Whether it’s help with taxes, building a retirement pot or letting someone else manage your investments, there is usually a finance professional on hand to deal with these complexities.
However, traditional wealth management does not always cover all bases. Depending on requirements, a client may also need a tailored financial plan. It is why today many wealth management firms are branching out, taking a multi-disciplinary approach.
Clients, too, increasingly want a more broad-based financial planning service and to be guided towards a secure financial future in any event. This one-stop shop approach – combining both investment management and financial planning – is becoming a powerful proposition, with the component parts to meet clients’ objectives: pensions; savings; investments; overlapping and interacting with one another.
The rise of automated platforms (robo advisers such as Nutmeg), and regulations such as the Markets in Financial Instruments Directive II (MiFID II) means wealth managers have to demonstrate how their recommended portfolios meet their clients’ objectives and must explain the ‘value-add’ for their services. It’s not hard to see the appeal of turning into a one-stop shop for clients’ financial needs.
“Wealth managers who can demonstrate the value of their advice and provide a more holistic service will have an easier time retaining and growing clients than those focused only on investing, or relying on an assets under management model,” says Noel Maye, chief executive of the Financial Planning Standards Board (FPSB).
So, broadly speaking, what’s the difference?
A discretionary management investment service gives purely investment advice to generate a specific income or protection of capital.
This is for people who don’t often have huge amounts of accessible or investible capital, but with a relatively high net worth. They need planning advice for areas such as pensions and education funding. Most financial planners don’t have a discretionary investment service, although some outsource this function. Others work on an advisory basis.
A service generally offered to high-net-worth individuals to organise and manage often-complicated investments day-to-day, integrating financial planning and investment management.
“Some might see these as conventional definitions and across the world these descriptions have become blurred,” says Jacqueline Lockie CFPTM Chartered FCSI, head of financial planning at the CISI. “The terms are not regulated so anyone can call themselves a financial planner, and the same applies to wealth manager.
“There are also financial advisers who describe themselves as financial planners and investment managers who describe themselves as wealth managers. Then there are some financial planners who are also discretionary managers who describe themselves as wealth managers.”
Some might think that mixing the two disciplines could be complex. However, if you put planning at the centre of all decisions, all the other services, such as investment advice, flow from this. When financial planning is an ‘add-on’ service, this is when issues can arise. A client will need a fully integrated service for it to be a success.
Brewin Dolphin is one traditional wealth manager recognising the importance of financial planning as part of a comprehensive service for clients – guiding clients through their financial lives with a fully integrated service.
“For the wealthy, structuring their affairs efficiently can be more important, and add much more value than pure investment return,” says Liz Alley, head of financial planning operations at Brewin Dolphin.
“As a result of our growing emphasis on advice and focus on meeting the widest possible range of client needs, the number of clients receiving a service that combines investment management and financial planning has grown significantly over the past few years. This enables us to take a wider role in the lives of our clients.”
Charles Stanley also provides a combined service, but says it isn’t compulsory in every instance. While the firm is keen to develop a more integrated approach to wealth management, Gary Teper, Chartered MCSI, head of Charles Stanley’s private client investment management division and CISI Board member, explains: “We do offer an incorporated wealth management service, particularly for new clients, but it is not mandated in every instance. We prefer to empower our investment professionals to assess the added value that advice will bring to relationships. More and more this is being recognised. Moreover, we frequently also work with external independent financial advisers, who offer the financial planning element within an overall relationship, with Charles Stanley providing the discretionary fund management, so an integrated wealth management service is not appropriate in those circumstances.”
Investment manager Psigma doesn’t offer a combined service, but if a client requires advice, it can assist. Head of business development at Psigma, Frank McGarry, says: “If a client approaches us directly and requires advice, we would introduce them to a number of advisers who may be able to help. We are supporters of independent financial advisers, but there are occasions when a client requires advice that doesn’t necessarily need to be independent. For example, an existing client (not introduced via an independent financial adviser) who wishes to transfer additional assets to their current investment manager. In this scenario, a combined discretionary management service and financial advice service could meet the client’s needs and potentially be cost effective.”
He emphasises that transparency is key. “Clients need to understand clearly why in some cases independent financial advice is needed to help select an investment manager and why in other cases a combined service may meet their needs. In Psigma’s view, neither model, either combined or independent, is better than the other as long as the client’s needs are considered first and the client understands the nature of the relationship between the adviser and the investment manager.”
The road to CFP certification
Becoming a CERTIFIED FINANCIAL PLANNERTM
may be challenging, but eventual CFPTM
certification brings with it proof of global financial planning standards expertise.
HSBC is committed to putting 11,000 of its wealth managers, financial advisers and financial planners through training programmes across the globe, leading ultimately to the CERTIFIED FINANCIAL PLANNER certification. In the UK alone, HSBC has 200 advisers ready to take the assessment soon.
More still needs to be done to change the public perception of financial advice, and the difference between financial advice and financial planning. Broadly speaking, a financial adviser refers to someone who is paid for professional advice, who recommends a specific product or course of action for you to take given your circumstances and financial goals. This will be personal to you, based on information you provide. A financial planner helps companies and individuals create a programme or strategy to meet long-term financial and lifestyle goals. The CFP certification is the only globally recognised mark of excellence in financial planning, and only recognises members that have met rigorous ethics, experience, competence and professional practice standards
“The biggest barrier for consumers working with a financial planner is knowing who to trust,” says Noel. “The challenge the financial planning profession faces is in being able to adequately increase consumer awareness about the benefits of financial planning.”
Of course, for wealth managers, an easier way to begin your journey as a fully-fledged planner is to merge with another firm to combine skillsets, which is exactly what Old Mutual Wealth has done.
“There’s an obvious connection between the two,” says John Porteous CFPTM
Chartered FCSI, retail customer solutions director at Old Mutual Wealth. “Wealth management and financial planning firms will, to my mind, come together naturally over time. I can see firms either formally – with proper integrated models – or informally, working much more closely together.”
So, however which way it happens, a new, joined-up landscape is emerging as the financial services sector evolves. Although, in Australia, the Hayne Royal Commission, which was established in December 2017 to look into and report on misconduct in the banking, superannuation and financial services sector, looked into the vertical integration model. The commission examined the details of this model in five of the ‘big six’ banks (AMP, ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac), looking at the interests of the adviser in relation to the best interests of the client. The deputy chairman of Australian Securities and Investments Commission, Peter Kell, put forward his findings on 16 April. He reports that 75% of the files scrutinised from the banks did not demonstrate compliance with the 'best interest' duty and related obligations.
The findings of the Hayne Royal Commission could lead to new regulations affecting the model, but will the UK follow suit?
Seen a blog, news story or discussion online that you think might interest CISI members? Email firstname.lastname@example.org