With a continued shift toward holistic wealth management on one hand and the rise of low-cost, technology-based competitors on the other, financial planning is taking an increasingly important role in financial advisors’ menu of services offered to clients.
This trend was evident among the 85.1% of advisors surveyed for Investment Executive‘s 2018 Report Card series who reported that they create financial plans for clients. This metric is up from 81.7% in 2017, and from 77% in 2009. (The latter year was the first year in which advisors were asked if they created financial plans for their clients.)
For Cary List, president and CEO of the Financial Planning Standards Council (FPSC), advisors’ increasing attention to financial planning comes as no surprise.
“We’ve seen a big turn during the past five years toward financial planning as something that’s going to distinguish the human advisor from technology,” List says. “There’s growing recognition and acceptance – both by advisors on the ground and at the corporate level by [financial services] firms – that the future of advice is in financial planning.”
Firms, for their part, have helped facilitate this trend by adding in-house teams dedicated to providing financial planning support. This has been a big help to advisors, who have to deal with the unique circumstances and complexities in each client’s financial plan.
“If you have complicated issues, we have a whole support team that’s quite good,” says an advisor in Ontario with Toronto-based Bank of Montreal. “They check your plans for quality. [That] works well.”
Adds an advisor in British Columbia with Vancouver-based Odlum Brown Ltd.: “[We have] a brilliant team. They’re highly qualified and very detail-focused; they gather all the information, which is a pain, but the advice is top-class.”
“[My firm] has specialized people for each area [of financial planning],” says an advisor in Ontario with Mississauga, Ont.-based IDC Worldsource Insurance Network Inc., “and they’ll do the work in terms of gathering the information.”
Yet, some advisors believe that their firm’s efforts to support financial planning are lacking. In fact, the “satisfaction gap” – the difference between the overall average performance rating and the overall average importance rating (8.0 and 8.8, respectively) – in the “support for developing a financial plan for clients” category was tied for ninth place overall.
Many advisors pointed to software tools – specifically, lack of training in how to use in-house or third-party products – as a big reason why a firm fails to meet advisors’ expectations.
“We have [in-house] software, and it’s complicated,” says an advisor in Ontario with Waterloo, Ont.-based Sun Life Financial (Canada) Inc. “Sun Life has somehow messed up the interface of it with complicated training.”
“The [bank] gives us the tool, but that’s it,” says an advisor in Quebec with Montreal-based National Bank of Canada. “There’s never any feedback on what you might do. There’s no followup, no training, no discussion. Management needs to be more concerned.”
Many advisors hope their firm will begin to do a better job in providing support for developing financial plans for their clients. In fact, with more advisors creating financial plans, there is an increase in the percentage of clients who have a financial plan in place. For example, overall, advisors reported that 54.9% of their clients have a financial plan this year, up from 48.4% in 2009.
However, this increase in the percentage of clients who have a financial plan in place hasn’t kept pace with the growing percentage of advisors who offer financial planning. A big reason for this is that some clients are uninterested in the benefits of having a financial plan – or they simply don’t want to put the effort into the process.
“Setting up appointments with clients to make a financial plan is like pulling teeth,” says an advisor in Ontario with Toronto-based TD Wealth Private Investment Advice.
“I find that most clients I have don’t want to get involved [in the process],” adds an advisor in the same province with London, Ont.-based Freedom 55 Financial.
But even when clients make the effort to develop a financial plan, getting them to adhere to the plan isn’t always easy.
“You can give someone a financial plan, but engaging them in it is a different story,” says an advisor in British Columbia with Toronto-based ScotiaMcLeod Inc.
A recent study by FPSC revealed that although clients are open to the concept of a financial plan, the slow uptake is caused, in part, by the way advisors present the idea.
List’s advice to advisors: “We have to stop talking about financial planning as a process, stop talking about ‘bringing discipline to your financial lives and manage your budget’ – things that sound like a root canal. [You] have to start talking in the language that the client is going to buy into.”
This language, List adds, centres on the concept of presenting the advisor not just as someone who “chooses better products,” but as a trusted party to a client’s comprehensive financial future.
“As financial planners, [we aim to] bring simplicity to complex issues,” List says. “Then, the bottom line to your client is ‘I can help you live your life more confidently’.”