There’s been a huge response to Part 1 of our interview with Paul Armson. Paul is the founder of Inspired Advisers, a UK-based organisation working to improve standards in the financial planning profession. In Part 2, Paul explains why he thinks that many advisers are stuck in bad habits and continue to focus on selling products rather than giving clients what they need.
Given that very few fund managers outperform over the long term, why do you think most UK advisers still recommend actively managed funds?
Primarily because it gives them something to talk about with their clients. In the past advisers have been paid primarily by commission, which they earned for distributing financial products. So even if they had an on-going service to give to a client, it would normally be about changing the products around so that they earned more commission. It’s sad, but it’s true. And that’s how financial advisers in some countries still operate — by shifting investments around. The problem now is that in a more transparent world that doesn’t work anymore, because clients are starting to wake up to what they are actually paying. That’s why I feel there is an opportunity for advisers to adopt a more meaningful service proposition, which revolves around the client rather than their money.
But why is there still a bias towards active in the UK, now that commission is banned?
The industry is so powerful and the advertising is so good that it’s very difficult for advisers to change their bad habits. They’ve been doing it for so many years that it’s difficult to get them to think about what they should be doing. That sounds crazy, but they should be thinking more in terms of what all this means in the first place and where the client is trying to get to. My view is that until you’ve answered the client’s questions about where they’re at financially, you’ve got no real right to sell or recommend a financial product.
Now that we have robo-advisers like Wealth Horizon and Nutmeg in the UK, and like Betterment and Wealthfront in the US, do we really need traditional financial advisers?
There are a lot of people who don’t need one, but anyone can benefit from a good financial planner. By a good financial planner I mean someone who delivers advice with an end in mind, and that end is helping that client to live a great life, and never run out of money. Does everyone need a financial planner? The answer is No. To do it yourself, I think, is absolutely fine. The big problem I do fear though is this. Say a service like Nutmeg asks you the question, How much would you like to save? You answer, £100 per month, and it organises a set product for you for £100 per month. That’s fine, but that client could still starve in the future, because it should be £1000 per month they should be putting away, not £100. So again, that’s where financial planning comes in. It’s all about asking the client, What are you trying to achieve? Where are you trying to get to? And you need to make the client do things they probably don’t want to do.
All right, it’s valuable to have an adviser to produce your financial plan and design a suitable portfolio. But what about going forward? What value do advisers add on an on-going basis?
To keep a client focussed on what they are trying to achieve is really important. It’s all about discipline at the end of the day, and keeping to a plan. We are our own worst enemy. We like short-term pleasures, not long-term pain, and because of that we do crazy things — never mind with investments, but with our lives. We often spend money we shouldn’t spend, we don’t invest when we should, or we cash in when we shouldn’t. A good financial planner can obviously help discipline the client to stay on track. They will also work with the client as their life changes. Things happens in life, and therefore it’s important to keep the client aware of how those changes impact their financial future.
What should you be looking for in an adviser?
You’re really looking for an adviser who is more interested in you and what you want to achieve than in your money. If you’ve already got an adviser, but they only ever talk about the money and they’re often coming back to you and recommending a new fund, then that’s a clue that you might be not receiving the sort of advice you ought to receive. The focus of an adviser should be uncovering and digging deeper with a client to understand what it is they want to achieve. That’s the driver.
So how do you see the advice profession changing over the next 10 or 20 years?
I disagree that it’s a profession. I think it needs to turn into a profession as soon as possible. The financial service industry is exactly that — it’s an industry. What we’ve got is a group of financial planners, unfortunately, working within the industry. There needs to be a proper profession for financial planners, unsponsored by product providers, that can stand up by itself and deliver a service to clients which doesn’t revolve around financial products, but instead revolves around clients.
At the time of writing, there are still a few tickets available for BACK2Y, a conference for advisers that Paul Armson is organising at the ICC in Birmingham on Friday 4th March. I was privileged to speak at last year’s event and found it refreshingly different. There are no freebies, no sponsors and no product providers selling their wares. The focus is on helping advisers to identify the value they provide, communicate it to clients and prospects, and to deliver that value with absolute belief and integrity.
If you’re planning to go, why not get in touch? It would be good to meet up.