So what is financial planning? Really?
May 2005
If you asked a whole lot of people out there what financial planning is, you’d get a whole lot of different answers – so suggested Anthony Davies in a recent FinancialAlert editorial.
Well, I have – and he’s right! So I thought I’d share with you some of the things that the ‘ordinary’ man or woman in the street thinks, when you say you’re a financial planner (and no, we haven’t asked about investment advisers, because clearly, as the name suggests, they’re people who “give advice about investments”!)
There are broadly four different views on what financial planning is, and what it offers people, and these are most dramatically different when viewed by the age of the person being asked.
For the younger people, financial planning is about the future, with the added element of advice on managing their finances now so that they are able to plan for the future. Here’s what they said….
“(it’s about) putting money aside and investing for the future, while living within my means”
“making provisions for the future, making sure when I’m retired I have life insurance, shares and property”
“planning your finances, making sure you have enough money for your retirement, mortgage, superannuation, life insurance, credit cards”
“organising your life, what comes in and goes out, saving for the future,
spending within budget
“it’s about having an investment plan for the future, estate planning such as wills, trusts etc, setting your priority & goals for future then determining what your financial plan is, your yearly cash flow, outgoings, income, balance of assets”
For many of them, this was something that they do themselves – under the heading of ‘managing their financial situation’.
Some focused specifically on planning for retirement, but this was not the majority view – perhaps reflecting the fact that the concept of retirement is changing, and people are less sure that they will be able to or will want to retire when they reach that certain age.
“financial planning could be useful to make sure that we are okay in our old age, planning & saving week by week, we had already saved,
all we need is on how we should invest our savings, they could give us good advice on that”
‘organising your portfolio in terms of risk and returns, your portfolio may include domestic and international shares, property and personal loans to family and friends, everything - they (financial planners) should look at where you are in your life, your weakness and challenges, they should ask you about your strengths and open your minds to capitalize on opportunities”
“investing your money wisely to get an income out of it, (financial planners) should discuss current investments to see if we can do any better”
“making the best possible use of the money available”
“trying to maximise opportunities for financial security making the best use of savings”
The best quote, I thought was this….
“financial planning is about how to balance long term goals with short term needs”
…surely, something the average person needs expert help with!
Surprisingly few people talked about specific types of financial products and services, even when asked what they would expect a financial planner to discuss with them. Of all the products and services mentioned, investments dominated (in line with the view amongst older people that financial planning is predominantly about investment advice). Somewhat surprisingly, insurance was ahead of mortgages and other lending, with minor mentions of other services such as taxation strategies, asset protection and family trusts.
So for younger people, investments are only just over half of what people expect from financial planners. It’s all about horses for courses – and may explain why we regularly find people who are using not one but many financial planners and investment advisers.
Perhaps this means that the definition of financial planning should be expanded after all – for in the consumers’ minds, mortgage brokers are offering a form of financial planning advice, just as lawyers who specialize in family trusts do, and so too tax consultants and others – all joining in with investment advisers to form the financial planning family: advisers who help people balance their long term goals with their short term needs!
Debra Hall is Executive Director of Synovate Ltd, and has been researching consumer views on savings, investments and financial services for over 12 years. The views expressed in this column are her personal opinions, based on personal experience and data from the SaverPulse survey and other published material.