I recently spent a couple of days in the Netherlands, including one day in Hilversum speaking at a financial planning conference. I met loads of Dutch financial planners – what a friendly and open bunch!
I’d like to share a few observations from the conference as I think they have great relevance to our own transition from financial advice to financial planning and on to financial coaching.
First a bit of background. A crucial difference (as I understand it) between the Dutch financial landscape and our own is that they have a fantastic State pension scheme. Great news for the people, bad news for advisers, as there is no private pension provision for them to look after.
In the UK, the model adopted by virtually every advice firm is to charge between 0.5% to 1% of funds under management. I’d suggest the only reason that firms have been able to transition to a post RDR model is because we have pension funds to manage. What would happen if someone took away the SIPPs from which we derive our income? What if we had to live by charging fees for tax planning and financial planning alone?
This is the situation Dutch financial planners face. They had a strict version of RDR forced upon them virtually overnight. They cannot receive payment in any form from ANY product provider. They don’t have much in the way of funds to manage and receive ongoing fees for. Invoicing the client is their only option.
Just imagine that for a moment. No more cross subsidising from 1% pa to pay for cashflow forecasting. No more large cases to subsidise smaller ones. Just an invoice which the client has to write out a cheque for, for every penny of income your firm receives.
It’s not impossible that this could happen here. Automated Investment Portfolios (aka Robo Advice) might take away our drug of fund based income. As for ‘adviser charging’, I suspect RDR hasn’t changed the financial advice industry as much as was hoped (how is a ‘fixed fee of 3%’ different from commission?). One day the Govt might just get fed up and ban any form of payment from a product.
If that happens, how would you justify your fees to a client who has to pay real money?
I discussed the coaching-then planning-then advice model with the Dutch advisers. Focus on making people happier, not just wealthier (the tag line of the Financial Wellbeing book); use coaching skills to help them work out what they want from life. Only then do you use planning and technical skills to plot the best path to get there.
Furthermore, charge a retainer fee to meet every year for a planning meeting to see if the objectives have changed, and how much closer they might now be.
One chap said he was struggling to articulate exactly what financial planning meant to people, it was such a wide ranging concept. I suggested he use “Work out what you want from life, then spend your money on that”, backed up by the coaching/planning/advice model. There seemed to be real enthusiasm among the Dutch planners that this was something that people will pay for.
I will be watching their progress with great interest.