As many of you probably know, the financial services industry is constantly evolving in the effort to generate profits for their shareholders. In order to gain or keep their edge in an extremely competitive business environment, financial providers are always creating new products and services.
More often than not, these products and services are created with the intention of increasing the profits of the firm, not necessarily to improve their clients’ lives. This declaration should not be taken as an absolute; however the most recent financial crisis exposed many flaws in our financial industry.
In contrast to the biased sale of financial products and services in the primary effort to increase corporate revenues and sales commissions, true financial planning has the client’s interests at heart. The following distinctions between financial advisory companies help define the true financial planning difference.
Money as a Means to an End
The creation of a financial plan is often confused as a “plan to get rich”. While creating and implementing a financial plan can enable you to become financially independent, gaining material wealth for its own sake should not be the sole objective of a financial plan.
A true financial plan will utilise the creation of wealth as a means to an end. It is my opinion that money is just a tool; it is only exchanged for the things we need (food, water and shelter) and want (entertainment, hobbies, etc.). Money is a universal bartering instrument, not a measurement of one’s worth or wealth.
Viewing material wealth as a life enabler focuses on improving the life of the client, not the adviser. This is an important distinction between financial planning companies.
The Sale of Financial Products
As mentioned above, many financial products and services are created out of the drive to increase company revenue, not to improve the lives of current clients. This is usually the case with commission based financial planning models.
Years ago, financial firms began to create new subsidiary companies to help them sell their products while looking like an unbiased financial services provider. These are many of the well known financial advisory companies you see in media advertisements today – especially big banks.
Many of their commission based compensation models are designed to reward the advisors who sell the financial products the firm wants to distribute, not necessary what the client genuinely needs. Although the products may not be best suited to the client’s needs, they will most likely still be recommended.
In contrast, true financial planning is not limited to a limited pool of financial products and services that it can recommend. This reduces, if not eliminates, the bias towards recommending the right financial products and services for its clients.
Ultimately, a true financial planner will charge a fee for services offered, not a commission. This also eliminates the incentive to recommend products and services that are not really needed.
If you are seeking a true financial planning experience, we might be able to help. Contact us to book a commitment free consultation at email@example.com or phone us on 07 3169 2570.