Financial Advice vs Life Planning: Two sides of the same coin?

Traditional financial advice is an effective model that has worked for a long time, it’s tried and tested. But, a new generation of advisers are putting greater emphasis on life planning. This is the concept that advice should go beyond investments and annual reviews and move into ongoing goal management, working backwards from a target and guiding clients over the longer term given the vicissitudes of life.

Holistic is the word used in our industry to capture the concept of a bigger picture of financial management, but its popularity as a trendy sales word has meant that all too frequently it gets confused with “full advice”. Although full advice does consider the client’s “full” circumstances, life planners would argue it doesn’t go as far as building a roadmap to meet the client’s real financial goals. Financial advisers might retort that only the truly wealthy could benefit from ‘life planning’ but we only need to look at how saving a small amount regularly into a pension early on can reap big rewards at retirement. This could mean that having discussions about the ‘end goal’ and how to get there, could be beneficial to all clients.

The real appeal of Life Planning is the suggestion of a more intimate relationship with clients that would allow advisers to support them on many more of their financial decisions, which ultimately can have a vast impact across a client’s lifetime. It allows advisers to provide clients with the wisdom to understand the consequences of their decisions in advance, before they buy that car or suffer from the shock of a low pension income.

Clearly this is not a service that all clients will want to be engaged on at this level, but the growth in this new paradigm suggests that there is a market for this. The challenge is finding a suitable way to charge for this.

With traditional advice this problem has been solved through ongoing advisor charging, usually based on a % of AuM, and this provides a healthy and consistent income stream for the adviser.

Conversely, for a life planner this doesn’t seem quite as clear cut and this I believe is the real barrier to entering Life Planning. If you help someone save for their home/car/retirement goal you need to be able to charge whilst also demonstrating value for the client. This can be difficult when there may be no immediate investment recommendation resulting in assets under management.

We’d love to hear from you – if you’re a Life Planner, how do you charge? And if you’re not, do you see yourself going down this road in future?

If you are an IFA and require Paraplanning assistance don’t hesitate to get in touch.