Parallels between the UK and South African Financial Planning are explored by Financial Planner Tony Granger CFP^CM who has over 30 years of experience covering both countries.

Having met with many fellow professional Financial Planners at the 2011 Conference of the Financial Planning Institute of South Africa (FPI) in Johannesburg earlier in the year, I wanted to find out how they went about planning and what we could learn from them. The message was one of a parallel universe in Financial Planning. This is as it should be, as the Certified Financial Planner^CM Professional certification is structured on global lines.

One aspect is quite clear. Whatever happens in the UK (and indeed in Australia, New Zealand and other countries) is analysed and in the main implemented in South Africa, if sufficiently mainstream. The regulatory and principles-based regime is similar in many respects, and RDR, TCF, and a move to fee-based Financial Planning is happening in South Africa, with less reliance on commission.

The business models evolving are the same as in the UK, with fewer clients receiving a greater level of service and income coming from funds under management. The arguments about the majority of the population not being able or willing to pay for advice are the same and the fact that Financial Planning is an advice- based culture will mean that fewer people will benefit from it.

There is a very wide market for Financial Planning advice and even though many clients would not pay fees, the CFP^CM professional is well placed to work with those who will do so. In this article I’ll look at some some of the keypoints from the conference and share some of the key themes.

The FPI was not slow to state that they required a strategic review on the future of Financial Planning given all the changes taking place and a look at the strategies that needed to be in place to deliver on their mandates to stakeholders. The focus is on the value proposition to stakeholders, and their desired role in the broader financial services industry. If the FPI is to be the voice of the Financial Planning profession, working in the public interest, it has to see its role as educating policy makers, regulators and other industry leaders on the benefits of Financial Planning and the benefits of internationally benchmarked certification and practice standards provided to the public.

It is understood that the public is served by standards that involves much more than the completion of an educational programme. A clear message was that the FPI and its members were well positioned to educate and raise awareness of the benefits of Financial Planning and also the benefits of rigorous certification standards for consumers. There was therefore a role to educate the public as well as to provide a framework for the Financial Planner to improve his own position through continuous education.

The growth in CFP^CM professionals in South Africa, shows SA being seventh in the world in terms of numbers and growing at a reasonable rate. The FPI is regarded as the leading independent professional body for Financial Planners in South Africa, with a role of promoting competent Financial Planning to consumers. It ensures that members remain competent and ethical to retain their professional status. Much is made of the close links with educational bodies such as business schools and universities and this was also evident throughout the conference with speakers from educational bodies and also stands to be visited for further information. This integration with professional and educational bodies was seen as key to uplifting the professional profile and integrating the CFP professional qualifications at degree level.

The 2011 Conference – ‘The Leading Edge’ Some 2,000 Financial Planners attended this conference, which covered international, regulatory and TCF issues; economic and market updates; business assurance, retirement planning, investment funds; transitioning to fees; building value in a business; business continuity and succession planning; holistic estate planning and other areas. I have only focused on selected Financial Planning areas in this article. Those relating to the economy and investments were of more of a local nature. Suffice to say, South Africa is in a very strong position as an emerging economy and where the previous BRIC (Brazil, Russia, India, China) were the emerging markets, South Africa has replaced Russia in the BRIC acronym to becomes BICS; while the fastest growing economy last year was Angola at over 12 per cent.

The main Day One speaker was Karen Shaeffer CFP® who spoke on ‘Solidifying Financial Planning as a global profession based on the Financial Planning Standard’s Board’s stringent ethical, competency and practice standards’. Karen gave a similar message recently in the UK. She started out by defining what a profession is and then whether Financial Planning was a profession, with the emphasis on Financial Planning ethics and professional standards that were worldwide. There are now 140,000- plus CFP professionals worldwide, and recent growth in members is more marked in the Far East. I was immediately struck by how few CFP professionals we had in the UK (950) compared to South Africa (3,736) and countries like Japan with over 17,000. In the eyes of many, the UK is seen as a leader in Financial Planning circles but we need to do more to boost numbers.

The good news is that CFP professionals ‘already act and behave as an established profession’ through their adoption and practice of global competency, ethics and practice standards. The only catching up we have to do is to convince other professions of our standing in the market place. The target date for this future worldwide recognition is by 2025. So we have a long way to go, by all accounts.

Building Value in Your Business

I attended the practice management session led by Ian Middleton CFP^CM entitled ‘Building Value in your Business’. Ian is MD of Masthead Distribution Services – the largest adviser network in South Africa and has an intimate knowledge of how to drive business value. What creates value must have a longer term time line, as value is more at the end of a period than at the beginning. You must decide for whom you are building value – for example is the planner building value as a long term plan where the business is seen as retirement capital? Some types of income drive value more than others. Of initial commissions and renewal streams and fee-based income, the latter two create better value. Customers and the ability to retain them is a key driver. The greater the certainty of this, the greater the income and the greater the value.

Ian sees a big gap among advisers in their ability to track income and revenue streams flowing to the business - and those without systems in place to do this will be unable to achieve the best price for their business. You must be able to measure your income, costs and expenditures and learn the ratios to see if you are on track, he says. A client database and documented processes, as well as a business plan are most important. Value drivers include your customer value proposition and ability to segment clients; retaining staff through incentives to perform and go the extra mile; the ability to risk manage your business through compliance - value is driven up through low risk at a compliance level. The better your customer retention, the better your business value. You must have evidence of client reviews – if you do so, it drives up business value. Setting up next year’s appointments with clients this year also drives up value now.

Ian’s five lessons of leadership were: 1. build a sense of mission; 2. lead the charge from the front; 3. build a fanatical team; 4. be obsessed with world class technologies; 5. never believe your own PR (do customer satisfaction surveys).

Business Planning

This session was led by excellent speaker Ricardo Teixeira CFP^CM and chartered accountant, and head of business management at acsis. His session was ‘Ready or Not – You’re a Seller’. Ricardo covered what buyers and sellers (of your business) were looking for, and how to build a strong succession plan. What you do not want to be is a forced seller (through retirement, illness and so on) who is not ready to sell the business.

Sellers should surround themselves with experts and value the business regularly. Act on the valuation and make improvements where you can. When you sell, the value should be set up front. You should sign a contract before implementing, avoid earn-out payment structures and obtain payment guarantees, get used to being sidelined (once you sell).

Overall selling or buying a practice can be traumatic. You should prepare for the worst and don’t hope for the best. Clients will leave you if they sense there is no continuity.

Transitioning to Fees

Henry van Deventer, CFP^CM and head of coaching at acsis, gave a masterclass on how to transition to fees, beginning with the view that change will be driven by the regulator, will be inevitable and will happen sooner than you think. He covered legislation and regulatory changes in Australia, the United Kingdom and South Africa, including the banning of commission, mandatory membership of a professional body, product-related advice being distinguished from Financial Planning advice; charging for advice and remuneration of advisers. The message was the same – change the way you operate or you will not be able to do so in the future.

Is your value proposition structured and meaningful; unique or commoditised; valuable and sustainable? How many clients should you have? What does an ideal client look like?   Will clients pay a fee? If not are they the right clients for you? Is your business a result of your clients, or are your clients a result of your business? These are some of the thought-provoking questions asked of the Financial Planners. A Citigroup survey showed the two biggest concerns of clients to be (i) my Financial Planner does not understand me (ii) my Financial Planner does not educate me. Henry showed how, what and when to charge. If determining fees per hour, take your annual earnings required and divide by 1,000. If you need £100,000 then charge £100 per hour.

It made an interesting parallel to see that planners in the UK and South Africa are driven by the same needs and outcomes, that regulatory practices are similar and that a focus on customer service, education, building a value proposition and keeping compliant will remain focus areas going forward.