Financial Planning – The Myth Buster

“Financial Planners are the same as Financial Advisers”

Let’s deal with this one right away! Financial Advisers, those associated with being just salesmen and receiving commission, are not the same as Financial Planners. A Planner’s sole responsibility is to talk about you, your life, your family and your objectives, and to create a Financial Plan that can improve your life. If retirement planning just so happens to require the need for a pension fund to be arranged, then the Planner will assist you with that; however this would all be done in the context of the “bigger picture” and the Financial Plan. Be careful, though, as many traditional Financial Advisers are now calling themselves Planners even though they do nothing of the sort! A good way to tell whether or not your Planner is really a Planner is by looking for the word “Certified” before their title, or to see if their firm is “Accredited”.

“A Financial Planner is only interested in selling me products, they’re no better than car salesmen”

You can always tell a proper Financial Planner from an old-school Adviser by the way in which they might start a meeting with you. An Adviser may say “I have 3 products to show you”, whereas a Planner may say “let’s discuss a plan to meet your priorities and objectives”. In many cases, Financial Plans are developed which improve the life of the customer and involves no sale of any products at all!

“A Financial Planner would invest all of my money offshore; Jimmy Carr got into a lot of trouble for that”

There is a reason that the media focus so intently on Financial Advisers who get celebrities into trouble: it sells papers. The reality is that there are very few Planners out there who would even entertain the idea of re-directing income into an offshore company and then paying it back to the owner as a “loan”, which is what was arranged for Mr Carr. The idea, in the opinion of most Planners, is heinous and unethical and exploits a loop-hole in the UK tax system that the Government is desperately attempting to close. Offshore investments have a place, but most Planners will only use them in legitimate circumstances where this solution helps a client to achieve their goals.

“A Financial Planner is only in it for the money; it’s highway robbery”

Financial Services have come a long way from the days when an “Adviser” would write to you every year to tell you that your investment was now “unsuitable” and make proposals to change something, anything, as a means of generating a fee; this was known as “churning”. Nowadays, many Planners offer a more “all-inclusive” service which does not incentivise “churning” and promotes only making changes when it is in the client’s best interest – often at no extra charge. For most Planners, the satisfaction in the occupation comes from helping people to achieve their lifestyle goals and, with no word of exaggeration, changing lives for the better. Planners, like any other professionals, have to charge for their time and expertise, however the idea is that the situation is “win-win” in that the Planner adds more value to a client’s circumstances than the client ends up paying.

“A Financial Planner will put my money in high-risk and complicated investments”

A skilled Planner will take the minimum level of risk required to help a person achieve their objectives. For example, if it has been calculated that you need to achieve growth of 4% per year on your capital, then there is no point whatsoever investing at a level which aims to generate 9%. You may hear about “advisers” investing client money in start-up companies, holiday homes and student accommodation, but in actual fact a good Planner will start with the most basic of savings vehicles; the ISA. Most Planners aim to keep one’s finances as simple as possible to avoid confusion.

“Financial Planners are not nearly as qualified as Accountants or Solicitors”

A common misconception is that Planners are not held to the same standards as other professionals. In reality, there is a structured and regulated framework for qualifications and Continuing Professional Development. A Planner can be Chartered or Certified, or both. These qualifications are the result of hundreds of hours of studying and years of experience, together with over 32 hours of examinations. Planners are highly regulated – only Planners can give advice on financial matters – and must carry-out at least 35 hours of Development activities each year.

“A Financial Planner recommended using a SIPP; these are high-risk and people have lost a lot of money”

You may have heard stories about high-risk pension funds where life savings have been used to purchase Holiday Homes in Cape Verde. However, the advantage of a SIPP is that it allows the pension-holder to invest wherever they like; from cash to bonds or from property to shares. Just because you are using a SIPP does not mean that the underlying investments will be high-risk, and your Financial Planner would always help you to create an appropriate investment.