The Battle of Financial Advice: Reputation and Regulation

The Battle Of Financial Advice: Reputation And Regulation

So, You Know How A Financial Planner Is All About You – Your Goals, Your Dreams, Your Worries. They Look At The Big Picture And Come Up With A Solid Plan To Sort Out Your Money Stuff.

But, If You Ever Came Across A Financial ‘Advisor’ Back In The 80s, 90s, Or Early 2000s, This Whole ‘Holistic Strategy’ Thing Might Sound A Bit Weird. I Mean, Back Then It Was All About Selling Products (And It Was Usually Some Guy In A Fancy Suit Doing The Selling!). From Equitable Life To Mortgage Endowments, The Reputation Of UK Financial Advice Took A Hit Because Of Pushy Sales Tactics And Dodgy Products. And Some Folks Still Think Of IFAs In That Old-School Way.

Fast Forward To Today, And Things Have Changed Quite A Bit. A Retail Distribution Review Shook Up The Way People Pay For Advice, Moving From Sneaky Commissions To More Upfront Fees. The Number Of Dodgy Players Has Dropped, But The FCA’S ‘Wall Of Shame’ Reminds Us That Bad Advisers Are Still Lurking Around.

Take The Recent Case Of Geoffrey Armin Giving Advice To 183 British Steel Pensioners. Therese Chambers, From The FCA, Called It ‘Callous Incompetence’. She Said, ‘People Rely On The Advice They’Re Given For Financial Security Into Old Age. Mr Armin’s Advice Not Only Put At Risk The Pensions People Had Worked For, It Also Eroded The Trust Between Advisers And Clients.’ Ouch.

Regulation, Advice, And Words

It’S No Wonder That Most Honest Pros Are A Bit Cautious About Using The Word ‘Advice’ Too Much. The Acronym ‘IFA’ Still Means Something To Clients – It Shows That They’Re Not Being Pushed To Buy A Product Just Because The Adviser Gets A Kickback. Instead, The Adviser Can Look At The ‘Whole Market’, Where There’S More Choice And Lower Fees.

Financial Planning, Unlike Targeted Financial Advice, Might Not Involve Any Products At All. And That’S A Good Thing From A Regulatory Standpoint. If You ‘Intermediate’ A Product Between A Provider And The Public, You Need To Be Regulated. This Adds Costs And Admin Work. So, It’S No Surprise That ‘Financial Planning’ Has Become A Hot Career Choice.

Lots Of Regulated Financial Advisers Also Offer Financial Planning, And In An IFA Firm, There’S Usually A Mix Of Roles Under One Roof. The Big Difference Is That The Firm Is Regulated. This Means Financial Planning Can Be Offered At A Lower Cost, Which Could Attract Those Who See Themselves As Financial ‘Life Coaches’ To The Industry. Those With The Right Qualifications, Like The CFP, Do It For All The Right Reasons. Others, Maybe Not So Much.

From A Client’S Perspective, You Might Lose The Protection Offered By FCA Regulation. And From The Provider’S Side, You Might Stray From ‘Guidance’ To ‘Advice’ And Get In Trouble With The Regulator. Clients Usually Ask Specific Action-Oriented Questions – Like ‘What Should I Do About X?’ – And A Financial Planner Might End Up Accidentally Giving Advice.

The ‘Advice Gap’ Is A Real Thing. Many IFAs And ‘Wealth Managers’ (We’Ll Come Back To That Phrase) Won’T Help You Out If Your Net Worth Doesn’t Hit A Certain Level, Leaving Millions Without A Financial Plan.

Now, Whether A Bunch Of Financial Planners Are The Right Folks To Fill That Gap Is Something For The Regulator To Figure Out. Next, I’ll Talk About The Reasons Why People Don’t Seek Expert Advice, Both The Psychological And Practical Barriers.