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Wealth managers march into financial planning

Providing financial planning services will make client money more ‘sticky’ for wealth management firms, writes Christine Dawson. But will the CISI and PFS still back the purists?

Wealth managers march into financial planning

The years leading up to and following the retail distribution review (RDR) in 2013 had many financial planners ditching investment management capabilities, choosing to hang their hats on a holistic planning proposition instead. But now wealth management businesses, the powerhouses of portfolio management, are bolstering their own financial planning capabilities.

New Model Adviser® has spoken to a number of wealth management firms with rising numbers of planners in their ranks. They are offering financial planning alongside traditional investment management and discretionary investment management services. For some, this is integrated. For others, it stands alone.

Financial planners may find the firms they are outsourcing investment management to are the same ones they are now competing against in the planning arena.

Achieving integration

The Chartered Institute of Securities & Investment (CISI) has made integrating financial planning into wealth management services a big part of its strategy. The more clients who have access to quality financial planning, the better for client outcomes, one argument goes.

Martin Ruskin, head of business development at Bristol-based Paradigm Norton Financial Planning, was appointed chairman of the CISI’s Institute of Financial Planning forum in January.

Ruskin said he is glad the body is making headway spreading the financial planning practice, by getting the biggest businesses involved. 

For example, 200 senior relationship managers at HSBC’s wealth management arm are due to go through the certified financial planner (CFP) process soon.

‘If 200 go through the process and it is positive, it is very likely other wealth managers will follow suit,’ Ruskin said. ‘If they all passed, it would very quickly create a 20% growth in CFP numbers.’

But Ruskin does recognise what a financial planning purist would view as a tension: the balance between twin goals of managing money and planning lives.

‘Is it a mechanism by which they can keep funds under management in a stickier fashion? Or is it that and ensuring their client’s holistic planning objectives are being looked after, even if that means moving money away from what is being held by the investment manager?’ he asked.

Meaningful money

Personal Finance Society president Sharon Sutton (pictured), who is also managing director of Isle of Man-based Thornton Chartered Financial Planners, said the reason wealth managers are moving more into planning is because they want to ‘marry meaning to people’s money’.

‘Otherwise, what is the money for? A real financial objective would be to create an income stream they cannot outlive,’ she said. ‘If you don’t know what that life looks like and how much it costs, how can you suitably manage the funds? As Nick Murray [financial planning writer] says, without financial planning, people outlive the money or the money outlives the people.’

As you will see here, when it comes to stating the fees charged for financial planning, some firms are more transparent than others.

Consultant Rory Percival said he is not surprised to find some wealth firms are a little, or very, opaque when it comes to financial planning fees.

Transparency issues

Percival recalled when he was at the Financial Conduct Authority in 2013 and 2014 and it was trawling through fee-disclosure documents. He said he found wealth management firms were less compliant with the new RDR regulations than the average advice firms.

‘The bulk of what the discretionary manager firms were doing did not fall under RDR. However, a large number of discretionary firms ran advisory services. Every time they traded, they did not do it with discretion, they contacted the client to confirm it,’ he said.

‘Those kind of advisory services were caught by RDR in the same way financial advice was. But the discretionary management firms thought they were not, which is why many were non-complaint.’

Percival said he is not surprised to see cases now where firms give wide ranges of fees, or will simply not disclose them at all.

‘Historically, they have been less transparent than your average advice firm post-RDR’.

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