Financial advisers coaches or mentors?

Traditionally financial advisers have, arguably, had an easy job. They identified a clients investment or insurance need and sold the client a product to satisfy that need. And, because commission was paid by the product supplier, clients developed a perspective that financial advice is free. However, there is a global trend to clients demanding quality advice and being prepared to pay for it. This has seen the evolution of advice-based financial planning, which involves providing holistic advice that is in the clients best interest.

In 2006, the Graduate School of Business at the University of Cape Town, in partnership with Xchange Solutions (a business that partners with advice-based financial planners), introduced an innovative Advice-based Financial Planning course. The course explored the challenges facing financial planners as they move from the traditional product selling approach to a holistic, consultative advice-based approach. Products then merely become the implementation instruments for that advice.

The advice approach does, however, come with its own challenges. If applied holistically, it is about assisting clients to firstly identify life goals and then helping them manage their lives and finances to achieve those goals. This is a far more complex process than a product sales approach. It involves potentially being exposed to, and involved with, very personal aspects of a clients life.

It also means that issues that might be raised in the relationship between the financial planner and his/her client are unlikely to be purely financial. In fact, financial planners often have to deal with clients at extremely emotional times in their lives, be it at retirement, retrenchment, divorce or after the death of a family member. So, while we say that financial planning addresses three broad technical elements (advising on an investment strategy; managing any risks in their life; and dealing with estate planning), the reality is that financial planners have a host of personal, emotional and psychological factors to consider and manage when dealing with clients.

However, financial advisers currently do not receive any meaningful training in the relational aspects of their role, despite the fact that it is core to what they do. In order to redress this gap the GSB Advice-based Financial Planning Course, this year introduced a component that dealt with how financial planners can establish, and maintain, meaningful professional relationships with their clients.

In this professional relationship the financial planner is often referred to as a financial coach. It is debatable, however, whether a financial planner should be called a 'financial coach'. Coaches usually help people to become better at doing something by themselves. On the other hand, many clients do not want to do their financial planning themselves. They want an adviser, or mentor, who can guide them. In my opinion, the nature of the relationship between a client and a financial planner is one, which makes the 'mentor' label more appropriate.

The distinction between coach and mentor is important. A client survey conducted by Markinor in 2006, on behalf of Xchange Solutions, showed that a primary reason for clients to consult financial advisers is to gain access to that advisers expertise. The vast majority of clients do not want to be do it yourself specialists, but rather want and need a mentor to help them to manage their finances.

Empowering financial advisers to deal with the relational aspect of their role is critical in the evolution of financial planning as a profession, and in ensuring that financial advisers are able to deliver consultative, holistic advice. While it is important for financial advisers to be equipped in this regard, they will never be psychologists.

There is a limit to the role of the financial adviser in managing a clients cognitive, emotional or behavioural responses to their finances, and other issues. It is thus not surprising that we are seeing the evolution of what is known as the Therapy Alliance, a phrase coined by Bob Veres, a commentator on financial planning in the US.

In a recent newsletter, Veres stated: Financial planning is becoming increasingly personal, increasingly about the clients goals and ability to achieve the goals, and the service has become more and more involved with figuring out how to handle complex personal issues and questions that the planning profession is not - and never will be - trained to do.

In response to this challenge, a growing number of financial planners in the US are forming alliances with psychologists, where clients are introduced to psychologists as a normal part of the financial planning process. According to Veres, one of the big drivers of this phenomenon is that financial planners encounter unexpected problems in applying life planning to the real world that their clients live in.

As he puts it, the advice seems to be good, the service and planning work seem to be right, and the clients may outwardly seem to respond by identifying their cherished goals and buying into a plan to achieve them. But the results seem to be held up by an invisible net of restraints that planners are not trained to find or identify, much less clear away.

A partnership with a psychologist is the most effective way of dealing with hidden obstacles to achieving life and financial goals. However, this does not mean that financial advisers should not be equipping themselves with basic mentoring skills. At the very least these may enable advisers to identify obstacles, or understand when there are obstacles present that are beyond their control.

Fundamental to advice-based financial planning is the ability to provide technical advice to a client. But being able to mentor a client to keep to their financial plan, and to manage behavioural and emotional ups and downs along their financial journey are likely to be the key indicators of success. A far cry from the days when the quality of a financial adviser was determined by the volume of sales and the amount of commission they earned.

By Robert Macdonald, Head: Xchange Solutions