The Engaging People Pod - The value of having a planner - 26th Jun 2019

Sam Sloma:
So on today's pod, we're going to talk about the value of having a financial
planner and what we do. I'm going to talk a little bit about Engage. It's
going to be a bit of a general thing about financial planning, what we
do, how we do it. Back in episode, I think it was 14 or 15, I answered
questions about Engage, and there was some stuff that I touched around on why
we set the business up and what we wanted to achieve. Whereas in today's pod, I'm
going to go into a little bit more detail about how we do things,
what we do and how we try and provide value. So I'm just going to let the tape
roll and I'll edit it internally. You won't hear this, but the point of our
business is to provide value in excess of the fees we charge.

Now the fees are the costs, so there is a cost, but also a value, the cost is
what you pay and the value is what you get. Now, value can be measured in a
load of different ways. It can be measured in terms of monetary value, so
returns that we've given people or tax efficiencies that we saved them, or I
don't know, problems we've avoided that saved them a load of money. There's
loads of ways we can monetize the value, but there's also a lot of intangibles
in financial planning.

I read an article recently from a friend of mine, I'll give him a shout,
his name is Tommy Watson. He's also a financial planner at a great firm called
Paradigm Norton. And he really encapsulated some of the intangibles. And as I
was reading this post, I just thought, you know what, that would be a good
podcast for me to run through and explain a little bit about some of the
intangible value that we provide, because it's not always there and we're doing
a better and better job as we get more efficient in what we do of understanding
the value and conveying the value. Because sometimes you have to spell it out
to people. Usually they know, but it's easy to forget.

Also in times where there is market volatility, or the financial side of
things is lower or down, you really have to prove and understand your worth and
value to the client. So, I think this is a good exercise for me to do. It's
also hopefully relatively enjoyable for people to listen to. And I will go
through one by one from about seven or eight different values that I think we
provide.

Now, if I start with the financials, so clients who have assets, pensions,
investments, ISAs, children's JISAs, bonds, anything that they have or they've
accumulated, obviously we can manage those assets for them. I wrote about this in a blog recently where I sort of detailed our investment
philosophy. We have a very clear way of managing money. We believe that people
should keep their costs low. We believe that they should track markets
and they really just shouldn't worry too much about the day to day. They should
just invest and forget. Now, that's easier said than done. But part of
having a financial planner is to do that for you so that you can let us help you
and guide you along the way.

So, there'll be a lot of noise out in the wider world, CNN, Bloomberg, ITV,
BBC, they're always peddling news, which some people deem negative events,
world service. And what that means is that bad news sells. So they're always
looking at ways to get clicks or ways to get people to listen. And often the
way to do that is to sensationalize what's going on. So that's not to say there
aren't bad things going on in the world, it's not to say we're always overly
positive, but the reality is is that the world's in the best place it's ever
been.

Financially, more people are coming out of poverty every day. More people have
clean water, more people have electricity, more people are coming out into the
middle classes, and it's hard to see. But the fundamentals of the world are in
great shape and sometimes taking a bird's eye view of that is again easier said
than done when people have got their day to day problems. But we try and
highlight that for people.

So we can manage money for clients, and that's one element of what we do. But
the real point there is that we don't control the markets. So we don't control
the stock markets. And all we can do is look at what's happened historically.
We can prepare people for what we think is going to happen, but we have to
believe in the future. We have to believe that humans are going to keep
innovating, they're going to keep building stuff, they're going to keep
building companies, they're going to keep inventing new medicines, cures for
cancer and new technology. All these things that humans are doing, we just
have to believe that they're continuing to do that. And so that's what
capitalism is and that's what we believe in.

So it's important to understand that whilst we invest lots of money for people,
we also say to them that we put it in the best place and we leave it. Now, as I
said, I think in the previous pod, if someone hasn't got the time horizon, five
years to 10 years plus, then we might tell them to keep it in cash. We don't
have to be investing people's money. We don't get paid on that. It's just a
service that we provide. So when we talk about value, that is something where
we can add value for people if they are doing it themselves or if they're
having it done badly by someone else, we might be able to do that.

Another way we can help people is by protecting themselves. So things happen,
unfortunately people get ill, people die, which is obviously a sad subject but
it does happen. And so putting protection in place for people in your families
and making sure you've got the right level of cover and understanding why that
cover is the right level is something we do. Now, again, generally we don't try
and do this annually. We'll try and put it in place and put the right amount of
cover in once so we don't have to do it again. However we do periodically
revisit that just to make sure it's in line with client circumstances.

So, you have to think practically in these situations what happens if, and just
ask yourself the question, what happened if I was ill or what would happen to
my family if my wife got ill or was in a car crash, it's a relatively morbid
subject, but it is something that that does happen. So, it's just making sure
people have got protection, if something happened to them or their
family. Yeah, should the worst happen.

Okay. How else do we add value? Well, if we start at providing peace of mind,
so again, this is a funny one. Money is such a taboo subject in the UK. People
don't really like talking about it. There's a thing out recently somewhere.
I'll try and find it for the show notes, that quoted, that people are happier
talking about STDs than they are about money. So that gives you the level of
difficulty people have in coming to speak to someone about money. And that's an
interesting one.

So being a confidant, being a sounding board, being a trusted advisor when it
comes to money, it could be quite useful. Now, I'm sure there are people out
there who don't have any money worries or who don't think about money and
that's great, an absolutely perfect way to be. However, there are lots of other
people who do have financial worries. They have financial stresses and strains.
It's one of the biggest causes of stress in the UK. Looking at the data at
the moment around stress in the workplace, money is the biggest contributor
to stress.

So again, being the outsource partner, being that someone who's away from the
bubble that you live your day to day life in is quite useful for people and
that's a value that we provide. We also provide value in saving people time. So
if you think about, I don't know, a lawyer or a doctor or a surgeon or someone
who physically charges by the hour. Every hour that they spend is worth X
amount of money, whatever that amount is. Now, if we can save them X amount of
hours, that's X amount of value saved, so you can quantify that by the
number versus their spend or their costs.

But really, time is something you can never get back. We've only got a certain
amount of time on this planet and saving people time to do what they do best or
to have time with their family or whatever it may be, whatever they're into,
that's a real tangible value that we give people. Okay. If we look at helping
people visualize what their future can be, I think this is an interesting one
because as a young person myself, I find it quite difficult to see 30 or 40
years into the future, and sometimes I'll speak to my wife, the lovely Laura on
this subject, and we just don't find it easy to sit and think about what we'd
like our life to be in 30 years time.

So mapping that out isn't always easy. However, what we do is, with some financial
software that we use, is we just model a few scenarios. So what if this
happened or what if that happened? Or what if we managed to achieve this, or
what if we'd like a house here and all those things. We just mapped them out,
and we look at them and see what impact it makes on our lives, some of the
decisions we have. Do we move house from where we are now? If we do, what does
that look like? What does it cost us? If we don't, how does that impact our
financial future? And that's really what we do.

So, we help people visualize their future. We help them visualize goals,
understand if things are achievable. But we also tell them if it's not. So, if
a goal you have is unachievable or unobtainable, it's probably best that we
tell you what is realistic, because we have to find the balance between
optimism and realism. And so that's what we try and do. We try and be an
optimistic realist by telling people exactly what we think and how we work.

Another way we help people is by being what some deem as the quarterback,
that’s a cheesy American way of framing it, but someone who sort of
links a lot of people together. So for example, I'm often in conversations with
people's lawyers regarding a move or solicitors. I'm often in conversation with
people's accountants regarding tax return and tax planning. I'm often speaking
to people's banks regarding sizeable payments or transfers or money coming in.
I often deal with FX brokers regarding trades across different currencies.

And so often we are the hub of someone's financial life, and as I've said
before, it really is a privileged place to be in people's lives and we don't
take it for granted, but there's definitely some value in having someone, you
can just say, "Sam, can you sort this?" Or Stevie in the office, can
this be done? And people know that it's going to get done. And we pride
ourselves on doing what we say we're going to do when we're going to do it. And
if we can't do something there and then, or that day, people would definitely
get an answer from us saying, "This will be back to you tomorrow or
whenever it is."

So, obviously sometimes things take a few days, sometimes we're at the mercy of
other people, which just is what it is. But that's something that we think is a
real value is being the hub across people's different professionals in their
lives. We also feel that we add loads of value in providing ongoing education.
So, financial education is a real growing subject in the UK. A lot of the banks
are talking about, you've seen the M word, I think it's Lloyd's, are doing this
big push around money and speaking about money and a little bit of financial
wellbeing.

Well, we are hugely in favour of that as long as it's promoting good financial
habits. We like it. And that's really what we get clients to do. We try and
keep things very, very simple. We try and simplify all financial affairs, and
that is something where I think there is loads of loads of value. Now the
interesting thing about that is that the value doesn't play out immediately. It
might be five years or 10 years before someone really sees that tangible values
of that, and you've got to stick with it. It isn't easy, otherwise everyone
would do it.

But again, that's what you kind of pay a financial planner to do is sit
alongside you and help you with those decisions that you've made and the
reasons why and to continue to support you on that path and along that
journey. So that's another area where we think there's definite value had.
Again, financial wellbeing, so we just touched on it a second ago, but there's
a load of work being done on financial wellbeing.

Chris Bard and the guys at Ovation Finance just had the first financial
wellbeing conference. Unfortunate I wasn't able to go, but I will definitely be
going next year. And again, another huge subject in the UK, a lot being done
around financial wellbeing because of stress in the workplace, which I
mentioned before. And just making people make healthier decisions, make more
educated decisions, take a little bit of a longer term view rather than now,
now, now, just potentially pay yourself first, pay your future self and defer
some gratification, which isn't easy.

And all these things are kind of the intangible values that we provide. Now
wellbeing is also about using money as a tool to enhance your life and to
really understand what makes you happy, what makes you tick, and to really
focus on doing those things. And that's the other part of wellbeing, which we
find is important for people to understand and we have a what I would consider
a really great conversations around trying to picture what makes people happy,
what makes them tick, what do they love doing, what don't they say yes to enough.

And that's something that we try and emphasize and promote to clients and
people in general because we think that's a huge value in people's lives,
getting them to understand how they can do more of what they love.

Now when people think of a financial planner, generally they think of someone
who manages millions for people, and it's only for the extremely wealthy or
affluent, it's not. It is one of the biggest challenges in the profession is
providing advice to people who need it the most. And in a profession that is
relatively expensive from a regulatory and a compliance standpoint, that is a
huge challenge and something that we are amongst others looking at how we
can address that issue.

So, the final one we want to add in is the prevention of financial mistakes.
And I've got a good example here. I had a client for me a year or two ago, and
they were looking at a bond they'd seen in the newspaper advertised. The
company was called London Capital Finance, nothing to do with the previous
London and Capital that I worked with years ago. This is a company called
London Capital Finance. They were advertising everywhere on Google and in
magazines and everywhere, a 7% or a 10% return or whatever it was.

A client phoned me and said, "Look I've seen this, I'm thinking
about putting some money here." And I was like, "Look, I don't think
this is legitimate. I can't see anything online about what they do, where their
returns are coming from. And when things look too good to be true, generally
they are." And so the client didn't go ahead with the investment in this
company, and recently it's been announced that they had 211 million vanish from
clients, and that the company has now gone under and a lot of people have lost
a lot of money.

So, the ability for me to help that client and just say, "Look, this is
not something you should do." Again, the hindsight is 20/20, so it's clear
that I helped them at the time he wanted to invest in this and I said no. And
so just being able to spot expensive mistakes and point out when you know
things aren't necessarily all as they seem can also be a real value that we
add. So hopefully that gives people three or four of the values we provide.
Hopefully it's relatively clear and concise. I'm going to listen back in case
it wasn't.

And then finally I want to touch on a couple of the most, the two or three
most, relevant points I think from a personal finance standpoint that I can think
of that might be tips for people that are listening in around what they can do
better and maybe how they can do it. So the biggest issue I see out
there when I speak to people, clients, friends is expenditure levels going
through the roof. I see a lot of people whose expenditure is so, so
high.

And when you are used to living a certain lifestyle, it's very difficult to
change it. It's very difficult to come down in lifestyle, and that's all fine
if you're earning well in excess of your expenditure. And also if every time
you get a pay rise, you're paying yourself and your future self first. So
expenditure in itself, it's not too much of an issue, but it's most people that
are spending exactly what they're owning, they're not saving anything. They're
not building any future value for themselves. They're not building any capital.
They haven't really got any flexibility if something were to go wrong or their
house were to need a new roof or they were unable to work for a period of time.

And it's really trying to drill into people that saving, putting money away on
a monthly basis, or deferring some income into your pension or whatever it is,
is just a really useful thing to do. I see loads of people that are earning
really well but they're not saving because their expenditure is matching their
income. Every time they earn more, their expenditure goes up, and so they can't
really do anything about what they're saving or they can't change their
position just because of expenditure.

And look, in my view it's a societal issue. I think there's a huge amount of
keeping up with the Joneses. Everyone's got to have the newest everything and
it's a bit of an issue. I think that the biggest lesson I'm trying to teach my
children, not the baby because she's 18 months, but the other two is that
just to put money away and to just not spend the second you've got it. Take
some time after you've put money away, then whatever's left you could spend and
you could spend on the things you love.

And that's not to say we're against people spending money. We try and encourage
it. We try to encourage conscious spending. We try and encourage more spending
on the things people want to spend on. But we don't like it when people are
spending without saving first. And I think it's a really important habit to get
into. And I think that is the biggest issue I see across the board.

What other issues do I come across? Well, a big one that I come across quite
regularly, and this is a bit of a personal issue for me, I see a lot of people
with big houses and big mortgages on interest only. And with rates being so
low, they're making no dents into their size of all mortgages. And my thought
process there is it's a little bit like being an addict, and you're addicted to
low rates and low cost of capital.

Now, the issue here is that most people would say, "Well, I'm only paying
one and a half percent or 2% of the money and I can do better than that."
But those people generally aren't putting away money or they don't have their
mortgage in savings, where they're owning loads on investments. And that's
really where my bugbear lies is because most people who have become addicted to
having a mortgage rate at one and a half percent and they're not paying
anything into it.

Whereas in theory, alongside a sense of what other strategy, you should be
paying down your debt while it's super cheap. Now there's obviously people that
will go against that, but in my view is make hay while the sun shines, because
in three or four years or even 10 years, if rates go to 4% or even 7% or however
many percent they go to, it's going to be a huge burden
on people to affect the cost of capital and then add in that they've got to
start paying back that capital. I just see that as a huge future problem that's
waiting to happen.

So I know it's not, every situation is different. Everyone's circumstances are
different, but my view is if you have interest only mortgage, unless it's like
a short term fix until you get back on the repayment ladder, my view is you
should be paying down that capital.

So I think that's it for today. Hopefully that's interesting. Hopefully it's
coherent. I hope you enjoy. Please do email us at hello@engagefs.co.uk. You can also
check us out on Twitter at Engage_fs & Samsloma1 or see our website -
www.engagefs.co.uk.