Blue Chip Issue 89

BLUE CHIP COLUMN

BLUE CHIP COLUMN Perception is reality This is why how financial planning fees are charged is important. Rob Macdonald, Head of Strategic Advisory Services, Fundhouse Rob Macdonald has held several senior positions in the investment industry. At Fundhouse, he acts as a consultant and coach to financial advisors and develops and facilitates training programmes in behavioural coaching and practice management. Before joining the financial services industry, Macdonald was MBA director at the UCT Graduate School of Business. He is co-author of the book Rethinking Leadership and has consulted, written and spoken widely on a range of topics. Macdonald has a Master’s degree in Management Studies from Oxford University and is a CFP® Professional. At the recent HUM SA conference, Alan Smith, a London-based financial planner and the founder of Capital Asset Management, shared some of the lessons he has learned in building his business. His talk was entitled Failing my way to success, reinforcing the reality that the path of progress is inevitably littered with both success and failure. Smith says that he started Capital with a clear vision to do things differently and wanted to challenge conventional thinking in financial services. One area where he did this is how Capital charges fees. Smith wanted to separate advice fees from a client’s asset base. In so doing, he is agnostic as to where a client’s money is invested or what financial products a client may have. Capital looks after the client’s total financial life for a fee. Smith saw this approach as giving him a competitive advantage as there are so few other financial planners who operate like this. The simplest analogy for Smith’s approach is the medical profession, where a client pays their doctor for assessment, diagnosis, advice and if necessary, a prescription. The client then pays the pharmacist for the products they are prescribed, even if there is an in-house dispensary, a separate payment is made. As difficult as it may be to envisage, the separation of advice fees from product fees must be an important step for financial planning to take its rightful place as a fully-fledged profession. In my recently released book, The 7 Pillars of Financial Health – Partnering with a Professional to Thrive, as the title suggests, I encourage people to partner with a financial planning professional to achieve financial health. A common response from readers who do not have financial planners has been that while they recognise the benefits of partnering with a professional, they don’t like the way financial planners are remunerated. Sadly, many still perceive financial advice as an incentive-driven, sales and commissionoriented service. This is despite the incredible work that so many financial planners do for their clients. Alan Smith has been able to counter this perception, saying he doesn’t have to worry about having conversations with clients about the link between his fees and products. His fee is for advice only. Whenever I have fee discussions with financial planners, the principle of separating advice and product fees is not necessarily disputed. The obstacle that many see to adopting this approach is how to charge the fee. Smith has solved this problem by charging a retainer fee to clients. He agrees on the scope of work and service with a client and the requisite fee the client will pay, irrespective of what products the client may need. Many financial planners are trying to go this route by charging fees for work done, whether for initial consulting with clients, drawing up a financial plan or implementing advice. But the real challenge is when it comes to ongoing fees. Here financial planners have legitimate concerns about having to invoice clients monthly and chasing debtors who get into arrears. However, product providers already have sophisticated and efficient systems for ensuring financial planners are effectively remunerated on an ongoing basis. Adapting these systems to enable financial planners to stipulate rand-based retainer fees to be paid to them regularly (monthly or quarterly), no matter the product type, would be a huge step in enabling financial planners to charge clients ongoing fees in the way that Alan Smith has shown is possible. It would also help people recognise that financial planning is a genuine and complex profession that focuses on helping clients achieve true financial health, rather than one that many still see as simply selling financial products. 14 www.bluechipdigital.co.za

BEHAVIOURAL FINANCE | Books BLUE CHIP The 7 Pillars of Financial Health – Partnering with a Professional to Thrive Blue Chip interviews the author of The 7 Pillars of Financial Health, Rob Macdonald. What inspired you to write the book? I have always enjoyed writing and as you know I write regularly for Blue Chip and have previously co-authored a book entitled Rethinking Leadership. About six or seven years ago, I began facilitating behavioural coaching programmes for financial planners and frequently got questions and queries about how the insights and ideas from these programmes could reach a broader audience. I thought the obvious way to do this was to write a book. When Covid struck my wife had just signed up to do a PhD so I took it as the perfect opportunity to begin writing the book. Who do you want to read it? When I initially began writing the book, I wrote it for the financial planner. I am a firm believer that financial planning is a noble profession that helps people make decisions about their life and money. Until now, the focus of financial planner education has been on the money and the technical aspects of the work, yet I believe human skills are critical to sound financial advice. When I took the book to my publisher Vindigo Press, they questioned why I was limiting the audience to financial planners as they believed with a little more work it would be appropriate for anyone who was considering getting financial advice, or who worked with a financial planner. The response from both financial planners and the person in the street has been very positive. My hope is that financial planners will see the book as useful for themselves and their clients. What do you think is unique about this book? I think you could put personal finance books into three broad categories. First, those that provide advice on technical aspects of investing, financial and retirement planning. Second, those that offer lessons about how to handle your money, whether from stories about people and their money or the author’s life experience. Third, there are books that focus on the person and their behaviour, whether about life planning or informed by insights from behavioural finance, which educates us on our many biases and how they influence our approach to money. My book is probably closest to this third category, but I believe is unique because it doesn’t only share information but also focuses on applying human skills, both intrapersonal and interpersonal, that are key to influencing behaviour, which I believe is the greatest determinant of financial health. How would a financial planner find this book useful? I hope it will challenge financial planners to look into the mirror and perhaps think differently about how they go about their work. There are also practical skills outlined in the book that financial planners will be able to apply immediately upon reading the book. These skills obviously require practice, but there is enough in the book to help a financial planner who wants to become more skilled on the human side of financial advice to practically implement new ways of interacting with their clients. How would a potential or existing client of a financial planner find the book useful? Firstly, to recognise that their financial health is not just about money and that the financial planning process provides clients with the opportunity to really think about what they want out of life. Secondly, that a successful financial planning outcome has more to do with our human skills, who we are and how we turn up in the world, than how much knowledge one has about money and finance. Thirdly, a key message in the book is that a client will be better off working with a professional financial planner than going it alone but that clients can also work on their human skills to improve their financial planning outcome. If there is one thing that you want the reader to take away from the book, what would it be? Most importantly, I would like the reader to enjoy reading the book. I love reading, but not everyone does. So, if someone chooses to spend some of their valuable time reading the book, if nothing else I hope they will enjoy it. I also hope that the book is a catalyst for anyone who is hesitant about seeking financial advice, to engage the services of a professional financial planner. Finally, I hope that financial planners will find the book a good resource for their work and that clients, or potential clients, recognise that financial planning is a noble profession and that their lives will be richer in all senses of the word by working with a financial planner. www.bluechipdigital.co.za 15