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The State of the Financial Planning Profession in the UK

By Martin Bamford CFP, Managing Director, Informed Choice

The Financial Planning profession rarely enjoys a constant operating environment in the UK market.  About the only thing constant in terms of financial services regulation is change.  We should have all become very used to these changes by now. In the decade or so I have worked in retail financial services, I have personally experienced three different regulators, with a fourth on its way shortly.

As their leaving gift, the current UK financial services regulator, the Financial Services Authority (FSA), is implementing a fundamental series of changes at the end of next year.  In what is called their Retail Distribution Review (RDR), the FSA is radically altering the regulatory environment for all financial advisers and planners in the UK.

Whilst these regulatory changes have been gradually developed over a series of years, for many practitioners they will represent a major shift in the way they do business and deal with their clients.

Minimum standards of professionalism are being introduced for the first time, with higher examination standards replacing what is now a very low benchmark.  Professional Bodies, including the Institute of Financial Planning (IFP) in the UK, will for the first time have a formal role in the approval and ongoing monitoring of individual Financial Planners, on behalf of the regulator.

The new rules are also abolishing a commonly used form of commission, where product charges are used to fund large up-front commission payments.  Instead of receiving this commission in the future (a form of factoring), Financial Planners who implement investment products for their clients will need to agree an ‘Adviser Charge’. This can still be deducted from the investment, although it will result in much greater transparency and will undoubtedly force a discussion around the value being received by the client.

Of course all of this regulatory change pales into insignificance when considered alongside the really important issues we currently face.

Financial Planning has historically been a niche service in the UK market.  Unlike in other territories, going to see a Financial Planner has been an activity reserved for a particularly wealthy and well educated demographic.  Often the term Financial Planning has been used in place for ‘financial advice’, or more commonly ‘financial product sales’.  It has benefited some parts of the financial services sector to dress up product sales as Financial Planning.

In general terms, the UK public are in a financial mess.  Our economy is loaded with debt, both publicly and privately held.  Levels of savings are chronically low.  The jobs market is shedding more positions than it is managing to create and property prices are flat, despite a lack of supply.

Whilst possibly not the cause of all of this, we still do not teach Financial Planning properly in schools.  The typical UK consumer enters the world of employment with lots of competing financial priorities and, until quite recently, easy access to cheap debt.  It is little wonder that we are often a nation unprepared for the financial challenges posed by life.

When you combine the regulatory, economic and cultural environments in the UK, it is amazing that Financial Planning is managing to emerge as a distinct profession.  Financial Planners are a tenacious bunch; we have to be to survive.  That we have achieved so much awareness to date is testament to the leadership of the IFP and several vocal Financial Planners who have clear ideas about the future of this profession.

It is not and will never be an easy environment in which to operate.  Certain challenges, including delivering any sort of value proposition for the mass market, look hard to overcome.  The ability to change one life at a time through good Financial Planning is well within our reach and the popularity of this often life changing service can only grow in popularity.

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