A progressive planning perspective

OVER the past three years, more and more advisers have said they are becoming ‘lifestyle’ focused with their financial planning business and we have heard buzz words such as ‘holistic financial planning’. However, if we asked 100 advisers what their definition of lifestyle financial planning was, we would get 100 different answers.

Why has this come to the forefront of discussion in the industry? First of all, our industry has been severely hit by poor investment performance of equity markets over the past three to four years. In addition to clients beginning to question advisers’ service, planners have also experienced decreasing commissions as a consequence of falling markets.

The impact of the transition to Financial Services Reform (FSR), with fees more clearly disclosed to the client, and the negative impact of the Australian Consumers’ Association/Australian Securities and Investments Commission shadow shopping survey have also created an imperative for advisers to demonstrate how they add value for their client.

The financial planning industry is still relatively young and we are in a fortunate position where we can influence the direction in which the industry will advance.

Each adviser needs to individually assess where it is they want to play. What is their value-add proposition? What will they be offering the client?

If an adviser chooses to focus on asset allocation, fund selection and performance as their main value-add proposition, ‘progressive’ or ‘lifestyle’ planning is not going to be of interest.

If the adviser wants to go down the path of providing financial guidance and performance of funds but also wants to provide relationship-centred advice, then they should look seriously at this concept.

So what is progressive planning? It is an interactive process that engages the client by asking questions that address what they want their money to do, such as ‘what makes you really happy?’, and ‘what is important about money to you?’ Through this engagement, the client gains a personal framework for decision-making that enables them to make better financial choices so they have a sense of control over their financial affairs.

A true lifestyle financial planner helps clients transform intangible concepts, such as a better quality of life, into something real for that client by asking the right questions that focus on their personal goals and dreams, not how they want to invest.

There are a number of schools of thought on lifestyle financial planning:

n engagement focused, where the adviser helps the client to define their lifestyle goals and then empowers them to make their own decisions;

n process-driven tools, which are structured tools or software to help the adviser engage with the client;

n psychology-based planning, a US offshoot aimed at understanding a client’s attitudes to money and their reactions to it; and

n the integrated approach, which encompasses advisers offering ‘holistic’ or coaching services designed to meet their client’s every need when it comes to money.

Many aspects of these schools will be implemented automatically by the new generation of advisers. They are entering the industry with fresh eyes and can see the value in being client-centric versus investment-centric.

From within the industry there seem to be two distinct views as to what the role of a financial planner is and should be. Some believe the role is only about managing the client’s money and portfolio returns. Others believe the performance of a client’s portfolio and the ability to achieve lifestyle goals are not mutually exclusive offerings.

Only the financial planner can determine their skill set and what they want their value proposition to be, however, many are now offering choice, empowering the client to decide what it is they want from the relationship.

This is why lifestyle financial planning is a progression of traditional financial planning rather than a replacement. Lifestyle financial planning is simply financial planning done better.

Roslyn Mason is assistant vice-president and national account manager for Credit Suisse Asset Management . ‘Progressive Planning’ is one of the Thought Leadership papers produced by Credit Suisse and available on its web site, www.csam.com.au.