example, this could be a need to consolidate various company pensions amassed over a lifetime in work.
Many of us have worked for different companies throughout our careers and keeping track of the myriad of company pension schemes and the value of them is not a straightforward task. Naturally, Wren Sterling have got the resources to track down a client’s various pension schemes and pull them together to give clients an accurate view of their total pension fund.
”Financial advice given at a period in time will be useful and serve a purpose, but if circumstances change, there’s a danger of it becoming irrelevant or at the very least, not as relevant as it should be.”
At this stage, it’s rather like going to the cycle shop with a bike with a few broken and missing parts and you need it to be your bike for the next few years because you’ve invested good money in it and you have cycling holidays planned. The assistant sources the parts for you and the bike works again. After we’ve consolidated a client’s pension funds, they tend to feel the same way.
Returning to the bike analogy for a second, you forget to ask the expert for advice on maintaining the bike to ensure it doesn’t go wrong in the future. You subsequently forget to clean it or oil the chain and sooner or later it develops problems and you’re back in Halfords on a Saturday morning getting it fixed – or worse still, you’re halfway up a mountain when it goes.
This time you decide to ask for advice and your bike is being repaired the assistant tells you about a reward scheme where annual check-ups are given as part of the scheme. This way the bike stays in good condition and gets you through many enjoyable holidays, while you learn about maintenance and can take steps yourself to keep it in peak condition.
The point being that financial advice given at a period in time will be useful and serve a purpose, but if circumstances change, there’s a danger of it becoming irrelevant or at the very least, not as relevant as it should be. Furthermore, a big part of receiving financial advice is feeling in control of your destiny, so I always encourage clients to view the service as an education piece, to ask questions and expand their own understanding.
All speed, no brakes?
Once the client is familiar with their adviser, the process, service and investment proposition, then a full review of their non-pension investments is often the next stage in the advice process.
This usually includes various life and protection policies. Protection is so important in financial planning, because without it, your investments may perform excellently, but ultimately an unexpected event could render the returns meaningless because you’re faced with an unexpected event that needs to be paid for with your investment. It’s like having a bike with super slim road tyres fitted for maximum speed and no brakes.
”Even if there are brakes present, it’s prudent to check they still do their job. As time has passed and new factors are likely to be in play, reviewing them is essential to make sure they’re at their most effective.”
Building a financial plan
More sophisticated clients often then move onto making a financial plan. This is simply lifetime cash flow projection with goals that can be measured in pounds. The cash flow is a method of making sure that the client never runs out of money, taking into account agreed assumptions.
The preparation of the financial plan often uncovers quick fixes that can make a big difference. For example, it may be that the client is holding too much on deposit, which means that long term goals are unlikely to be met.
There could be tax planning opportunities to capitalise on through ISA and pension allowances, again this could involve moving monies away from deposit to real investments. Central to this is our shared understanding of the individual client’s appetite for risk and capacity for loss. Clients may have monies in areas that are either too conservative or too risky, so in the preparation of the financial plan a risk assessment and asset allocation take place, opening opportunities.
This financial plan/cashflow forecast needs to be carried out by a specialist financial planner, so if you decide to undertake this process elsewhere, make sure you ask if your adviser is a specialist. Wren Sterling has several specialists within our adviser population. The financial plan can then be reviewed on an annual basis and changed where necessary, assumptions agreed annually and cost of preparing the plan discussed and agreed.
“As clients continue through life and their relationship with their financial adviser, they typically require more advanced services in order to stay on track.”
It’s natural to begin thinking about providing for the next generation, so we advise on whether plans should be placed in trust and we regularly devise inheritance tax strategies. HMRC want their monies first before any monies can be passed to family members. If you have the plans in trust, HMRC can be paid and then the balance distributed to the named beneficiaries in a timely manner.
We’ve covered IHT in previous editions of Money Matters, but solutions here can be gifting, lump sum investment in trust or good old fashioned insurance policies in trust. The key to IHT planning is time because that is essential for mitigating its effects.