Top advisers sell advice, not financial product

Financial advisers and planners must offer sound financial advice to their clients rather than ‘punt’ financial instruments or the promise of market-beating portfolio returns. “Our advice is the ‘product’ that we are marketing and selling; and that is where our clients need to see the value that we add,” said Lara Warburton, CFP®, in her address to the Financial Planning Institute of Southern Africa (FPI) Convention 2023.

The 2023 FPI Financial Planner of the Year

Warburton, who emerged as the distinguished recipient of the 2023 FPI Financial Planner of the Year award, highlighted a number of potential influencers of the financial planning profession over the coming years including artificial intelligence (AI); automation; behavioural finance; cyber security; data protection; ethical practice management; regulation and remuneration models. She also commented on the duality introduced to the financial planning process by widespread tech adoption. “We are living in two realms; we have this physical world that we live in, and increasingly a digital world as well,” she said. “It is important that we do not lose our human connection through the technology”. 

The FPI Financial Planner of the Year competition is renowned for its rigorous evaluation process, comprising three challenging rounds that showcase the exceptional skills and abilities of contestants. Warburton pipped fellow finalists Thomas Brukman, CFP® and Noel de Kock, CFP® to secure the coveted title. In other news from the 2023 convention, the FPI Approved Professional Practice of the year accolade went to Crue Invest, who emerged victorious over other finalists, Integral Wealth Management and Veritas Wealth. FAnews will take this moment to congratulate these and other 2023 FPI awards recipients on their achievements, and wish them well in their future financial planning endeavours. 

Bulletproof adviser-client relationships

Returning to the presentation, Warburton commented that “building trust and providing full disclosures to clients” were critical components in the adviser-client relationship. She warned about the rising level of fatalism and short-termism among South Africa’s financial consumers, adding that the hardships suffered during pandemic; the ‘doom and gloom’ news flows around climate change; and the current inflation-linked ‘cost of living’ crisis had resulted in many clients questioning the rationale for saving for the future. People are increasingly blowing off saving in favour of instant gratification. 

“If we want our clients to commit to a 20-, 30- or 40-year financial plan we cannot have them thinking in short-term ‘bites’ of two- to five-years,” Warburton said, before turning attention to the growing trend of clients and / or their children moving offshore. “The need for cross-border planning is becoming bigger … as is the need to focus on generational wealth planning,” she said. “It is important to think about the next generation coming through, [figure out] how we can include them in the financial plan, and work on getting to know them and their families better,” she said. The financial planners in the audience were warned not to let their personal sentiment re onshore-offshore investing cloud their planning judgement, and to focus instead on giving objective advice that aligns with clients’ unique financial circumstances. Her advice to financial planners: Give objective advice, and remember there are two sides to every story. 

Under the demographics heading, financial planners must pay close attention to ongoing improvements in longevity outcomes. As clients live longer, their income in retirement has to stretch 10- or 15-years beyond the base case their retirement plans may have been constructed around. Living for longer also raises potential issues around parental care. “A lot of clients have powers of attorney in place; but when mental incapacity kicks in, that power of attorney is no longer valid,” Warburton said. She pointed out that following a client’s mental incapacity, the signed mandate that a Category II adviser had obtained from that client became invalidated too. 

Uncertainty, volatility wreak havoc on 10-year returns

Those who invested into a living annuity structure a decade ago, or who have been saving towards retirement in a retirement annuity over a similar period, will be all too familiar with the abysmal investment return environment over that period. According to Warburton, financial planners are faced with an investment landscape defined by increased uncertainty and volatility, and that giving advice in such conditions is incredibly hard. “This explains why we do not want to be measured only on the performance of the portfolio,” she said. Clients’ knee-jerk reaction to volatility is to rebalance towards money market and income funds; but staying in these low-risk asset classes will not be an option over a 35- to 40-year time horizon. 

As the discussion turned to risk profiling, Warburton became one of only a handful of financial planners that this writer has heard ‘singing the praises’ of the pending Conduct of Financial Institutions (COFI) Bill. “One of the highlights in the COFI Bill is that the role of the product providers will include making sure that they design product for and market that product to the correct end-consumer,” she said. On risk profiling, financial planners were reminded to consider the risk of a client not achieving the required financial outcome rather than simply matching the outcome of a risk tolerance assessment to a basket of financial instruments. The biggest risk could be not being able to afford food through retirement. 

Financial literacy is non-negotiable in the broader financial planning discipline. “We all need to try and do our bit to make sure that we are [promoting financial literacy] and helping people that are perhaps not in our target markets; it is through pro bono work that we can create the type of future we want to see in this country,” Warburton said. Another major financial advice challenge stems from the country’s unemployment crisis. If you consider that 43% of young South Africans are unemployed, the entire financial services sector will have to begin giving more thought to innovative, flexible savings instruments. 

Building your best advice practice

The presentation concluded with a “cook’s tour” of advice practice management with the first decision point being whether to proceed as specialists dealing with a niche financial advice discipline, or to provide holistic financial planning with help from carefully selected referral partners. “We cannot be experts at everything; there is far too much complexity in this field,” Warburton said. Today’s financial planner has to advise on a range of legal and tax matters in multiple jurisdictions where the only constant is change. 

The answer to this complexity is to outsource; but figuring out how to keep your practice afloat as the cost of compliance soars is less simple. This is a real challenge to smaller advice practices, who also face the cost of service and technology suppliers that are hell-bent on building annuity-based revenue in their own businesses. The all-important succession planning topic featured near the end of the talk, with Warburton urging attendees to hold themselves to high ethical standards, and ensure they meet their ‘duty of care’ to clients. “When it comes to succession, we need to make sure we are doing the right thing for our clients as well as for ourselves,” she said. 

As for building a future-proof financial advice practice, the non-negotiables include having a clear value proposition; building trust relationships with clients and their families; focusing on selling advice rather than products; operating with integrity; and embedding professionalism in every aspect of your life and practice. “Remember, we are not selling financial plans but securing our clients’ financial futures,” Warburton concluded. 

Writer’s thoughts:
The requirement that financial advisers and planners sell advice rather than product is a good one; but can be difficult to implement in practice. Do today’s financial advice remuneration models make it possible for advice professionals to be truly product agnostic? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.