Whilst the memory has dulled over the many years, I was reminded recently of a presentation by Harold Zlotnik (great name) on the subject of the ‘Broad Concept’ approach to financial planning. Harold was often referred to as the Arnold Palmer of Financial Planning for his great success – I found out that he died last year at the age of 85.

The presentation was before the Financial Services Act came into force in the late 80s; so excuse some possible inaccuracies in the recollection.

Harold and several other exponents of the Broad Concept used to paint a picture of their client/prospect interviews. They used a series of casual ‘open questions’ and put great emphasis on how well they ‘listened’ to the replies – often quoting the phrase ‘we have two ears and one mouth, so we should use them in that proportion’.

The example I remember ran something like this:

So, do you have a Will? If yes, he would ask “what does it say”, if no, he would ask “what would it say?” Typically the response would be that they were “leaving everything to the wife and family”. Harold would ask, “what’s everything?” and the prospect would usually give a breakdown of the assets they would be leaving. He would ask “do you have any insurance” and if so, how much? The prospect would usually give a lump sum figure that sounded large and often make them feel that they were leaving the family well provided for. Harold would ask “what sort of return the prospect would expect to get for an investment over the long term”… in those days, rates were much higher (as was inflation), but the principle of getting the prospect to pick the figure was what he wanted. In doing so, Harold was able to convert the lump sum into a typical annual income figure that he could put to the prospect – asking them “is this what you want them to have?” The discussion at this stage would usually look at the current earned income versus what the lump sum could provide and whether this was what they ‘needed’. Harold would always qualify their need based response with “is this what you want?” His point was to establish the degree of income the prospect wanted to leave, not just what they thought the family needed. It could be that the prospect wanted them to have less income or more than he was currently providing. If there were a gap between what the lump sum would provide and what he wanted them to have, Harold would simply say, “where is that going to come from?” Sometimes the prospect would struggle to answer and he admitted to sometimes asking light-heartedly if there was likely to be any inheritance! However, the conclusion that the prospect usually arrived at themselves was that they probably needed more life cover/income protection…

The process of explaining the interview was longer than I have outlined above, but you probably get the gist of the message. Harold always claimed that people analysed with their head, but bought with their heart. The process of open questions and listening not just to what was said, but what wasn’t is still a vital part of the Financial Planning process. We at AT8 have spent many years working with software and technology solutions that support the sales process. These tools are still an important – even essential – part of the interaction and help with some of the complex gathering and analysis of data to help assess customers needs and wants. Ultimately though, as many have said in the industry, it is the skill of the adviser in helping the customer to reach the right conclusion that is important. As such, it is not just a matter of telling them what they need, but more a case of helping them to ‘understand’ what they ‘want’ – technology and human judgement really can work hand in glove.

A few years ago I arranged for a photographer to come to our house to take a family portrait. The process was painful and reasonably pricy. The photographer didn’t have control over the environment, failed to put the family at ease or to build any trust. He took the photos and left. He returned a few days later and then spent hours looking through paper contact sheets of the photographs to choose the best photo to put in the pride of place on our mantel piece. The experience was extremely disappointing and the output very poor.

Last weekend I took an enlarged family to Venture, a new breed of photographer. The photo session was at their premises, giving them control of the environment, the lightening, the technology and importantly the atmosphere. The session was fun and productive, accumulating in a professional slide show in a small movie theatre where the photograph and ourselves worked together to choose the pictures for our family portrait. If we liked a picture but not the style we could try different styles, backgrounds, view the photo as a black and white image and explore different mountings and frames. The cost was higher but the process was more efficient and the final output much, much better.

A few years ago I also went to an IFA. He completed a paper factfind at my office then left. He returned a few days later with some paper based quotes. We chose the product, probably without fully understanding the implications and then completed a long arduous paper application form. I have never used that IFA again.
Last month I witnessed an IFA planning process. The session was at the IFA’s office. The meeting was slick and professional under the full control of the adviser. The financial plan was presented on a large screen in a movie theatre style room where the adviser and client work together to build the financial plan together, experimenting with different scenarios. The client leaves with a full understanding of their financial position and comfortable in the financial decisions they have made.

Contemplating these stories it struck me how in the photography world nearly everyone has moved to a digital world, although not all will be as slick as Venture yet in the IFA environment few people have fully embraced the power of electronic financial planning. The benefits are clear – the IFA I witnessed is extremely efficient and extremely profitable. Surely RDR will now force more adviser firms of this type into the world?

The subject of pensions is getting a flurry of attention in the press, with politicians vying for position on who has the best strategy for dealing what is increasingly looking like a nightmare waiting to happen. The inadequacies of the UK State pension, funded by our NI contributions, leave the UK’s pensioners amongst the poorest in Europe (including some eastern EU states). However, we now face further changes that are likely to exacerbate the situation. We have Personal Accounts and the auto-enrolment on the horizon from 2012 – albeit that even this implementation is being delayed/phased in. We have the prospect that state retirement dates will be pushed back progressively from 2016. We are still suffering the damage to pensions funds brought about by the Government decision to stop tax relief on dividends in 1997 that cost approx £5 billion per year. Indeed, for many people in defined contributions schemes, their pension funds are little more than they have paid in. All of which adds up to the reality that we have insufficient people saving insufficient money to provide them with a decent income in retirement.

However, simply complaining about it will not fix the problem. We are living longer and so sooner or later someone was going to have to ‘bite the bullet’ over retirement ages. The ‘financial crisis’ is not the root cause, but it has certainly brought the situation to a head and perhaps perversely, it may actually have resulted in people now being more willing to accept the inevitability of change than they may otherwise have done without the crash.

How have other countries dealt with the prospect of a growing aged population? Well, many will be familiar with the comparatively generous German and French benefits systems. However, there are interesting lessons that we missed from Australia and the US who have has their ‘Superannuation’ and ‘401(k)’ schemes running for many years. The Superannuation scheme in Australia that requires a minimum of 9% pa has resulted in over 95% of Australians saving for retirement compared with less than 50% in the UK. This is compounded when looking at part-time workers with three-quarters saving in Australia compared to only 15% in the UK. Whilst we may be learning – belatedly – from what others have been doing, not only have we not yet dealt with it, but there is a growing feeling that PAs could create false expectations that they are a comprehensive solution to the problem, whereas for many it is a case of too little too late.

We have talked in the past about the damaging effect of ‘misselling’ scandals on public confidence in the Financial Services Industry. Low levels of confidence and a continuing lack of financial awareness amongst the general population, combined with a general apathy, have caused people to put off financial planning decisions that has resulted in them either delaying or failing to make pension arrangements.

Years ago, an adviser asked me if I would leave my car parked on a meter if it cost me £4 per minute to do so. As a Yorkshireman, I inevitably said that I wouldn’t… he went on to explain that by delaying setting up a pension could cost this amount in lost benefits. We can argue about the maths of illustration assumptions and the comparative cost of parking these days – the conversation was in the mid 1980s – but the analogy is still quite effective.

For some, they simply cannot afford to save the amounts now needed and there is not enough time to fix the looming ‘car crash’ that will be their retirement. Let us hope that Generation Y will learn the harsh lessons from Generation X. Competent Financial Planning and advice is as important to ones quality of life as is decent healthcare and education.