Something greater than financial advice

Earlier this year and shortly before I surrendered my Financial Services Authority permission to provide financial advice I met Bruce and Theresa, my long standing clients of some thirty years. The meeting was arranged to say farewell and to close our professional (but not social) relationship, and to finalise their plans for their retirement.

The meeting lasted for most of the day, and whilst their finances were on the agenda and were dealt with, much of the meeting revolved around how they were going to live in retirement, what they could and should do, how they were going to maintain family ties, decisions about their house and nearly all aspects of life in retirement. We also covered their relationship with money, dealing in particular with how to change their working life attitude of saving and prudence to finding the courage to spend their time and money on making the most of their lives in retirement. Whilst I was able to demonstrate mathematically that their income and assets were more than sufficient to allow them to live a fulfilled life in retirement, we had to deal with some deep emotional blocks to spending, in particular the fear that they would run out of money.

This was far more than financial advice. It amounted to ‘financial life coaching’, a relatively new professional field that treats money and life as intertwined and is truly holistic in its approach. It is an approach I started to adopt in 2006 after training with the Kinder Institute of Life Planning in the US. In truth, most of my client interventions since then have been holistic, coaching interventions. I have found that the coaching element is of far greater value to my clients than arranging financial products, which, within the context of most financial life plans, should be simple, low cost and commoditised.

Financial coaching is for everyone?

I have witnessed the impressive changes that financial life coaching can bring about in clients, and I would argue that everyone needs a life coach. In reality, the service is less suited to what Ross Honeywill and Christopher Norton call ‘Traditionals’ and more suited to what they call the ‘New Economic Order’ (NEO) (Honeywill, Ross and Norton, Christopher (2012). One hundred thirteen million markets of one. Fingerprint Strategies.), and what James Alexander and the late Robert Duvall in their research for the launch of Zopa (the first peer-to-peer lending business) called ‘Freeformers’ (Digital Thought Leaders: Robert Duvall, published by the Digital Strategy Consulting).

Two types of consumer

These distinctions are important in the context of a key concept about money, which I will cover shortly. First, lets consider the differences between the two groups. Honeywell and Norton describe ‘Traditionals’ as primarily interested in the deal, features and status. A sub-group of ‘Traditionals’ is ‘High Status Traditionals’ for whom status is the highest priority. They cite Donald Trump as the epitome of a High Status Traditional.

Honeywill and Norton contrast ‘Traditionals’ with NEOs. According to the authors, NEOs buy for authenticity, provenance, uniqueness and discovery. They are more likely to start their own business, are usually graduates, see the internet as a powerful tool for simplifying their lives, understand investing (money and personally), and are repulsed by conspicuous consumption. They are highly individual and express their own individual values through what they say, buy, do and who they do it with.

Honeywill and Norton discovered NEOs in the US and wrote about them in 2012 but Robert Duvall and James Alexander arrived at a similar concept in the UK in the early 2000s. In their research prior to launching Zopa, Duvall and Alexander identified a group of people they called ‘Freeformers’, a new type of consumer ‘defined by their values and beliefs, the choices they make, where they spend their money. They refuse to be defined by anyone, they don’t trust corporations or the state. They value authenticity in what they buy and they want to lead “authentic” lives.’ Duvall and Alexander saw these people as the core of an IT society based on self-expression, choice, freedom and individuality.

Two attitudes to money

In my own career as a financial adviser, planner and coach I have identified two prevailing attitudes to money. There are those who see money as an end in itself, and those who see money as a means to an end. I cannot admit to having carried out detailed research on this, but I have seen enough to make a reasonable assumption, namely that it is the Traditionals who see money as an end in itself, and it is the Freeformers who see money as a means to an end. (At the risk of upsetting Messrs Honeywill and Norton and conscious that NEOs and Freeformers are not exactly the same, I am going to refer to both simply as Freeformers in the rest of this paper as I feel the word is a better and more evocative description of the species than NEOs.)

In very general terms, Traditionals are intent on making their money go as far as possible by getting the best deals and features. Psychologically, they equate money with ego and status. Conversely, Freeformers use their money to achieve their individuality and authenticity and to express their values. Whilst they do not spend entirely irrespective of cost, their spending criteria are written in terms of authenticity, provenance, design, uniqueness and discovery.

Mapping attitudes to life and money

In my own experience Traditionals respond to financial advice, but not financial planning or coaching, whilst Freeformers only start to value financial advice when it is supported by an individual and unique life and financial plan born out of a deep coaching and planning process.

Putting it another way, Freeformers understand that the link between life and money goes deep, so respond well to coaching that addresses their life and money. Traditionals, on the other hand, do not harbour such a powerful connection between life and money, and are less likely to respond to the concept of ‘financial life coaching.’ Traditionals form the key market for financial services institutions and packaged products, especially those that provide deals (discounts / competitive fees), features (pension plans with flexibility, for instance) and status (high risk, high returns). Freeformers are more likely to select a platform (an online service to aggregate all their investments and tax wrappers) and concentrate on selecting investments to suit their values and goals.

The spectrum of help with personal finances

In the UK and other parts of the world you can now find many different forms of help for your personal finances. Its a wide spectrum with financial advice at one end and financial life coaching at the other. In between, families and individuals can access financial planning, guidance, training, mentoring and education. Of course none of these are mutually exclusive and some firms or organisations will provide a combination so it is important to understand what is available and the limits and benefits of each.

Financial advice

Financial advice is product oriented. In the UK the Financial Conduct Authority (FCA), which regulates personal financial advice, defines financial advice as advice to buy, sell or switch a financial product. Whilst there is a regulatory requirement to ‘know your customer’ and ensure any advice is ‘suitable’, the thrust of financial advice is the sale of products.

A financial adviser must be authorised by the FCA and abide by its rule book.

Financial planning

Financial planning goes deeper than financial advice. It aims to ascertain a client’s short, medium and long term financial goals and develop a plan to meet them. The plan should be comprehensive and holistic. It should cover all areas of the client’s personal and family finances and recommendations in any part of the plan should maintain the integrity of the plan as a whole.

The Financial Planning Standards Board (which sets the standards for the international Certified Financial Planning qualification) defines a six step financial planning process:

Establish and define the client relationship
Collect the client’s information
Analyse and assess the client’s financial status
Develop financial planning recommendations and present them to the client
Implement the financial planning recommendations
Review the client’s situation