Financial planning across the wealth spectrum

There are plenty of good reasons for sound financial planning, regardless of wealth
by Paul Bryant


The financial planning profession faces radically different challenges across the wealth spectrum. Adding value to those with tens or even hundreds of millions in wealth is a different prospect to making financial planning expertise affordable and useful to those with little disposable income and limited financial flexibility.

Ultra-high-net-worth (UHNW) individuals – defined by London-based wealth intelligence firm Wealth-X ashaving greater than US$30m of net worth – are likely to have complex financial concerns related to managing their money.

According to Nick Barran, Chartered FCSI, managing director and head of business development for Rothschild & Co's UK wealth management business, this might include planning in highly technical areas – such as investment structuring for the proceeds of selling the family business, or how to hedge against currency moves – as well as in 'softer' areas, where planning around the next generation is a key theme.

He says that wealthy clients worry about the impact on their children of significant inherited wealth. To address this, Rothschild & Co offers programmes such as work experience for the younger generation "to gain exposure to the practical side of managing their wealth, or we can attend family meetings and take on the role of a 'friendly' uncle or aunt and help adult children with their spending plans", he says.

How do financial planners add value to these two groups, and all those in between?

Financial planning in context

Before answering these questions, financial planning needs to be defined alongside investment management and wealth management – two activities it is distinct from, but also intricately intertwined.

The Financial Planning Standards Board (FPSB) defines financial planning as "the process of developing strategies to help people manage their financial affairs to meet life goals". It expands on this by breaking the planning process down into six steps.

800px_The_Financial_Planning_processA previous Review article about vertical integration in financial services delves into how wealth and investment management differ from financial planning, defining investment management as "a discretionary investment management service that gives purely investment advice to generate a specific income or protection of capital"; and wealth management as "a service generally offered to high-net-worth [and UHNW] individuals to organise and manage often complicated investments day-to-day, integrating financial planning and investment management".

Complex challenges of the ultra-wealthy

Wealth-X reports that worldwide, there were 265,490 UHNW individuals in 2018, with concentrations in North America, Europe and Asia.

800px_Ultra_wealthy_liveCharlotte Beyer, founder of the Institute for Private Investors, a global investment education and networking community for over 1,000 UHNW individuals that has operated since 1991, says that financial planning remains critical at this end of the wealth spectrum.

Charlotte says: "It doesn't matter if you have US$500,000 or US$500m to invest, there is a planning thread that is common to all wealth levels, which is the necessity of establishing very clear answers to these two questions: What are your goals and what do you want your money to do?"

"It doesn't matter if you have US$500,000 or US$500m to invest, there is a planning thread that is common to all wealth levels"

She says that the answers to the above questions are going to be vastly different between wealth segments, and that the UHNW segment is a particularly challenging one for financial planners, testing a financial planner's interpersonal skills when trying to tease out answers to the questions.

"Their technical skills will be tested because of the complexity of UHNW individuals' financial affairs. But the ability to marry the interpersonal and the technical side is really where the true value of financial planning to UHNW individuals lies," she says.

Louis van der Merwe CFP®, director of WealthUp, a financial planning firm based in Durbanville in the Western Cape province of South Africa, agrees with this assessment of where the value lies, saying that many UHNW clients employ multiple advisers, so financial planners will provide "clarity and behavioural coaching" and help "orchestrate and coordinate the pieces of UHNW clients' financial lives".

To illustrate the interpersonal skills point, Charlotte cites an example of a family patriarch who had a goal of creating an annual family reunion. The planning decisions required to meet this goal included discussions around where to hold the reunion (if a holiday home should be purchased and if it should be in the mountains or on the beach), how the reunion should be celebrated, and the financial implications of these decisions.

"UHNW individuals are typically paranoid about their wealth," says Charlotte, "often because they are solicited for business (especially by the financial services sector) 24/7. They can be particularly private and uncomfortable talking about their personal and financial affairs. So the financial planner able to get engagement around a personal goal such as this family reunion would need brilliant interpersonal skills. These kinds of disclosures aren't going to be made in the first hour of a data-gathering process, they might come out over six to 12 months, and only if a trusted relationship is established."

Nick of Rothschild & Co says that you can never be too wealthy for advice. He also stresses the complexity challenges facing financial planners, as UHNW individuals often have financial planning requirements that are multi-generational, cross-border, or both. "Financial planning at this wealth level tends to focus on establishing the right structure for an UHNW individual to secure capital for lifetime and succession purposes. Vehicles used might include trusts or family investment companies, partnerships and private funds," he says.

"UHNW individuals are typically paranoid about their wealth ... often because they are solicited for business 24/7"

Strategic advice can be useful for families with ongoing businesses interests, planning with regards to succession, balancing family interests with third-party management. This, coupled with "advice on areas such as philanthropy, managing 'lifestyle' assets such as overseas property, and next generation education can be key," he says.

Challenges of HNW clients

Carolyn Gowen CFPTM Chartered FCSI, investment manager and branch principal at Bloomsbury Wealth, has a client base that falls mostly into the high-net-worth (HNW) and very-high-net-worth (VHNW) categories (using Wealth-X's definitions of HNWs having between US$1m and US$5m of net worth and VHNWs having between US$5m and US$30m, with some falling under the UHNW definition as well).

She confirms that in the UHNW segment, planning conversations tend to be more focused on intergenerational wealth transfer, philanthropy, and more complicated financial structures.

In contrast, for less wealthy clients, financial planning mostly centres on achieving financial independence, which she defines as "working because you want to, not because you have to". So the planning process typically focuses more on cashflow planning in order to achieve a target lifestyle. She cites common discussions being around when early retirement becomes feasible; if a new job opportunity aligns with the goals of the financial plan; or how much can be contributed to children's and grandchildren's expenses.

Carolyn says: "I think from some of these examples you should be able to see that financial planning is definitely essential across the wealth spectrum. It is something we feel so strongly about that we will provide financial planning services to clients without managing their money, but we won't manage money unless there is a financial plan."

A profession on the rise

In 2019 the CISI conducted a survey of its Accredited Financial Planning FirmsTM – firms that have demonstrated their commitment to the highest professional standards in financial planning for the benefit of UK consumers. Of the 25 firms that responded, 15% have discretionary management permissions and a further 15% plan to add this service in the future. The survey reveals that the number of firms charging explicit fees for financial planning services compared to fees for just arranging a product or investment has increased significantly. In 2019, 50% of firms derived more than 61% of their revenue from explicit financial planning fees, up from just 32% of firms deriving more than 61% in 2018. All firms also expect to increase the number of financial planners employed, with 42% planning to grow this number by 20% or more over five years.

"Firms catering to the HNW and UHNW have come to see financial planning as critical to attracting and retaining these clients"

Noel Maye, CEO of FPSB, points to the growth of financial planning lower down the wealth spectrum, with investment management giants such as US-based Vanguard offering clients with a minimum investment of US$50,000 financial planning services over the telephone, or Schwab offering financial planning services from CFP professionals for an initial fee and low monthly retainer for clients with US$25,000 to invest. He also says that many wealth management firms now use financial planning as part of their onboarding process. Daniel J. Busi CFP®, vice president and investment counsellor at Canadian wealth management firm RBC PH&N Investment Counsel, also identifies this trend in the UHNW and HNW segments in Canada: "Firms catering to the HNW and UHNW have come to see financial planning as critical to attracting and retaining these clients," he says. "They are emphasising the importance of professionally accredited financial planners, CFPTM professionals in particular, through both continuing education requirements and hiring practices." He points to examples of large wealth management firms "hiring centralised teams of CFP professionals and subject matter experts as resources for advisers to use in complex client scenarios where specialised expertise and experience are required".

As consumers around the world digest the cumulative impact of the Covid-19 pandemic on their personal finances, the need for financial planning across all wealth spectrums isn't going to go away any time soon. As Daniel points out, the current crisis is "a perfect example of the growing need and application of financial planning". He continues: "In every client interaction I have had we have discussed the current situation and compared it to the financial plan we established from the outset. It has helped to provide context, to direct focus to the right areas, and to guide our reaction if any is required."

Financial planning and the 'advice gap'

Access to financial advice and professional financial planning services can be difficult for those with less wealth. In its 2019 report, The UK advice gap: are consumer needs for advice and guidance being met? financial advisory firm OpenMoney estimates that 5.8 million people in the UK fall into an 'affordable advice gap' – they are willing to pay for financial advice, but think it is too expensive. The report is based on a YouGov survey of 2,088 UK consumers, with around 90% of participants having under £250,000 of household wealth (defined as the total value of all savings, investments, properties other than a main home, and pension funds of those already retired).

The FCA's 2016 Financial advice market review references a 2016 survey on behalf of the Association of Professional Financial Advisers, revealing that 69% of advisers said they had turned away potential clients in the previous 12 months, with the most common reason being that the advice services offered would not have been economic given the circumstances of those clients.

Noel says it is a crucially important problem to solve: "Those at the lower end of the wealth spectrum can probably benefit the most from financial planning because the impact of any one financial decision can be so substantial."

Also, the spectrum of where people can get advice is expanding. There are a growing number of apps on the market, which aim to offer various levels of financial advice and encourage steps towards financial planning.

Noel recognises the important role technology will play in reaching this segment, but he remains sceptical that fully automated models are ready to support clients with complex needs: "The suitability of recommendations from these systems is still not there. To fully automate a system, you have to simplify the planning process too much." Louis van der Merwe agrees that technology is a key enabler when it comes to addressing the advice gap in South Africa: "Technology has allowed the cost of providing financial advice to slowly come down, and we expect this to continue."

"Technology has allowed the cost of providing financial advice to slowly come down, and we expect this to continue"

Daniel says that in Canada, the "rising regulatory costs and lower fees associated with each dollar of assets under management has pushed the expertise of CFP professionals up the market". Like Louis and Noel, he too identifies the importance of technology when it comes to catering to the lower end of the wealth spectrum, saying that "the void left behind is now being filled by 'robo-advice' in the mass market".

Noel thinks a 'hybrid' model blending automation and human interaction will ultimately be used to serve the lower end of the wealth spectrum, saying that some financial planning firms are now splitting how planning is delivered into different segments. Some clients might initially be sent to an online portal and get predominantly automated advice, backed up by a human financial planner, whereas others might get access to a human financial planner very early on in the process.

And he acknowledges that the profession needs to do more to make financial planning services available to this market: "It is not just about using technology to make financial planning more efficient. Access to affordable advice (including pro-bono financial literacy initiatives) will need to become more widespread; non-traditional charging models will need to be considered (such as charging per 15 minutes of financial planners' time); and models need to be set up through employers so that financial planning can become an employee benefit, subsidised or paid for by the employer, as is common with medical benefits." Louis cites examples of positive progression on this front, with some South African financial planning firms currently offering "services to employer groups to allow for individual financial planning, with the employer acting as the sponsor and facilitator of the financial products".

The CISI's annual Financial Planning Week (5–11 October 2020) goes some way towards addressing this 'advice gap' in the UK. The event offers members of the public the chance to sign up to free one-to-one sessions with CERTIFIED FINANCIAL PLANNERTM professionals, who can provide a helping hand when it comes to achieving financial wellbeing and life goal planning.

We find no dissenters to the idea that financial planning has huge value to add, regardless of wealth. The more wealthy are currently well served. But financial planners have a lot of work to do to make their skills available to the less wealthy too, and to work with others who want to fill this advice gap. Pure robo solutions and apps are making some headway into this market. Noel would like to see collaboration among the financial planning profession, financial services providers, governments, educators and consumer protection groups to bring good advice, from competent and ethical advisors, to benefit society at all income levels.

Seen a blog, news story or discussion online that you think might interest CISI members? Email
Published: 17 Aug 2020
  • Financial Planning
  • Wealth Management
  • UHNW
  • South Africa
  • six steps
  • robo-advice
  • FPSB
  • Covid-19
  • CFP
  • Canada
  • Accredited Financial Planning Firm

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