"Need now" desire - being able to see the future

A couple of days ago a friend was talking about our desire to know what the future will bring, as a society we have moved to a “need now” desire, where if we want something and can’t get it then there is a sense of disappointment. To be in control of our future is just another “need now” desire, we want to know what will happen tomorrow. 

The problem we have is a whole generation coming through with this “need now” desire – this is a worry because effectively they have no idea about not only financial management but also the idea of financial planning is a complete blank in their minds.  This was recently highlighted by Credit Action who demonstrated a worrying lack of financial education in schools, by highlighting that 95% of teachers felt that student’s do not have adequate financial skills at post-16 level.  Without these basic life skills we have a problem. 

This is also compounded by debt and financial worries; if children see their parents struggling then this is likely to have a negative impact on their own financial education. I have always said that to change the world will take time, effectively one brick at a time but if we don’t do this then we are facing very challenging times. 

In my previous blogs I touched on the concept of financial management. I now want to focus on financial planning. The main part of my blogs will cover what financial planning is, but I will also touch on costs as well as this seems very topical. 

Just as an introduction.

Financial Planning

I keep reflecting on the problem we have whereby there is a focus on products as the solution. This doesn’t help when we have the banks pushing products to clients, which are inappropriate as well as a media that is fixated in past practices. I also came across this from a very well-known website which promotes IFA services:

“There are many different types of financial products on the market. Choosing the right one for you and your situation is really important.”

If you use language like this then people will see financial advice as purely selling a product which in many cases people believe they can do themselves, and at a cheaper price.

We need to not only educate students to think differently, but also the bodies which represent financial advisers / planners, journalists and trade bodies because only when we do this can we start to change the way people think. 

Rather than trying to claim something as my own this is some text I took from the Institute of Financial Planning (IFP) and I will expand on this over time:

“Financial Planning is all about working on a strategy which takes into account all aspects of an individual’s financial and non financial details. A professional planner will then work on developing a series of strategies to help their client meet their short, medium and long term goals in life –  and a plan of action is created. Underpinning this plan will be a need for a sensible budget statement and strategy, as well as an assessment of what assets that person owns, and what they owe.  Before they even start on the journey of creating a financial plan, the professional planner will take time and effort to get a genuine understanding of their client and their situation to understand whether they can even add any value to their personal situations. There will be exercises to create different scenarios and “what if” type examples which can sometimes involve software. Also a planner will spend time with the client exploring their attitude to risk and capacity for losses etc. While this exercise can often take quite some time, it is the key to a meaningful plan.  It is also where all the value is added. Yes of course there will be some “products” such as ISAs or pensions, and some other solutions recommended along the way to help achieve those goals. However all the hard work is done before that stage; in the creating the Financial Plan itself. The feeling of being in control of your life and the peace of mind that brings is the real benefit as a result. “

When you consider a triangle the biggest slug will be strategy and the smallest the product (i.e. that is the instrument to deliver the strategy), at the moment too many people are focusing on the product first and therefore there is no real idea what the strategy is. 

So what I want to do is unwrap and explore this further, I believe to really make financial planning work you need a financial planner. However, there is no reason why if someone understands the concepts and can be detached from their own affairs then they can be their own financial planner. There are many good platforms out there that can provide the solutions to deliver the strategy but all the decisions remain with the person making those. 

Charges 

I have seen some very misleading comments around charges recently, and I want to touch on this in more detail. Whether you choose to do your own financial planning or pay a financial planner there will be a cost. 

A financial planner will outline the costs of his work, and the costs of the solution and all of this will be totally upfront and transparent. I will expand on some of these options in future blogs. There is an argument that by doing itself you don’t have to pay as much and actually you will get better performance by doing this. Some points I want to expand on:

1. I believe that all platforms will be required to fully disclose their charges at some point; I have seen some negative and positive comments around Hargreaves charging for the use of passive funds on their platform. I believe the cost is £2 p.m. and is aimed at the lower end of the market. This is a positive step forward, however if this is aimed at the lower end of the market consider this. Someone paying saying £50 per month (£600 in year one) will have a charge of £24 which is equivalent to 4%, ok this falls as the fund grows but the point is that care needs to be taken.  On £5,000 it is 0.48%. Having said that the reason why I think this is a positive step is that people can see what they are being charged for and therefore there can be no claim of bias towards a particular fund or fund house. I can’t second guess what Hargreaves or other platforms will do if as I suspect they have to disclose their charges but whether they charge a percentage or fixed monetary amount people investing can make a decision whether paying this money is worth it, or whether it is better to seek professional help. 
2. Picking up on the last point and I will expand on this further. I mentioned previously about a friend who was looking to move her money to Hargreaves because the plan looked cheaper and she perceived that Hargreaves would recommend funds for her. This perception was given because of the information she received where certain funds where highlighted and promoted. She had no idea whether they were right for her and what she wanted to achieve. To me Hargreaves have changed the shape of the market and in a very positive way, I believe they will continue to benefit from the changes happening as we speak as will other providers. However, they are in danger of unintentionally providing “advice” as can be seen with the Fidelity China Investment Trust. We can blame Hargreaves for this but they never specifically told people to invest in this although they heavily promote this.

The point I will expand on is that financial planning is for everyone, if someone decides to do it themselves then they need to see Hargreaves as a provider of solutions and decide whether what is promoted is right for what they want to achieve.

So in summary I want to use the blogs to move our minds from a "need new" desire to a mind-set that takes a more pragmatic long-term thought process approach.

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