“Life is what happens to you while you’re busy making other plans”, said John Lennon over half a century ago.
Disregarding the fact that he also went on to say: “I am the walrus, goo-goo-g’joob”, the young Beatle made an excellent point, as relevant today as it was in the 1960s and particularly so in the world of personal finance.
Understanding a client’s unique situation, and then working with them to design a personalised plan that gives them the very best chance of achieving their financial goals – this is the essence of good financial planning, the foundation of all professional financial advice, and a major driver of value and peace of mind for the client.
The problem, as Lennon highlighted, is that life occurs regardless of any plans you’ve put in place. In the military, there is a commonly used phrase: ‘No plan survives first contact with the enemy.’ In our world, perhaps this can be adjusted to: ‘No financial plan survives first contact with life.’
2020 has certainly demonstrated that, with the Covid pandemic forcing individuals to reconsider their finances, their priorities, their life choices, and even their own mortality.
Uncertainty is reality. As a result, planners, and the plans they create, need to be more flexible than ever before.
The best laid plans…
Consider the recent impacts on pension planning as an example. From a world where individuals could base their retirement plans on the certainty of leaving work at 65 with a gold clock and an annuity, we have instead a whole new environment where successive governments have done their best to change everything, from how and when you can access your money to the age at which you officially retire.
Even those legislative changes are not set in stone – there was an expectation that the age at which you can access your pension would change from 55 to 57 in 2028, but now there are strong indications that this date will be moved forward.
More recently, those planning for their retirement have seen their job security challenged, perhaps facing an income hit through furlough or more dramatically losing their job through redundancy. When considering their pension, people are facing a difficult period for asset returns, a low interest rate savings environment, and the possibility of further tax changes when the Chancellor finally confronts the cost of Covid.
First in the Chancellor’s sights could well be a flat rate on pensions tax relief at 25%, which would save the government an estimated £4bn per year. According to a government source quoted in The Times, this change is viewed as “a matter of fairness” by the Chancellor, and while it’s unlikely to come into force until the March Budget at the earliest, such a move would have a big impact on the pension pots of higher and additional rate taxpayers.
On the flip side of this, of course, is the fact that many of those who have kept hold of their jobs have been able to build up larger savings pots, through a combination of spending less and also re-evaluating what is important to them.
So, what does this all mean for you as financial planners and the service that you provide for your clients?
I believe it requires a significant change to how many (not all) advisers work with their clients. Instead of being tied to an annual review and the preparation and process that can entail, in times of extreme uncertainty and volatility, advisers would do better to carry out a series of smaller interactions, which together are likely to add up to greater value in the eyes of the client.
At the heart of all this remains the financial plan, which as we’ve seen cannot be immutable and fixed in stone for all time, but needs to be a living, breathing item that is adaptable to a client’s changing circumstances, and is engaging and accessible to provide the client with comfort that, with their adviser’s help, they still have control over their situation whatever life throws at them.
Any change in employment, alterations to pensions tax relief, or the ability to save more means a client faces a different lifestyle in retirement, or a different retirement date, or potentially both. Being able to explore this live with your client aids understanding and helps to bring those new realities to life.
Some might describe this level of interaction as ‘micro managing’. I would prefer to describe it as ultimate personalisation – the ability to constantly tailor and amend a plan based on what is happening to your client right now. But whatever you call it, this adaptability and flexibility can only be made possible (and profitable) through the use of smart technology.
Just as an example, all advisers appreciate the difficulty and delays that can occur when attempting to contact providers in order to get new illustrations. To do this for every client, at multiple points throughout the year, is inconceivable without technology doing the heavy lifting. Similarly, if the ‘cliff edge’ change to the age at which you can access your pension is brought forward from 2028, advisers may find that a very large proportion of their clients need to alter their plans right away rather than wait for their annual review to come around. Again, without technology, that’s a huge headache for any adviser attempting to demonstrate the value of their ongoing service model.
At Dynamic Planner, our whole ethos is to use technology to create and deliver engaging financial advice throughout the client’s entire investment journey. That means an interactive financial plan that is available online, with the flexibility to make changes live as you discuss issues with your client, either face-to-face or using screenshare via video conferencing.
It also means dynamic cashflow planning, where risk assessments are carried out in the background, and a client’s changing requirements can be challenged, tested and confirmed in a truly engaging and interactive way.
Reminding investors to stay calm and stay focused on the long-term plan will always be a vital coaching role for advisers, particularly during times of uncertainty. But as John Lennon also wrote, it is a Long And Winding Road, and having the ability to discuss and quickly change that plan when required is what will deliver real value to your clients.
Chris Jones is proposition director at Dynamic Planner