Introduction
I often describe Principled as a financial adviser in Durham. What I’d really like to say is that Principled are a firm of Financial Planners in Durham. However, I realise that whilst most people are comfortable with the term “financial adviser”, less people are familiar with the term “Financial Planner”, and even fewer understand the difference between the two.
This blog will attempt to contrasting and comparing the traditional Financial Adviser vs. a modern Financial Planner. Hopefully it will explain why at Principled, we feel that financial planning is superior to the traditional financial advice.
We may look the same, but we’re very different!
Perhaps it’s like beer. If you don’t drink beer, or perhaps you had one beer and you didn’t like it, then you probably think that all beer is just beer, and you probably think it’s all rather unpleasant.
If you’ve never had financial advice before, or you had one experience with a basic financial adviser, you probably think all financial advisers are the same (and perhaps you think they are all rather unpleasant too!)
However, the beer afficionado knows the difference between the premium craft beer, the average beer that is pretending to be a premium craft beer, and the generic, packed-with-additives, mass produced swill.
Likewise, the financial professionals know the difference between a high quality financial planning firm, and the other firms who masquerade as high quality firms, but still just want to sell you products and build up their “assets under management”.
Sadly, we also know the firms who align more to the “generic, mass produced swill” description.
Unfortunately, many of the lower quality firms charge the same, or sometimes even more, than the high quality firms, despite offering a much reduced service.
In this blog post, we will explore the key differences between a traditional financial adviser and a modern financial planner. Understanding these distinctions will make it easier for you make an informed decision when you are choosing a firm to partner with, whether you are looking for a pension review, investment planning, pension transfer advice, final salary pension advice, tax planning, life assurance, or anything else finance related.
Traditional Financial Adviser
In the past, financial advisers primarily focused on investment management. They provided recommendations on buying and selling investments, bonds, pensions, life assurance, and other financial products. While investment advice remains a component of their services, traditional financial advisers often operate within a limited scope, primarily centred around market performance and product selection. Their charging structure is often based on the old commission model, meaning they earn a fee based on a percentage of the value of the product they have sold you. The bigger the value of the investment they sell, the more they earn, regardless of whether this is in your best interest.
Modern Financial Planner
In contrast, modern financial planners take a holistic and comprehensive approach to financial management. They consider all aspects of your financial life, including budgeting, savings, investments, tax planning, insurance, estate planning, and retirement strategy. A modern financial planner strives to understand your unique circumstances, goals, and values to develop a tailored financial plan that addresses your specific needs.
Key Differences:
Scope: While traditional financial advisers mainly focus on investment management, modern financial planners offer a broader range of services. They emphasize comprehensive financial planning, taking into account multiple areas of your financial life to create a cohesive and integrated strategy.
Client-Centric: Modern financial planners prioritise their clients’ best interests above all else. They go deeper, to understand what is really important to their clients, and build financial plans to help people achieve their ambitions. Traditional financial advisers simply ensure a product is suitable based on a much narrower band of criteria.
Fee Structure: Traditional financial advisers typically earn commissions or fees based on the products they sell, which may create potential conflicts of interest. In contrast, modern financial planners often employ a fixed fee structure. This means they charge a transparent fee based on their time, expertise, and the complexity of the services provided. This fee structure aligns their interests with yours and minimizes potential biases in their recommendations.
Holistic Approach: Modern financial planners understand that financial decisions are interconnected. They consider your entire financial picture when crafting a plan, incorporating various aspects like risk management, tax optimisation, retirement planning, estate planning, and more. This is typically brought together using cashflow modelling software. This comprehensive approach ensures that all elements of your financial life work in harmony to achieve your goals.
Conclusion
As the financial landscape evolves, the role of a traditional financial adviser has expanded into that of a modern financial planner. While both can provide valuable assistance, modern financial planners offer a broader range of services, a client-centric approach, a transparent fee structure, and a comprehensive perspective on financial planning. Their fees are often the same, or sometimes lower, than a traditional financial adviser, which often makes choosing a true modern financial planner a no brainer.
By understanding the differences between these roles, you can make an informed decision about which type of professional best aligns with your financial needs and aspirations.
We’ll follow up with more in-depth blogs about how financial planning can benefit you, but if you are looking for a financial adviser in Durham, or you’d like to find out more, please get in touch with us using hello@principled.eco.