Prakash Praharaj, Founder, Max Secure Financial Planners summarises his key learnings from his recent FPA Annual Conference 2016 trip held in Baltimore which saw participation from over 2,000 delegates from 16 countries.
Here are his key learnings from the three-day event:
- Cross border services to clients are becoming complicated due to taxation complications, social security issues and exchange risk
- Planners should provide proactive planning rather than formulate reactive planning strategies
- Qualitative aspects in planning are becoming more important than quantitative aspects
- Home country bias is a major obstacle in investment planning optimisation solutions
- Mismatch of risk profiles and individual holdings is wide spread and remains a concern
- Research in personal finance is talking about the positive impact in clients lives but media is highlighting returns and negatives
- Robo advisers are providing quantitative solutions but not the softer side of advisory
- Medical inflation is higher than general inflation and is underestimated in post-retirement withdrawal strategies
- “Manage your lifestyle and keep aside your money to grow” Cal Ripken Jr. Baseball Star in the inaugural plenary session address
- Science of understanding clients is being driven through (a) regulatory propositions and (b) value propositions for clients
- Deeper clients understanding is the only answer to face future challenges
- There are three fundamental trade-offs (a) Risk preference (Risk vs Return) (b) Time preference (Today vs Tomorrow) and (c) Social (Self vs others)
- Financial Planning should apply positive psychology to make life worth living. Positive psychology moves beyond functioning to flourishing life.
- Flourishing life of “Well-being theory” factors (a) Meaning of life (b) Accomplishments (c) Relationships (d) Engagement and (e) Positive emotions
- Money and happiness have low correlation.
- Buy many small pleasures rather than fewer larger ones.
- Be careful about comparison shopping and try delaying consumption
- Time and money are our largest fixed resources; Well-being Budget = Time + Money
- Psychology will play a major role in advisory value creation in the future
- Social media is playing major role in client acquisition. LinkedIn is best for prospecting clients
- 95% of the affluent search online and 71% of them want advisers to have an online presence to work with them
- Your brand should say “what, who and why” about you
- Recognising financial conflict of couples is key to prevent dissatisfaction and divorce
- Risk tolerance is an emotion: Over estimation and underestimation of risk by clients through the questionnaire should be discussed with clients.
- Always prepare to face certainty of uncertainty
- Out of 75,000 financial planners in USA, around 20% are fee only, 20% are distributor only and 60% are composite.
- The U.S. Department of Labour (DOL) regulation aims to transform business models, fee structure, client first approach and compliance. It is being debated widely in USA.
- Merger between advisers and distributors is a good option
- Transaction cost is decreasing but financial planning and advisory fee is unaffected.
- Research findings: Advisers create gamma of 3% (1% for asset allocation, 0.50% for spending strategy and 1.5% for behaviour coaching)
- Advisers skills (Recognise, Reflect, Reframe and Respond)