PFS president Sarah Lord shares an equation to summarise financial planning and the key role relationships play
After the first lockdown, both my children and I were hoping that home schooling was a thing of the past, but here we are again. I have always admired teachers for the role they play in children’s development but now I have nothing but total and utter respect for what they do!
My five-year-old recently asked me: “What is this financial planning thing that you do?” Admittedly, explaining the complexities of what we, as a profession, do to a five-year-old was always going to be tricky – but it did demonstrate to me the importance of financial education at school. Without the right foundations of knowledge of money, it is an uphill struggle to grasp the importance of having a financial plan during adulthood.
So, the best way I could find to explain financial planning to my child was to borrow the ‘financial planning on the back of a napkin’ explanation from David Jones of Dimensional Fund Advisors. It eloquently simplifies financial planning to a level that everybody can understand. This explanation was fresh in my mind because I had the pleasure of joining Mr Jones for a PFS Power event in January, where he also examined the importance of the knowledge that we have and the relationships we hold with our clients.
I believe we need to focus much more on how we transition the relationships we have to the next generation of financial planners
Client relationships are at the heart of what we do as individuals and in our businesses; without these relationships, we as financial advisers don’t really have much but our knowledge. That is why when we consider the sustainability of our profession, I believe we need to focus much more on how we transition the relationships we have to the next generation of financial planners, particularly given reports that one in five financial advisers plan to retire in the next five years.
It is my view that transferring a client relationship cannot be done in one meeting – there needs to be a plan in place for transition, which first starts with matching the client with the right financial planner to take the relationship forward. It is also vital to recognise that it takes time for the next-gen planner to build up their own relationship with the client; and importantly, for the client to build up the same level of trust that they have placed in their financial planner for a number of years. Businesses need to be planning relationship transitions over a period of two to three years if the relationships are to be maintained.
Finally, when considering the question asked by my son, I leave you with the equation for financial planning that Mr Jones of Dimensional has devised:
FP = (Ka + O)r
FP = Financial Planning, K = Knowledge, a = application of knowledge to solve our client’s problems, O = Organisation of the finances & r = relationships.
Through this simple equation we can demonstrate the true value that we bring to our clients through the financial planning we deliver. Put simply it comes down to raising everything we do to the power of our relationships.
Sarah Lord is president of the PFS