In Tuesday's article, I wondered if the financial planning boom may have something to do with Britain's problematic relationship with the word "advice" and the conduct of advisers.
The industry's troubled history means there's a cohort of people who won't get financial advice even if they would benefit from it. But with every new generation of investors, these legacy issues start to get diluted. What else might be going on?
Whether it's assembling a set of shelves or picking some shares to purchase, the average British saver is generally keen to adopt a "do-it-yourself" mindset. The development of financial services via investment platforms has made it easy. But you have to go back further to see the roots of the DIY revolution emerge.
A Rich History
Self-directed investing has a decent heritage here in the UK, and was helped by a number of privatisations in the 1980s, when people found themselves in possession of shares in companies (and some were really worth having). Margaret Thatcher declared she wanted to create a new generation of British shareholders. She very much succeeded.
Later on, in March 1990, the arrival of the first self-invested personal pension (SIPP) allowed people to take control of their own retirement planning – and, indeed, make their own mistakes. The onset of pension freedoms in 2015 gave both the good and the bad massive momentum.
In addition, this DIY mindset has also grown as final salary pensions have dwindled and the state has impressed upon those without a guaranteed income to think about how to plug that gap in retirement.
From home improvement to cooking, British savers are, then, self-starters. But they are also happy to get financial guidance indirectly, be it via TV's Martin Lewis or the "tip columns" of national newspapers and investing trade magazines.
Linked to this is the national desire to get a good deal and to save money. Articles on "cheap" shares and funds are popular because they speak to a people raised on the principles of frugality and caution – whether or not readers care about the difference between value and growth investing.
This all effects take up of financial advice. So the theory goes, financial advice is expensive and with a potentially long payoff period. "We'd rather save money now than later." "How much does financial advice actually cost anyway?"
This question is harder to quantify than buying a new bathroom or car, but will probably be less expensive than either. It depends on how much or how little the planner does for you, and for how long.
FIRE Away
Thanks in part to the internet, DIY agendas are everywhere, and one that has gained traction in recent years is the Financial Independence, Retire Early (FIRE) movement.
Last week I spoke to Paulo Costa, a senior behavioural economist at Vanguard, about why FIRE should be taken seriously. I wondered if the simplicity of the movement's message made financial advice redundant. If you can achieve the holy grail of financial indepenence via the collective wisdom of FIRE devotees, why pay an expert?
Costa argues that, at least in the US, the advice industry has responded by moving towards an hourly billing model. He describes the growth of the "situational adviser" who can be brought in to solve problems at short notice. Financial wellness coaches are also becoming popular in the United States. And while this is an expansion of the financial adviser's traditional role, there is some overlap here with the more idealised view of financial planning emerging in the UK – a mixture of life coach, financial expert, support staff and mentor.
At the Chartered Institute for Securities & Investment's (CISI) Financial Planning Summit this October, the consultant Dr Moira Somers described a condition called "mental depletion" that can afflict clients. This often occurs at times of personal crisis (redundancy, divorce) and can divert people from their long-term goals. Here the role of the financial planner can be akin to a therapist, identifying a client's "emotional needs" and cognitive biases.
Responding to a client's emotional state can be as important as technical knowhow. For IFA Peter Chadborn, director of Plan Money, this may be as simple as giving "comfort and encouragement" to clients worried about overspending; or providing a "warning voice" to those inclined to spend too much. Equally, being at the end of the telephone when the markets fall is very important.
DIY Regrets
What's the downside of going it alone? Research carried out by Charles Stanley and the financial consultancy AKG will make sobering and potentially encouraging news. Just 25% of those surveyed had taken financial advice but 10% regretted not doing so because they had lost money or bought the wrong product.
One last factor that needs to be taken into account is the British leaning towards false modesty – or at least misunderstanding whether you’re wealthier than the average. Try the ONS wealth calculator if you're not sure where you stand in the pecking order. My guess is that most people will miscalculate.
Overall, the "wealth management" industry is a booming one, particularly in Asia and the US, as banks pivot towards the newly-rich in search of better profits. But a UK wealth manager still seems out of reach for the average person. Perhaps it is too grand a term for the average DIY Brit, used to gleaning share tips from the weekend papers and paying an accountant once a year to "do" your tax return.
But bigger social trends in the West are likely to reach these shores too. With rising asset values, especially in UK property, there's a lot at stake. The big intergenerational wealth transfer has begun, but it's not yet over, making younger people's assets very attractive to financial providers – among them, financial advisers and wealth managers. With the onward march of technology, the delivery method may be different, and AI may be involved, but the result will be the same: you'll be paying someone to "guide" you where to put your money. Just don't call it financial advice.
