“Are you the Judean People’s Front?” the server asks. “F**k off,” comes the terse response. “We’re the People’s Front of Judea.”
It is an iconic scene many readers will recognise from Monty Python’s Life of Brian. The film is more than 40 years old, but the fight over substance and semantics is not dissimilar to the battle in which the advice profession finds itself today.
What an individual has to do to be allowed to offer a personalised recommendation on financial products to a client is well defined. There are qualifications to obtain, and minimum requirements for businesses to meet in terms of things such as capital and indemnity insurance.
But what we should call the individuals who give those recommendations for a living is nowhere near as certain.
A plethora of monikers abounds in the market. Some financial advisers like to be called a financial planner; others prefer financial life planner, life planner, financial coach, financial consultant, investment adviser, wealth planner or wealth manager.
Historically, there were tied and multi-tied descriptors to deal with. Now, within any of those categories we also need to be aware of restricted or independent status; and, within those, whether that restriction applies to the whole of the market or just part of it, and whether people want to call their service holistic or focused.
To some, these are not arbitrary distinctions. They believe how you brand yourself as an adviser says something fundamental about what the client can expect, and why that may be more suitable than other offerings. It can help clarify, rather than confuse, the situation for potential clients.
To others, squabbles over what advisers call themselves are pointless, or even harmful to the profession itself as it tries to attract interest from the general public. In the words of the Monty Python film, those who choose to go by one name, and not the other, are branded ‘splitters’ and a pox on the good name of the profession, on how things should really be done.
With the economic and market outlook still so uncertain, the public need advice more than ever, but they remain confused over the options. Never has there been a more important time to settle the debate once and for all — if, that is, a definitive answer even exists.
Polarised market
In the wake of the Retail Distribution Review (RDR), the financial advice market is said to have polarised.
On one side are ‘advisers’ whose mindset is stuck in the sales culture of the past. They have not progressed to earn additional qualifications, and their recommendations are mostly concerned with the product on offer.
Their focus is more on transactional issues than ongoing planning; on the performance of investments rather than a wider vision of a client’s financial life. They see their role as helping to pick the best fund managers for clients, not telling them how to spend their time or money.
They may not be as wedded to advanced questioning techniques that elicit clients’ deeper desires, or to elements of the planning process such as cashflow modelling, which can incorporate clients’ aims and objectives that are about more than just money.
Today, these ‘advisers’ are concentrated in some of the largest, vertically integrated firms in the market, or so the argument goes.
On the other side are ‘planners’ whose thinking has moved beyond this. They are more conscious of the emotional impact of money. They place real importance on coaching methods, listening skills and empathetic relationship building.
They may have technical skills and knowledge of markets but their bent is towards soft skills, on helping clients decide what they really want out of life and learn how their finances can help get them there. They may be much warier of how a client’s wider financial life is organised, and how their wants across family, work and leisure play into their thinking about money.
These ‘planners’ may charge more for ongoing services because this relationship is one where they will be a constant guide to keep the client on track.
To do that, the emphasis has moved away from which products are best; a question that is almost irrelevant because direct-to-consumer options have become so widely available and cheap. The value the adviser adds is in the plan, not the product, hence they feel entitled to adopt the ‘planner’ tag.
Rarely is the argument made that either way of thinking is inherently bad for clients. After all, transaction-led advice was exactly what the majority of advisers were providing before 2013, and what the bulk of advisers in the market today were weaned on as life offices provided the default route into the sector in years gone by.
Different offerings
But clearly there is a difference between what is on offer in each scenario. Those in the life planning camp have been clear that calling adherents of one approach ‘financial advisers’ and those of the other ‘financial planners’ is the only way to enable prospective clients to differentiate what they are getting, and it is only fair that they can enter discussions armed with that knowledge.
The difference between a financial adviser and a financial planner is the difference between an industry and a profession, some claim, asserting the inherent superiority of the latter title because of the approach taken by planners compared to advisers.
As financial planner Phil Billingham notes, the title matters “if it accurately describes how the person or firm actually operates”.
In Billingham’s mind, a planner should follow the six-step planning process. This has been popularised in a variety of formats since the RDR, but broadly involves: establishing and defining the relationship with the client; collecting the client’s information; analysing and assessing the client’s financial status; developing the financial planning recommendations and presenting them to the client; implementing the financial planning recommendations; and reviewing the client’s situation.
To be called a planner, the person should be producing proper financial plans using scenario planning. If that is not what the individual does most of the time, their entitlement to be called a financial planner becomes less certain.
The problem is, pick any financial adviser and the chances are you will find elements of every tag in the way they go about their work. It would be a rare adviser who never discussed a client’s wider life, nor employed some of the same techniques used by someone with a formal coaching qualification — even if they were not consciously doing so. With suitability requirements as stringent as they are today, a sale without a thorough understanding of the client’s objectives is a one-way ticket to regulatory trouble.
Similarly, you can focus on the plan as much as you want but at some point you will have to touch the investment or platform solution that makes it a reality. Even clients that were most receptive to the life planning approach would be surprised if their planner’s knowledge of funds was noticeably sub-par.
The likes of the Academy of Life Planning’s Steve Conley envisage a future where ‘advisers’ do not touch products at all, instead earning a living from providing generic information and knowledge subscription services to the wider public.
“In some markets there is a wall between advice and distribution,” Conley notes.
“Mutual fund distributors [in the US] are banned from calling themselves advisers or planners. In the UK, the regulator regulates distributors. Retail distribution is where it sees the risk. Who is the adviser? [Is it the] seller or the planner?”
One way to carve a dividing line between adviser and planner would be by giving no product recommendations at all. But it would be a crude division. Even if the bulk of their business was about coaching, a planner might want a couple of clients to whom they distribute products. Would their entitlement to call themselves a planner be revoked the second they put a product in the hands of a client?
Eye of the beholder
In a sense, it is immaterial with which side you agree. Planning is in the eye of the beholder; we have seen from the chequered history of sales-led advice that there are plenty of people within ‘advice’ firms who are adamant they are doing proper planning, despite the sales targets.
These salesmen would continue to brand themselves as financial planners, and other planners and consumers are currently powerless to stop them doing so.
It would take a very clued-up client to be able to identify those who were abusing the ‘planning’ title, even if a consensus was reached on who should be entitled to use it, or a standard was set out in law.
Individual qualification bodies can police the use of their titles. You cannot claim to be, say, a chartered financial planner with the Personal Finance Society (PFS) if you are not, and the PFS can strip people of the title if it is misused.
But financial advice itself is not a protected term; anyone can claim to be a financial adviser. This has led to a worrying uptick in social media stars reinventing themselves as independent financial advisers, and reams of unwise ‘financial advice’ spewing from social media platforms.
This is one of the instances where what an adviser is called could actually matter; the term adviser could be used to describe regulated, highly qualified, trustworthy professionals, as opposed to chancers who were simply hijacking the title.
“I’m going against the grain here but, yes, it does matter,” says financial planner Jason Mountford.
“Not planner versus adviser, or whatever, but I think with all of the TikTok and YouTube ‘financial coaches’ the general public could really benefit from regulated individuals having a title enshrined in law.”
That would lend weight to the argument that the range of titles employed by the profession should be narrowed. It is not just the different job titles that are confusing to the man on the street; there is also a wide and ever-growing list of qualification acronyms. While these each offer their own slant on planning, at least they represent a formal background that consumers know they can rely on.
Informed Choice’s Martin Bamford says: “Professions rightly have barriers to entry. When it comes to money and investing, consumers are at significant risk when anyone can run with a title like financial adviser. Ultimately, we need to do a better job of educating the public about titles and roles.”
Society of Later Life Advisers (Solla) joint chair Tish Hanifan agrees.
“One of the drivers for founding Solla was my frustration that the words ‘financial adviser’ covered such a wide range of knowledge and expertise,” she says.
“The words are used far too casually by many. This helps neither the consumer nor the skilled adviser.”
Distinguishing those with qualifications from those without could be accomplished if a legal standard were enshrined where examinations and professional development were part of what entitled the holder to use a given title.
It may not be the most exciting task but being able to achieve clarity on an adviser’s regulatory authorisation, permissions and status through a forum like the Financial Conduct Authority Register should already be an integral weapon in a client’s arsenal to make sure they are going only to reliable sources for their recommendations. However, there is a clear gap in that regard. When the FCA recently upgraded its register, many hoped for greater transparency to help consumers wade through the myriad options. Instead the opposite happened as thousands of advisers appeared to lose their authorised status when the Senior Managers & Certification Regime kicked in.
Those rules require more junior staff to be certified as competent by senior managers, with only senior management roles requiring specific signoff from the regulator.
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Only those with senior management functions were described as authorised in the first version of the register revamp. Certified staff were listed under the heading ‘Regulatory approval no longer required’, leaving consumers understandably perplexed as to whether these advisers were even permitted to give advice.
A more straightforward taxonomy that divides professionals from amateurs could be a huge step in driving savers in the right direction while the regulatory resources remain mired in confusion for even the most seasoned market watchers.
The ability to display professional body membership on the new FCA Register is a positive change but, again, these bodies confer a variety of titles on members.
A chartered financial planner and a chartered wealth manager are two different examination standards, majoring on different skillsets.
Arguably, there is still a solid demarcation between the two that clients should be aware of. But listing either title carries more weight than just the headline ‘financial adviser’, which should help drive more new recruits and clients to the profession’s door.
Cutting to the quick
Plenty of advisers do not believe that rigid policing of titles is necessary. Suggesting one type of adviser is more evolved than another will not endear the profession to the general public. It can also be used to inflate the standing or competitive position of a particular firm above potential rivals.
But those who make the case for separation argue that there is a bigger divergence than ever between the offerings of different types of adviser.
The aftermath of the RDR has seen the biggest firms get even bigger. They have also started to control more of the value chain. Nowadays, there is barely a provider that has not moved towards vertical integration in one form or another.
While independent advisers have splintered away from tied models, advisers at firms backed by household brands nearly always sit within the same company that owns the funds, the discretionary management or the platform they recommend.
This is all the evidence some need to argue that putting the word independent in front of adviser is not just a semantic flourish.
It cuts to the core of a cultural gulf that exists between small, genuinely independent businesses and restricted behemoths nudging their advisers in a particular direction to suit the group’s commercial ends.
Having a private equity backer changes the game, IFAs argue. Whereas advisers were previously the servant of the client, now they are slaves to the paymasters that have given them millions in funding and will make sure they extract their profits in return.
Again, many argue there is nothing inherently evil in running a structure such as this. There is a host of advantages to receiving the kind of financial support that allows a firm not just to survive but to innovate and thrive, all within the robust compliance framework that a restricted advice model can offer.
But, critics claim, it is only right that staff within such a framework are called, say, wealth managers, and the independent label remains sacred to those who truly are free from potential bias.
Suitability review
FCA data has found that there is no difference in charges, for example, between independent and restricted advisers.
At its last suitability review, the regulator found that restricted advisers, those within a network and those in firms with 25 or more advisers had marginally higher scores than independent advisers, directly authorised advisers and smaller firms respectively.
That will not stop many continuing to baulk at the notion that restricted ‘wealth manager’ salespeople are being put in the same bucket as IFAs.
This is hardly a new debate. It has been hovering around for years, borne of the way we talk about financial planning as a fresh and distinct profession from anything that preceded it.
As Denby Brandon Jr and Oliver Welch write in their book, The History of Financial Planning, the entire planning movement in the US was born four decades ago, created by people “with a desire to do more than sell products”.
They say: “The pioneers of the movement knew instinctively that financial services consumers needed an objective professional involved in improving their financial decision-making processes.”
Doing that, as opposed to any of the activity beforehand, “laid the foundation for the most important new profession created in the last half of the 20th century”, one that eventually transferred from the US to the rest of the world.
Such international examples are the best guide to where the UK may be heading next.
In late 2019, Ontario started on a path to set minimum standards for Canada’s financial planner and adviser designations.
Quebec has had regulation in this area since 1998, prohibiting the use of titles including financial adviser, financial consultant, financial co-ordinator, personal finance consultant or private wealth manager, due to a decision to regulate the term of financial planner.
The labels investment adviser, mutual fund dealer representative and financial security adviser are used by those selling particular products or with specific regulatory registrations.
Ontario is not going quite that far but, under a bill that passed in May 2019, professionals in the province are required to have an award from an approved body before they can use either the financial planner or the financial adviser label.
Again, the key is not to conflate financial planning with anything else. As a consultation the previous year alluded to, this could also potentially rule out putting words such as wealth or retirement in front of planner.
Rob Reid, a British adviser who has lived and worked in Canada, says he believes that the difference in some of the terminology is important because some brands that are floated by advisers are not regulated.
Where next?
Will the UK follow a similar path? The future looks very bright for the planning profession.
Undoubtedly, calls will grow to protect it from intrusion as financial ‘experts’ of all shapes and sizes try to trade on the knowledge and experience of the regulated profession , without earning a fraction of the qualifications.
Fighting over whether someone should be called an adviser or a planner may look like an internecine conflict. But it is a battle that matters to so many who have studiously ploughed through tough exams and professional development courses in recent years. It is up to the regulator to decide where the matter goes from here.
This article originally appeared Money Marketing.
