If you work in financial planning, there was a bit of a commotion recently. One of the world’s biggest index fund management companies launched a low-cost “financial planning” service in the UK. So what? you’re probably thinking. Since the retail distribution review back in 2012 which banned commission on retail investments and pensions, there has been a lack of affordable advice available to the public https://www.open-money.co.uk/advice-gap-2020. The man from the Pru stopped knocking on your door and financial advice became the preserve of the wealthy. With a lack of financial education from schools, it has always been our belief that everyone should benefit from financial advice, not just the well-off. Vanguard is looking to change that.
Anything which bridges that advice gap is a great thing. The public needs more education, they need better and more affordable advice on money, preparing for the worst, and saving for the future, and if this helps do that it gets a massive thumbs up from us.
What concerns me is the use of the word financial planning in their name. While I understand that to most people reading this financial planning doesn’t mean much, to those in the profession it means something specific.
A financial planner will always take a holistic look at your finances. For 4 Financial Planning that covers 4 (see where the name comes from now) main areas. But before we start any of that we complete a comprehensive review of your finances. That means looking at your expenses, both now and what you expect them to be during retirement. We help you think about the future, maybe even dream a little about what you’d like retirement to look like. That allows us to create you a bespoke financial plan, which projects your finances forward and puts together an action plan to turn that plan into a reality.
- We look at your short-term needs, which means savings rather than investments. Having a pot of money somewhere that is easily accessible in case of an emergency. but not holding so much and finding that inflation is eroding your spending power.
- Then we make sure you have a plan B. That means understanding your financial position if you were unable to work and earn an income if you suffered from a serious illness, or in the worst-case scenario if you died prematurely. Would your family and loved ones have financial woes on top of the grief of losing a loved one?
- Once those two bases have been covered, we will see what’s left and advise you on what you should be saving for the future.
- And finally, we look at what is going to happen after you have gone with estate planning.
The physical investment piece is one of the simpler areas of advice we give. If you advocate evidence-based investing like we do at 4FP (Vanguard were the pioneers of index investing) the markets do the heavy lifting and low cost index tracking funds give us access to the market return. The tricker bit is assessing your attitude to risk and capacity for loss. This is where a balance of using software, psychometric questionnaires, and a good old-fashioned conversation, come in.
Financial Planning is fine dining
So how does this compare to what Vanguard is offering? Well calling their service Financial Planning is like calling a McDonald’s fine dining. There is nothing wrong with McDonald’s, but when it’s your silver wedding anniversary it’s not the place you book. And when you need comprehensive financial planning, Vanguard isn’t the right table to sit at. They aren’t pretending otherwise though. Their key features document points out several scenarios where their service isn’t going to be right. Here are a few of the highlights.
- If you need holistic financial planning including, which might include life assurance or estate planning or income protection.
- If you are within 5 years of retirement
- If you want access to ethical investments.
- Anyone that wants advice across that considers all available products.
Can you see the picture? While the service is great, it suits people with less complex needs. And that’s fine, but I personally would prefer them use a name which doesn’t muddy the waters. Horses for courses.
How we can help
At an Independent Financial advisor in Bristol we focus on the essentials which are you and your money. By using technology to streamline the process we can charge far less than a traditional IFA which means more of the returns stay in your pocket and you don’t need to have a small fortune to work with us!
Get in touch
f you think you might benefit from our advice, you can book an initial consultation, which is at our cost here or call us on 0117 457 9945