There may come a point in your career as a professional financial planner where you ditch the product intermediation

The cost-value perspective

When financial planning for consumers, the greatest value-added is in the personal services you provide ... it is in the provision of the financial plan itself, rather than adding value through financial intermediation. This is because financial intermediation has become commoditised.

As Christopher Woolard, interim CEO at the UK's Financial Conduct Authority said in September 2020:

"The overwhelming majority of retail investors are best served by readily understood, well-diversified and low-cost investments which are already available from a range of providers, but many retail investors don’t choose these."

Some might argue that financial intermediation may lead to better outcomes for consumers. It is certainly more convenient to have someone make investment decisions for you. And of value to insure those decisions, provided the advice firm remains in business, and insurers are willing to payout. But at what cost? And, do those recommendations add any value? Or could general advice and financial education suffice?

We agree that expert advice provided by professionals delivers real value in improving people’s finances. But that value is not added by the timing of markets or fund selection. Really. When it comes down to it. There probably isn't anything of significant value that a financial intermediary can do, that a financial planner can't do! The extra work an intermediary does to justify fees is actually non-intermediating financial planning.

Why pay for someone to choose wealth managers? The evidence overwhelmingly shows that only around 1% of wealth managers beat the market, over the long term, net of costs. Furthermore, those very few wealth managers that do outperform are almost impossible to identify in advance.

In December 2020, platform provider AJ Bell published that the most popular funds recommended by regulated advisers are the Vanguard LifeStrategy range. These "readily understood, well-diversified and low-cost investments"  are available to the public direct from Vanguard. By going direct, platform charges and adviser charges are avoided. Typically, saving you an initial fee of 3% and an ongoing fee of 1.25%. To calculate the costs saved over a lifetime, that's 3% initial fee plus 1.25% ongoing fee times the remaining investment years! The savings over a whole lifetime can be staggering.

The transition from product sellers to professional advisers

Financial planning used to be about product advice. The financial planning of today is more than just products, and not only includes financial solutions that manage wealth but includes strategies for making assets in the first place. Such as business assets, with a three-year business plan.

Solutions that manage wealth are only of value to the wealthy. What everyone else needs are plans to create more wealth. We show you how to financially plan for wealth creation.

Good financial planning also includes goals that money can’t buy such as respect, well-adjusted kids, work-life balance, life purpose, good friends, close-knit family, good health, peace of mind, happy memories, true love, a happy home, good karma, time to relax, a good epitaph. The list goes on. We show you how to financially plan in the whole-person paradigm to unleash your full human potential.

Wealth products take wealth away and return it in the distant future. If you take wealth away from the unwealthy, you often make matters worse. Improving the short-term financial situation for the client will automatically improve the long-term outlook.

We are only asking that what the financial planners do with their own businesses, they also do with their clients.

And, with a little knowledge of business planning - and adjusting the 'what if' scenarios in the cash flow forecast - we can ensure the client discovers financial freedom earlier without outliving their capital ... by creating recurring income on the assets we plan to create. The fact is, products don't create wealth. People do!

Since the modern financial planner is seldom required to recommend a long-term investment product to make good shortfalls, they might instead choose an easier and, with care, a more profitable career down the non-intermediating route.

Conflicted payments and client best interest

According to Which? 90% of financial intermediaries derive their fees from the product as a percentage of assets under advice. The more financial assets they advise on, the more they get paid.

How impartial can advice be relating to what the adviser manages, and what they don't manage?

What about assets such as those you run directly on self-invested platforms, your property, your business, your workplace pension, or that other managers run for you? How can a financial intermediary advise on these assets and get paid?

"Show me the incentive and I will show you the outcome.” As Charlie Munger said, vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett.

Regulators around the world continue to challenge the conflicted payments of asset-based fee advisers. It's only a matter of time for the valuation of asset-based fee firms to fall. It's a matter of timing in knowing when to switch to the fee for service.

Fee for service and fiduciary financial planners

If you always wish to act in the best interest of your clients without conflict of interest, then you might consider becoming a fee-for-service, or fiduciary, financial planner. That is, you are fee-only, regardless of where the asset sits, and there is no conflict of interest.

A non-intermediating financial planner is a fee-only, fiduciary, financial planner. That is, they act as an agent of the client and do not hold any agency agreements whatsoever with any product providers. They are guaranteed by client contract to place client best interest first, without muddying the relationship with conflicted payments. They are asset-neutral and asset-friendly.

Financial intermediaries are selling agents for the firms they hold agencies with, and find it difficult to sign up to fiduciary codes because, in the absence of a wall between advice and product, they find it difficult to undertake to always act in the client's best interests. Regulators around the world are consulting on a Consumer Duty that would set clearer and higher expectations for firms’ standards of care towards consumers. Until these are implemented such standards do not exist. In the UK, Consumer Duty of Care is due to be introduced in July 2022. The impact on firm valuations could come much sooner.

The non-intermediating financial planner on the other hand is the client's personal financial regulator. Their models are resilient and future-proofed.

Costs of regulation

Financial planning itself is not a regulated activity in all major markets globally. It is classed as general or generic advice, where it is not delivered in preparation for a regulated activity. A financial intermediary may deliver financial planning in preparation for financial intermediation, and in the UK is required to be registered and regulated by the Financial Conduct Authority (FCA). A non-intermediating financial planner is not.

When planners realise that the greatest value is added by the non-regulated activity, they may begin to question the rationale for, and additional cost of, being regulated.

Life has been increasingly difficult, and if it was not for recurring revenues, less profitable, for the financial intermediary; because of increasing regulation, its associated cost, levies paid to the lifeboat fund, and a hardening of the professional indemnity insurance market; forcing the market to contract as many regulated advisers quit.

Also, there is a consolidation of planning firms to larger asset raking firms seeking simply to tap into client assets for fees to bolster shareholder valuations. Those advisers with vision, passion, conscience, and discipline to set up a future-ready business of their own are choosing the non-intermediating financial planning route.

Regulated activity adds considerably to the time and cost of the financial planning process. It also makes it difficult to maintain client relationships remotely, with all the proof of identity, signing of documentation and agency agreements, and trust measures required to handle client money. It is difficult to apply social distancing measures when you are regulated and seeking wet signatures.

Certain transactions can only be undertaken by a regulated financial intermediary, such as a pension transfer from a Defined Benefit scheme. Although advisers holding the relevant permissions are becoming increasingly hard to find. Non-regulated financial planners may therefore need to refer consumers to regulated financial planners with the relevant permissions from time to time. 

The advice gap and the underserved public

Today, ninety-five percent of the population is underserved by the financial intermediary population on account of their limited wealth. Financial intermediaries often operate with advice thresholds based on investable assets held by consumers, below which they will not operate. A typical threshold might be £100,000.

Due to being able to advise groups of people, non-intermediating financial planners can profitably serve the underserved at prices they can afford. The larger the group the lower the price!

For more information

Non-intermediating financial planning is financial planning without intermediation. If you are considering becoming a non-intermediating financial planner, please contact us to discuss our support, membership, mentorship, and accreditation services.

As a financial practitioner, you will know that mastering financial planning requires years of training and professional development in the art of soft skills, as much as it does the science or hard skills.

We have trained tens of thousands of advisers on soft and hard skills - insurance company representatives, restricted bank advisers, and independent financial advisers - continuously since the 1980s.

We know how to run a support network. We bring years of experience in running networks to the non-intermediating financial planning market. Our experience was gained from running one of the UK’s largest independent financial adviser networks.

We have coached countless people, transforming their personal and professional lives through one-to-one coaching, mentorship, directorship, educational newsletters, seminars, private sessions, public appearances, videos, podcasts, articles, products, and books.

We have headed up the wealth divisions of some of the world’s biggest financial institutions. We created multiple market-first, market leaders, award-winners, and more. We have created many multi-million-pound businesses. We still do. We are proposition architects. 

We have been practicing master life planners and non-intermediating financial planners since 2012.

We started the non-intermediating financial planning movement; we invented the term "non-intermediating financial planner".

Founder Steve Conley as head of pensions development for Refuge Assurance in the 1990's. Here at Hanley Branch, Staffordshire