Why all financial advisers need to think more holistically about their clients

Last week, I travelled to beautiful Central Otago to meet Brent Wilson from Central Financial Planning in Alexandra. Brent was someone I gravitated towards as he had the same core values that I have such as;

• client relationships and people come first
• being there to help people and make a difference
• holistic thinking
• trying to add value beyond just the investment returns.

It was after meeting with Brent that really cemented my thinking about the adviser, I aspire to be.

When it comes to wealth management and financial planning, there are many job titles that advisers use such as; Financial Adviser, Wealth Adviser/Manager, Private Banker/Wealth or a Financial Planner. This all can be a bit confusing as it blurs the lines with what type of service is being offered. The trip confirms that generally there are two types of advisers giving financial advice. Firstly, there is what I would call an “Investment Adviser” and the second is a “Holistic Adviser”. So, what is the main difference in the two?

Investment Adviser is very market focused adviser, they feel that their most important role is get the best return for you by trying to outperform the market. They may run a portfolio for you or just act as a broker. They will try to pick certain stocks, bonds, managed funds or take certain positions on assets classes in hope that their view will pay off and add some value. They will supply you a lot of research and information about the investments. Seen to be actively managing your portfolio.

Holistic Adviser also does elements of the above but they see the investment as a “means to an end” and not “an end to a means”. They look at the big picture to see how your investment can help meet your long terms goals and objectives. They factor in financial elements to see what is feasible and realistic. Some investments advisers do this at the beginning, but this is where the key difference is. A holistic financial planner will keep a track of your life goals, regularly review them and adjust accordingly throughout your life stages and changing needs over time.

As Brent states, “the investment part is only one piece of the jig saw.” Holistic advisers will also look at other pieces such as your estate planning requirements, tax needs, retirement and goal planning, insurance requirements, cash management, KiwiSaver and any succession planning. Like a GP they have a broad set of skills and knowledge and then refer you to a specialist if it is required. By looking at all elements of your life, this will give them the ability to put all the pieces together to get a complete picture for you. By doing this a holistic adviser can add a lot of value and avoid any pitfalls and risk that could cost you, time, money and a lot of heartache by making sure everything is in order and as you envisaged. They will also regularly review all the pieces over time to see if anything has changed.

So why do advisers need to think more holistically? Firstly, in my experience, almost everyone talks about getting the best returns for clients, whether that was true was questionable when benchmarked to what the market did. I saw a lot of firms getting good returns, but when compared to the market there was underperformance, why that is will be a whole another blog. Also chasing the best returns is a dangerous strategy as yesterdays winners can be tomorrows laggards.

We all recognise we can’t control the market, so a holistic adviser focuses on what they can control: Keeping costs low, being mindful of taxes and most importantly working with you to help navigate any pitfalls beyond just investments. They are there as your financial coach and occasionally, a critical friend to keep you on track to meet your life goals and objectives. A holistic adviser can still just be your “investment adviser” but clients need to understand that they can add a lot more value in other areas when they have all the pieces of the jig saw.

An “investment adviser” should perform reviews, but when they do, they tend to be more about the markets, talking about some of the investments and what sort of return you achieved. They will peer into a foggy crystal ball and give you a view on the future and what we might expect. A review should be more about you and not just the investment.

Let’s say your portfolio drops 10% in value due to a market down turn. Which conversation would you rather have?

One with an adviser who is concerned about the market and will make guesses and assumptions on when value may return, suggesting tweaks and changes while trying to calm your fears but with no idea as to how this may affect you or your goals?

Or conversation with a holistic adviser? Yes, they would also recognise your concerns about the market, but they can now bring that conversation back to how this may affect you personally. A conversation may go like:

“Yes, the recent performance is a concern, times like these can be unsettling for all but we did talk about that this was going to happen at some point. In fact, there is no need to worry as we built this in to our modelling assumptions when planning your goals. The good news is that you can still meet your objective of X. Here is the evidence to demonstrate that you are still on track”.

I know which conversation would allow me to sleep more comfortably.

Whilst some Investment advisers are attempting to be more holistic, from the evidence I have seen, it is very ad-hoc. In my view, the wealth management industry needs to shift towards being much more holistic. As Brent is doing for his clients, by adding value to people’s lives beyond what the market does.

So as Brent said, “being a holistic financial planner is a profession and not an industry, we need to add value in other areas of people’s lives as trying to chase return could end in disappointment. To ensure all their affairs are in order to avoid costly mistakes beyond the investment piece”.

If I am going to charge a fee for the service and with the assumption that all advisers should get a market like investment return over the long term, I need to make a difference in other areas of their life and provide more value. To be able to have conversations with clients that matter, not just about markets that we have absolutely no control over. To talk about how the investments and the returns relate to their personal circumstances and to look at the big picture. Being a holistic financial planner is the only logical choice and a choice I will embrace this with passion and drive.