GLOBAL NORMS WE THERE YET?
The world has changed. Financial planning is following
Providing financial advice to the modern client has undergone a notable shift from the traditional life cycle financial planning taught to us in textbooks.
Lifestyles are now way more flexible in terms of career flexibility, global movement, marital age, family structures and entrepreneurial pursuits. Our advice model needs to be sufficiently pliable to cater to the nature of the lifestyle specific to each client.
Planning needs to be much more dynamic and flexible than ever before, with the ability to pivot to the needs of the client in real time. We have found that with the faster pace of life, we need to be more regularly available to our clients often at short notice and that our role as a financial adviser has morphed into that of financial touchstone for all lifestyle decisions, with a strong focus on behavioural economics.
The rise in complex family structures; increased legal recognition for the rights of unmarried couples, particularly when it comes to succession; and the growth in global families has added a layer of complexity when it comes to financial planning. We have had to adjust our practice and advice model to embrace these changes.
We have found complex family structures spread across different international jurisdictions often result in multifaceted family dynamics and sensitivities that need to be catered for in the financial plan. We have also found that including those generations who stand to benefit from the estate in the financial planning process results in smoother transference and more equitable outcomes for all.
The global financial planning standards appear to be steps in the right direction. The thinking behind “a more holistic approach” is about how to get to the heart, soul and psyche of the clients.
Perhaps “more humanistic” would have been a better way of describing the direction they have sought to take. That means that they’ve introduced concepts such as “the psychology of financial planning”, which addresses behavioural aspects in the financial planning engagement.
(Question 1: Do these “psychological” factors translate as neatly into a society as diverse as South Africa?)
The new global financial planning standards, which will be effective globally from 2025, adopt words that speak to a financial planner “knowing, being and doing” in their professional practice. This framework goes further than addressing the competencies, processes and practices that a financial planner should follow. It now extends to who the financial planner is. The words used in the new framework identify who the financial planner should be, internalising the essence of being a professional practitioner as well as the underlying ethics of what a professional financial planner represents.
They’ve also focused on “integrated financial planning”, where advisers are encouraged to examine the interrelationships among financial planning components, compare the opportunities and constraints of each, and then help clients prioritise. So, the new standards are definitely heading in the right direction.
(Question 2: But do they go far enough in integrating all the financial touchpoints for South Africans? And do they get to the crux of the financial decision-making challenges they face?)
The relationship between the financial planner and the client is all about trust. The standards help describe what clients should expect from financial planners and formalises where the financial planner should add value.
This is helpful in driving consistent behaviour from financial planners, and realistic expectations from clients. Importantly,
the financial planner need not be a seer with greater insight into the future than the client, but rather a staff to help the client along the path.
And the path here is the trade-off strategy adopted, which need not be unduly risky but should rather get the client safely to their destination. Far from suggesting an all-powerful and all-knowing financial planner, the standards ask financial planners to display emotional intelligence, recognise their own behavioural biases, and coach and nudge clients into the desired behaviour.
Colliers is a CFP and director at Crue Invest; Palframan is a senior lecturer at NMU; Crosoer is CIO at PPS