Before starting this month's column, I wanted to list all the providers and consultancies who have contacted me in relation to the challenges I set out in my column last month for Financial Planning Today: 'The glaring missing link in much fintech'.

• ...
• ...
• ...

That’s the full list. Not an encouraging outcome. No-one to be precise. Moving on…

I have just returned from a short trip to Costa Rica, a country that is very proud of its diversity of animals and plants. And the environment is truly incredible, and we will be returning to revisit that experience.

But it made me think. What is the purpose of all this diversity, and what is the actual outcome? Being the sad person that I am, it made me think about how we use the concept of Diversity in Financial Planning.

The first takeaway is that diversity begets diversity. Multiple types of orchid means there are also many different Hummingbirds, Bats, Bees and other pollinators. In most cases, the same Orchid can be pollinated by multiple pollinators.

So Diversity acts as an insurance policy. If all the bats die, that particular orchid plant or species can continue. And vice versa.

The second is possibly the obverse point, but the sheer richness of the environment allows some plants and animals to specialise in where they live, and what they eat.

So as long as those plants and environments continue, they succeed. If anything – usually man – happens to find those food sources, then the population as a whole suffers until and unless they can ‘pivot’ away to another resource or environment.

Specialisation is an important part of the richness and interdependence of the overall environment, but the individual organism carries some risk, and the more specialised they become – which limits their ability to ‘pivot’ - the greater the risk to that organism.

The last point is that the point of diversification in a rich environment is that it allows the overall resources available to be used efficiently, but for the long term, and to everyone’s ultimate benefit – both animals and plants.

Contrast that with the ‘monocultures’ we see with large fields of wheat or palm oil trees. Almost nothing else can live in that space. So all the energy in the system is devoted to one commercial or social outcome. But what are the risks and downsides?

Pushing the analogy, I wonder about diversity within our firms. By having different backgrounds, different cultural ‘prisms’, may we be able to keep a wider vision in terms of client profiles, business processes and market opportunities?

Again, while the evidence for Financial Planning firms having a ‘niche’ as part of their successful marketing strategies is considerable, there is clearly a risk attached. What if that tax break / product / demographic withers or changes? 

I was always taught that you should never have more than 10% of your income from one client. Could that maxim apply to platforms, providers or even demographics? Diversification seems to be the best strategy for long term resilience, or even survival of a system or firm.

Specialisation – AKA ‘concentration’ - seems to offer potentially higher short-term gains or advantages but with built in longer term risks.

These simplistic ideas apply equally to ecosystems, investment portfolios and advice firms alike.  

Phil Billingham FPFS CFP Chartered Financial Planner, Chartered Fellow (Financial Planning) is a Financial Planner and a director of Perceptive Planning, a Chartered Financial Planning firm based in London and Essex. https://www.perceptiveplanning.co.uk/

Biography: Phil joined the profession in 1982 and is a past director of the Institute of Financial Planning (IFP) which merged with the CISI in 2015. He is a past member of the Financial Planning Standards Board (FPSB) Regulatory Advisory Panel. He is a specialist in helping advisers cope with regulatory change and has worked with advisers, planners and regulators in the UK, Europe, USA, Canada, South Africa and Australia. He writes this column most months for Financial Planning Today.