Join David Lunn and Dervla Moloney of Foundation Stone Financial Planning Ltd as they explain the difference between financial advisors and planners and discuss why money is in motion when life is in transition.
Podcast Transcript:
David Lunn: Hi, and welcome to the Navigating Money Podcast with Foundation Stone Financial Planning Ltd, where we talk about how your financial choices today will impact your return on life.
Dervla Moloney: We’re both financial planners who help people to live their best lives with the money that they have, while navigating the many tricky transitions in life, where money is in motion.
In this episode we’ll be talking about the difference between a financial planner, and a financial advisor, and yes, they are different.
David Lunn: I’ve been working in the financial services industry for over 35 years. This has taken me around the world living in Bermuda, Hong Kong, London and now in Ireland. I started Foundation Stone Financial Planning because my clients find an inherent conflict between traditional financial advice, and financial planning advice. We’ve set up the company where our core business is financial planning, and we get paid a fee for doing this. This means that the advice we give our clients is totally objective, tailored specifically for them, and is not led by product.
Dervla Moloney 1:24: I’ve worked in the banking, financial services industry for over 25 years and worked in Bank of Ireland for 20 years of that, most recently at Bank of Ireland private. What I love about being a financial planner is being able to help people to understand their own financial situation and to get the best outcome they can from the money that they have and the best life outcome from this situation. Over the years I’ve spent a lot of time working with clients and trying to help them build a portfolio that will support their lifestyle for their lifetime. And it’s just very rewarding when the plan starts to come to fruition, when they can see the benefits of what they have done over the past five, ten years, and actually deliver on their original goals and objectives.
David Lunn – 2:09: What I really love about being a financial planner is the opportunity to really take the journey with my clients. Without being, sort of, overly dramatic – when financial planning is done really, really well, we have an understanding of client’s personal circumstances that may be better than their doctor, their accountant and their lawyer put together.
The fact of the matter is that money is such an integral part of people’s lives and has such a big influence on the choices that they can make in the future and being able to advise them in this area can really enhance not only their quality of life, but the quality of life of the people that they love as well.
So I think it’s very important that financial planning and financial education go hand in hand. What we really try and do with our clients is help them understand what the future could look like and allow them to make choice, because it’s only when you have absolute choice that you have freedom.
What are financial plans?
David Lunn: Everybody should have a financial plan, but not everybody needs a financial planner. Foundation Stone Financial Planning Ltd provides a number of services, but the core service, the real driver of our business, is the production of holistic comprehensive financial plans for our clients. And these can be characterised as roadmaps or indications of things that they can and should do, and we start with organisation in that space.
So we look at what they have, and we have a conversation with our clients about what they keep, what they should get rid of and what we need to talk about in more detail.
What questions should you be asking yourself?
David Lunn – 3:47: We ask…have you received an inheritance recently? Or are you considering selling your business? Are you planning to support your children in the purchase of a new home?
We then look at all the current circumstances, and we spend a lot of time determining what they want to do in the future.
David Lunn – 4:06: I think that’s perhaps the hardest question that we ask our clients is what would you like your future to look like? It’s all very well people saying I want to be comfortable. I want to live a simple life. I want to have all the things that I need.
But those are kind of generic answers and don’t really get to the heart of what people really want to do with their time in the future.
Maybe it’s having a family. Maybe it’s buying a house. Maybe it’s having a holiday home so that all the family can visit you. Maybe it’s traveling around the world. Maybe it’s getting a camper van and going to New Zealand for three months of the year.
David Lunn: There are lots of things that we can actually look at as opportunities for financial planning, to create the environment in which they can really look at these things and decide how best to achieve them in the future.
And it’s through these experiences and life transitions that the financial planner can really add incredible value out of all that. Ultimately, there may be the opportunity to either look at pensions investments, mortgages, insurances, both life and income protection, etc, etc.
And these are all things that we can do for our clients should they choose to use us for these things. And we have access to, I would say, 90 per cent of the regulated Irish market, so we can really go out and pick and choose from the whole market, what are the very best options for our clients.
Why financial planners shouldn’t bias your financial advice with product sales.
David Lunn: Really, when the advice is given, we haven’t put product into the advice, because that biases the advice, what we’re really trying to do is say that you have an opportunity to achieve your goals and objectives if you do the following things.
And there are choices, ultimately for the client at the end of the day. And there are choices that they can make for themselves or with our help, but really the objective of the advice is to give them a clear picture of what the future might look like so they can enter the future with clarity. The product is absolutely a by-product of that process, and it doesn’t drive the process at all.
What is the difference between financial planners and financial advisors?
David Lunn – 6:20: What is the difference between planners and advisors?
I think I’d start off by saying, it’s important for people to seek financial advice. There is both academic evidence and industry-led evidence that clearly shows that people that take financial advice are better off financially, and in terms of lifestyle, at the end of the day.
David Lunn: The difference between financial planners and advisors, is that financial planners work for you, the customer. We put you at the centre of all our conversations, and everything that we do is independent of any product or fee that might be paid when you deal with a financial advisor.
And don’t get me wrong, they have a very strong place in the advice market, but the advisor is driven by the opportunity to be paid by a product producer, ie a life insurance company or an investment management company commission for placing the product in the consumers’ hands.
David Lunn: 7:15: Here at Foundation Stone Financial Planning Ltd we really try very hard to separate the pure financial advice from the product.
Ultimately, it may be that we advise you to take out a pension because of the advantages that give you, or an investment policy that allows you to grow your money at or above deposit rates, but we would be very clear in the plan, not to outline any particular product or provider, simply using the generic tools to give you a sense of what you should do or can do to improve your circumstances into the future.
David Lunn: If, for example, you’re saving for a child’s education and you have the capacity to put €400 a month into a savings plan, does that produce enough for you at the end of the time, such that you don’t have to take any risk with that money.
So we would say, yes, it may do that, and therefore you don’t need to take risk with that money. Whereas an advisor in this case, would say, well, yes you should put that into an investment product, and that will grow for you, etc etc etc. You may get similar outcomes, but it’s done in a very different way.
We’re not driven by a commission that’s being paid to us. We’re being paid by you, therefore you are in control, and we put you at the centre of our conversations.
Who needs financial planners?
Dervla Moloney – 8:20: Who needs financial planners? Why do people need financial planners? The majority of people, really, everybody needs to look at their financial situation and look at their financial roadmap for the next ten, twenty years or for their lifetime.
So in reality, everybody really needs to talk with a financial planner at some stage in their life and the sooner that can happen, obviously, the better the potential outcome for the individual and for their family.
Dervla Moloney: Financial planners sit with an individual and look at the entirety of their life goals and objectives to try and get the best possible outcome for their lifestyle, from what they have and what their financial situation is.
Dervla Moloney: It’s a lot easier to sit with a financial planner and look out for the next ten, twenty, thirty years and discuss what your longer-term goals and objectives are and how you’re going to achieve them with your current financial situation.
People can get very easily distracted and there’s a lot of behavioural finance research that will show the different kinds of financial biases that are out there.
So people can get carried away like we’ve seen in the Irish market several times, you know, a lot of people decide, “Well God – it’s a good time to invest in property” when property is going up and they all jump on the bandwagon. And next thing there is a property crash.
Dervla Moloney: It has been proven time and time again that with private individuals – there are emotive decisions that they’ve made that will always be against the financial decision that they should take.
And the whole idea of having a financial planner is somebody to sit with you – and it’s like having a road map or when you come to junction a road you’ve made your decisions already where you want to be longer term. There’s somebody there with you, helping guide you along the road, and helping you make the right decision and not to make an emotive decision because maybe markets have had a bad run, or they’re down 10 or 15 per cent. And even though there was an agreement for three, four or five years earlier, to stay with the plan, and that you’re comfortable with a fall in markets of up to 15 per cent, to remind you of that at every point at every junction in the road, and to try and continue that journey as we already decided years earlier.
Dervla Moloney: So really, it’s like having a co-pilot with you in the car, and there’s somebody there that’s going to try and keep you on the same journey, regardless of what way the conditions are on route that you just stick with the original plan and not try and deviate because we’re a little bit uncertain about the current weather conditions, or whatever other issue was going on.
Dervla Moloney – 10.21: Everybody needs to talk with a financial planner at some stage in their lives. The kind of clients that we’re dealing with at the moment might have received recent inheritance…clients that have a successful business and they’re looking to decide over the next five, ten, 15 years how they’re going to move on…whether they have family involved in the business, whether they’re going to take over…whether they’re going to try and sell or position the business for sale and p0eople that are looking within the business to extract funds for their retirement.
There’s a number of different reasons to sit down with a financial planner, but I suppose is always good to sit down and to plan for the future. So everybody at some stage in life will need to do so.
Tactical decisions v strategic decisions
David Lunn – 11:01:
We want to be evangelists for financial planning in our business, because we feel that it is at the core. How can you place a product in a client’s hands unless there’s a justifiable need or reason for doing so? And until we can really tease out with the client exactly what they’re looking for in terms of their futures, it’s very difficult to justify any sort of the product.
Now I’m not saying that you shouldn’t start a pension, that’s a good thing. I’m not saying you shouldn’t have life cover, that’s a good thing. But when you put bits and pieces together like that, they’re tactical decisions as opposed to strategic decisions. And what we want to be with our clients and what our clients come to us for are strategic decisions – how everything fits together properly.
I’ll give you a case in point. A client recently had a lot of life cover. They were ten years out from retirement and their whole plan, essentially, was based around, receiving a significant income for the next ten years. The risk was not that they passed away, their family would have been well catered for, but the risk that they had was that if they couldn’t work due to illness, then they would receive no income.
And what we did, in that case, was we diverted some of the premium that was being paid for life cover into an income protection policy. But that’s a strategic decision and a holistic view of their needs that resulted in the right advice to that client.
We weren’t looking for them to go and spend more money on more insurance. What we did was we said, “You don’t need three million of life cover, but you do need to have this significant income for the next ten years because that would amount to more than a million of income. It feeds your pension funding, it pays for a lot of other things in your life and if you didn’t have it, you’d be in significant difficulty”. And that came out of a holistic financial planning discussion, as opposed to simply selling another product into the mix.
David Lunn – 13.06: It’s important to pay for independent advice separate from any product or any financial solution that might be offered to you, because it really makes the advice objective and tailored specifically to your need, as opposed to being related purely to the placement of a financial product into your hands. It makes the advice, really specific to you and not based by any sort of product sale that might be related to the advice. And I think that’s important.
It also means that we can put you right bang in the middle of that conversation, and work from there, as opposed to starting with the idea that maybe you need a bit of life cover or maybe you need a bit of a pension or maybe you should invest some of that money because of negative interest rates. I’m not saying they’re bad things – what I am saying is they may not be specifically suited for you. And that’s what the financial planner does – make sure that the advice is specifically suited to you and not suited to the placement of a product.
David Lunn – 14:15: Our view of money is that it’s a tool. It allows you to do the things in your life that you want to do. It’s not just about a return on investments, it’s about return on life, and we try and work very hard to ensure that the advice we give you will ultimately give you an improvement in your life.
David Lunn – 14:36: And that’s a different approach to simply trying to get you into the latest, greatest investment option or investment opportunity because our conversations are going to be much longer with you.
We’re going to be with you as you journey down the road. Dervla used the example of the driver and the navigator. I use the example of a pilot and a navigator. You’re both going on the journey together, and you’re a pilot, you’re choosing the destination, you’re telling us where we’re going, and I’m the navigator and I’m here to tell you which route is going to be the best way to get there. And there may be a choice of routes, and those will be choices that you will make. But we will explain the advantages and disadvantages, the dangers and the opportunities that exist by taking each of the routes, and then you as the pilot say “Yes, I’m going to go on Route A, B or C”.
We ride together on that and as things come up, as we go along, we may have to change. So using the example again, maybe there’s a thunderstorm and we decide we’re going to fly around it. Well, I will explain to you how much longer that might take, and what the implications of that change are going to be for you. And we can do ‘what-if’ scenarios. So it’s really not about putting money at the centre of our conversation, it’s about putting you in your best life and then trying to get there with the money that you have.
Dervla Moloney – 15.59:
So there you have it. There is a difference between financial advisors and what we are, financial planners. Thanks so much for listening in to the Navigating Money Podcast with Foundation Stone Financial Planning Limited. If you’d like to chat with us about your financial present and future, drop us a line on info at foundation stone fp.ie.
David Lunn – 16.20: You can also find us on Twitter, LinkedIn, Instagram, and Facebook. Share this link with family and friends. Subscribe, wherever you listen to your podcast and tune in on the second Thursday of every month.
Next time, we’ll be talking about money mindsets and how they can impact your financial stability.
Foundation Stone Financial Planning Limited is regulated by the Central Bank of Ireland.
