Your Industry  

Are financial planners granfalloons?

Are financial planners granfalloons?

In his 1963 novel ‘The Cat’s Cradle’, Kurt Vonnegut coined the term ‘granfalloons’ to describe a group of people who shared a purpose, but whose mutual association is actually meaningless. He could easily have been describing financial planners and wealth managers in 2015.

Synonyms and opaque terms are common in financial services. For a profession intent on building trust, the issue of interchangeable terms to describe a financial adviser ought to be addressed by the regulator. The privation of trust on the part of the discerning public is possibly preventing engagement and encouraging those requiring technical retirement advice from receiving skilled counsel, leaving them instead to resort to inadequate government bodies.

Those seeking professional advice for the first time are unlikely to trust financial advisers; conversely, engaged clients’ trust remains favourably high. According to recent research only 28% of UK households believed financial firms existed to look after their best interests. But 72% of engaged clients responded positively when asked the same question.

Article continues after advert

A reasonable argument might suggest the range of synonyms for financial adviser has reached a critical level and impacts on trust. The FCA, having scrapped its thematic review into banking culture, ought to focus on the continuing issue of confusion generated between independent and restricted status.

Additionally, the confusion caused by the plethora of non-regulated terms to describe those who offer financial advice ought to be investigated. To add further misunderstanding, the new vogue for skilful industry veteran is to deregulate oneself while still offering financial planning.

The term ‘financial planner’ encompasses possibly 10,000 regulated entities who operate and run micro-firms, networks and national publicly listed companies. We could suppose that, prior to 2008, the majority of these individuals may have described themselves as financial advisers.

So which factors created this sudden rechristening? Well, presently the term financial adviser is arguably a prohibited term; it encourages sentiments from prospective clients centred around commission, untrusted sales people and product pushing.

Following the RDR’s implementation in 2012, which necessitated existing advisers to pass new exams (the equivalent of a few A-levels) the sector almost overnight moved from an industry to a profession. Armed with this new-found(in many cases forced) knowledge, financial advisers with an almost pious quality converted from adviser to financial planner. With no regulatory requirements and the option to join the Institute of Financial Planning (now merged with CISI), without any due-diligence or examination obligations, the change was faultlessly easy.

Once rebranded, the financial planner faced a more bothersome challenge. The crucial aim of the RDR was the barring of commission payments from financial intermediaries. In response, fee income strategies focused on regular payments from client’s holdings (negating the need to justify constant payments made directly by the consumer). To possibly justify the monthly payments, the financial planner developed still further into the wealth manager offering risk-rated portfolio fund management. This bonus transformation to wealth manager ought to require a justifiable track record and past performance metrics that validate the claim of being able to manage an individual’s wealth to an industry benchmark.