Financial Sales Vs Financial Planning - What You Need to Know

By: Ray Prince

One of the challenges we face as Fee Based Planners and Wealth Managers is how do doctors and dentists get to know about Graeme and Ray and the job we do?

After all, we know (and our existing clients tell us), that we are providing our clients with exactly the kind of service they want, and they love the way we work for them and not the product provider.

But of course how would a dentist in Yorkshire or a doctor in Surrey get to know this? One method that has seen success is that we are prominent in the major search engines (especially google). So, for example, if you search for 'financial advice for dentists/doctors' (without quotes) you should see us up there towards the top.

And this is where the story starts. One of the calls received in December was from a dentist in the Durham area. I referred to this client in an earlier newsletter, but the essence was this.

An Independent Financial Adviser, well known as someone who targets the dental market, had visited the caller - let's call him John - and had asked him a few questions, and John had told him what he thought were his priorities, and the adviser had made some notes.

Apparently, after about an hour, the adviser said "OK. What I recommend is that you invest ?2,500 per month into a personal pension plan". John was already paying almost ?500 per month into a couple of personal pension plans on top of his considerable NHS Pension, and so he asked if that meant it would be ?2,000 in addition to these.

You may have guessed the answer...

"Oh no, it will be a new plan for ?2,500 and we will stop the others, and I have the paperwork here". John looked at his wife (let's call her Jan), and said he would think about it. So that's how it was left when I received John's call.

He expressed his concerns at the indecent haste in coming to a big decision like this, and when he had turned to the back page of his pension plan quotation, he was staggered to see that this adviser would be PAID ?19.500, YES ?19,500 for this sale! John was not comfortable with this at all, and had the distinct impression that the adviser was more interested in the sale than him.

We suggested that, as John had read about what we do on our website, he could come in to our office with his wife, and I would demonstrate how we could help them. Like all our new clients, they were given some homework to do before our meeting, and they emailed me these before we met.

This information includes "what do you need to achieve in life and when" and "what progress have you made so far", based on the value of the practice/investments/Income etc.

After all, what could be more important than that?

John had very clear goals, and when we met it became increasingly obvious to him how different we worked (compared with the other adviser), and to his delight he felt that he had found someone he could work with.

Keeping it simple here - John and his wife, who is 9 years older, wanted to buy a cottage in the North West where they loved to holiday, and for John to slow down at age 50, as Jan would be retiring.

The question of course is "do we have enough wealth to be able to do this, or will we run out of money before we die?". Time and time again, the vital aspect of any planning had been missing from John and Jan's life - MEASUREMENT.

Having demonstrated the cash flow forecasts we use to help clients with this all important context, John and Jan now understood why we recommend this approach. If you don't know where you are, and you don't know where you are going, how do you know when you get there?

So we all shook hands, and I told them that we would meet again at their Strategy Meeting after two or three months.

Our strategy meeting was a week ago, and this was the result after studying their cash flow forecasts, and devising a strategy:

- Pension - stop all pension planning apart from the NHS. This saves ?500 per month gross.

- Offset Mortgage - create an extra borrowing facility of ?200,000 to buy a cottage now as a cash buyer. Increase payments to ensure all debt paid off by age 50.

- Look to raise more finance from the practice - accountant to comment on this, as a lower rate here than residential debt after tax relief. Potential savings of ?25,000 over 15 years.

- Equity ISAs - use the spare income to invest monthly for the long term to create an accessible tax efficient 'retirement pot'.

- Wills - checked and various comments made by specialist solicitor.

- Lasting Power of Attorney - solicitor to action to ensure if one person incapacitated the other could take over their affairs.

- Life cover - overall level checked as ok, but for the same cost they could have individual cover instead of joint cover.

- Fill in NHS death in service form DB1 - this to earmark Jan as the Beneficiary.

- Income Protection - we changed one plan John had that was not occupation specific to a company that did protect him as a dentist.

- Inheritance Tax - existing pension fund had spouse as beneficiary. As we knew that Jan would not need this money, the children were nominated as the beneficiaries. Potential IHT saving here circa ?25,000.

- Existing Pension Fund - this was transferred to a risk assessed portfolio, as it was way out of line with their risk tolerance levels.

- Annual Review - this to ensure they are kept on track, and to take into account any changes in their life.

The result? Very happy clients who now know exactly where they are, and exactly where they are going. The spare income they have is now concentrated in exactly the right areas.

The total cost, including investment implementation came to ?4,750. This compared to the salesman's ?19,500 for one pension plan, no strategy, no measurement, and ignored or more likely missed the other issues that needed dealing with.

Chalk and cheese!

Key Considerations:Be aware that the vast majority of advisers are, in our experience, paid only when they advise you to take out a policy. Since this is the case, the old saying of 'if you only have a hammer, everything looks like a nail' comes to mind.

They also do a totally different job. It's like comparing a Senior House Officer to a Senior Surgeon.

Action Point

If you have an existing adviser, or are looking for one you can trust; be very clear about what type of person you want to deal with.

Would you want to use a dentist who does not bother to say "open wide please" but proceeds to recommend treatment?

If you want to have a diagnosis before prescription, find a Fee Based Planner who works for you, and you will be assured that they will do a holistic planning job to optimise your financial affairs.

One tip - the next time you speak to your/an adviser, ask what type of cash flow forecast system they use. If there is a long pause - you will know!

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