The 11 Traits of Your Ideal Financial Planning Solution
- Original Post from Investment Moats

As I wrote my last article explaining where we are currently, in the financial planning landscape, I received some positive and somewhat negative feedback regarding where I got things wrong and where I was spot on, on what needs to change.


So the folks at DIY Insurance asked whether I could expand and write a piece that zoom into this.


Specifically, what are your expectations, when you look to engage a financial adviser, a financial planning firm, to carry out financial planning for yourself.


My job was made easy when my friend Alvin Chow from Dr Wealth wrote 2 set of cryptic questions on our BIGS World Facebook Group and Seedly Facebook Group.


In this article, I would provide some considerations, and mesh them with the responses from those groups.


Note: at the end of this article, there is a survey. I would be really glad that you can spare me 3 mins of your time to fill it up.


1.Competent, have Integrity and Ethical


Alvin asked the question whether you would want a rich or a poor adviser.

It seems most people steer away from answering this question.


Rather, what was most highlighted in the Facebook Groups is competency and their ethics.



If we look at the amount of likes, we can see that a lot agree with Gary that competency in an adviser is crucial.


However, the problem a lot of you might encounter is that, it is challenging to come across competency adviser that have integrity and ethics. Financial planning is still a rather commission based profession and there is a strong economic bias to push for products that maximizes commission.


So they might be competent but lack integrity in their advice.


We have also seen well-meaning advisers, but they lack the range of products, but also the competency to provide the level of planning we need.


What you may be looking for are some coherence in the level of competency you get when you approach a financial advisory firm.


This means that you have a requirement, you approach any of the available adviser and they underwrite a certain level of competency in their planning.


2. Help You Carry Out a Financial Health Check


Would you be curious to know how is your current financial situation?


I think for many, either they start with a need or are just vulnerable whether they have a good financial situation.


A financial planner can help you access how is your financial situation. This often leads to product recommendation.


Usually, they will check up on your financial life, as explain in the previous section.


However, what is often missing is that some planners or clients do not follow up with their clients or planners respectively. The reason is that the clients are afraid that the planners would hound them to purchase some new insurance or investment plans, and they are not willing to put their cash flows in this way.


Planners do not follow up with clients because they know some clients do not have additional cash flows to increase or purchase a new plan. They lack the financial incentives to follow through on this.


However, this is very crucial for you because these sessions allow the adviser to keep you on target for your financial and protection goals. It ensures that your financial life is orderly.


3. Help You Plan out your Protection Needs


Financial planning evolves from insurance, and one of the fundamental reasons you look for financial planning is to hedge your risk.


It is likely you do not have an idea what are the health and financial risks that you are exposed to. It is likely that you underestimate the magnitude of the financial impact, should you be under insured.


Your desired financial planning firm can help identify the risks, and find cost effective protection solutions to address them.


4.Incorporate other aspects of Financial Planning such as Estate planning, Wills, Business Insurance at an Affordable price


There are some financial planning requirements that you may be looking for, but you are unable to find someone that can handle this.



  1. You search for someone that have integrity, that you can connect with, but they do not offer will writing or unable to help you set up a trust.

  2. You have a freelance business, but you are unsure what kind of risk that you should protection yourself from.


Finding someone with integrity and you can trust is hard enough.


Meeting those requirements, yet offer these services, it might not be easy to find these requirements from the traditional advisers.


5. Carry out Comprehensive Financial Planning Based on Your Unique Situation


When speaking to more advisers, you might get the feeling that they follow a particular template to derive your insurance and investment needs.


This sort of pigeon hole you into a few templates that your adviser’s higher up have derive.


Your situation might be unique, and you wonder whether your adviser have the experience to handle these unique situations.


Some examples could be:



  1. You are an expat in Singapore, and you are looking for protection and investment planning, that is very different from the natives of Singapore.

  2. Your children have special needs, and you want to know how you can ensure that they are well protected now, and when you are not around anymore.

  3. Instead of working for 30 years, you wish to maximize your high income, to build wealth within the next 10 – 15 years and transit to another meaningful profession.


In each of these situation, it is more than buying what kind of protection and investment plans.


You are looking for a person or a team that are experienced in planning for these unique situations and are reliable enough to follow through with you over a long period.


6. Help you Carry outLife Planning


Slowly but surely, there is a subtle shift in focus of what concerns the new generation of clients. While they tackle the same, working, getting married, getting a home, building up a family with children trajectory, their outlook in life might be different.


They might place a higher priority in living a good life, having autonomy at work, being connected to their work, building up competency.


As such if you tell them to save for retirement, they might not connect that well.


It is a topic that might be 30 years away and the utility of retirement cannot be felt now.


They are also at the start of their career and due to that, the best form of financial planning is actually to improve their human capital, and ensuring that they deploy their cash inflow in the right manner.


What can create a lot of value add for them are:



  1. Career Coaching

  2. Budgeting

  3. Refining Money Habits

  4. Be their Battle Buddy


These value add service, is not only important to those starting their careers but also those that are in their 40s.


This is when they hit their midlife crisis, and face the prospect of very volatile careers. If their bigger asset is still their human capital, together with their wellness, then isn’t the 4 points also vital in your client having a great financial life?


The problem is that currently these services are not widely provided by financial planning firms.


7. Provide You with a Good Set of Financial Assets for Selection


If you are not so savvy when it comes to wealth building, having the option to build wealth with endowment plans, whole life plans, retirement plans, variable annuity plans, investment linked policies and unit trust might give you the impression that you have a lot of options. However, for the savvy folks, they do not think a lot of these products are sound or good enough to build wealth with.


I do agree to a certain extent. There is a perception that these products are high cost, or is a black box of costs. Since cost for most people is an important determinant of return, then these products are deemed not suitable for you to build wealth with because they eventually result in a low rate of return.


If you do not have a set of good wealth building options, and you can only recommend what is available to you, then why would I fully let you manage my wealth building?


In recent times, we have seen that a few independent financial advisory firms link up with iFast, DollarDex such that they give the clients access to unit trusts, bonds and exchange traded funds through iFAST or Dollardex. Retail consumers are getting more familiar of exchange traded funds, and generally see them as the better cousin to the typical unit trust. Thus if your platform offers your clients to invest in exchange traded funds, it makes me more likely to sign up with you.


8. Provide Investment Management Services


I am seeing my friends and co-worker delegating the wealth building job to the adviser. It used to be the case that the adviser helps you set up which unit trusts to select for your investment linked policies. Nowadays, the independent financial advisers, like my previous point, are also portfolio managers. They provide strategic allocation and tactical re-balancing of their client’s portfolio according to how they analyse the macroeconomic situations.


These portfolio managers may charge an AUM or wrapper fee for this. For some of you, you might be of the opinion that you do not have time to manage your money, yet at the same time you cannot let your portfolio just sit there idly. So having a pseudo fund manager in your adviser is important.


9. Provide Behavioral Coaching


A lot of us would make poor financial decision because we cannot overcome our natural behavioral tendencies. We are pre-configured to have an instinct to detect danger, so that we do not get eaten up by lion. But the same quick thinking ability is not conducive when it comes to wealth building. We tend to be risk adverse when we see our money in profit, so we take profit very fast. We tend to be risk seeking with our losses, hoping that those losing stocks would eventually have turned around. We get spooked when we see our portfolio fall by 10%, 20%, 30%, 50%. So we pull out our money and swear never to invest again. We thus sell at a lower, and also incur the opportunity cost of not investing in a recovering market next time.


There are a few investor behavioral studies. They show that while the market return for various types of investment can be decent, the average investor return is much lower than the majority. There is a behavioral cost to this.


Having a good adviser may coach you from making poor financial decision. This can be selling the majority of your portfolio at a loss, at the absolute bad times. They could coach you that, you may not be in a good financial position to undertake some large value life purchases. They may advise you to reduce the volatility of your portfolio, during the phase where your wealth is going to be needed.


You might not have the behavioral competency, or the fortitude to make the decision well, so having an adviser, to go through that decision process might result in better decision making.


10. Consolidating Your Financial Life


One area that you may be looking for is a resource where you can consolidate all the vital information about your financial life.


Whenever, you meet a new financial adviser, they will often ask you what are your assets, what are your liabilities, what is your income and what is your expenses.


Some financial planners feel that this can be a chore, not just for them but for their clients. Not everyone keeps tabs on the state of their various assets.


Wouldn’t it be a good idea to consolidate all this information so that you can easily refer to them or let people know their situation?



In USA, there are services such as Personal Capital that allow their users to login to their various savings accounts, investment accounts.


With this, the financial planners can then focus on assessing your situation, and recommend what you need.


Not just that, over time, this can become the common ground for communication between the client and the planner.


For example, the planner would be able to see where were you 12 months ago and today, and shift the conversation to why you aren’t meeting your financial milestone for the year and where are the problem spot.


Without this, unless you are a good client who keep good records, there is nothing much the planner can do.


In Singapore, only Seedly’s application allows you to consolidate your bank accounts. And it is limited to bank accounts. For this to happen, it requires the government to push for more financial institution to open their API so that third party developers can create value added applications for them.


The dream is that for a couple, they can key in their SingPass, and authorize a system to pull read-only data to create a consolidated view of:



  1. Maybank Savings

  2. POSB Savings

  3. Maybank Mortgage

  4. CPF OA, SA, and Medisave

  5. iFAST Investments

  6. CDP Investments

  7. Credit card debts


With these data, the planner can better advise on your situation. Not just that, you can have a more realistic idea whether you are doing OK or not.


11. Robo-advisor Services


Robo-advisor service has been the buzz word for the past few years. So why is this such a popular service?


Robo-advisor tend to be technology driven investment portfolio management service. This means that they combine a good set of financial products for your selection and investment management services.


As it is technology driven, these robo-advisor tries to use tech to deliver value add in various aspects that tends to be delivered by humans.


These could be:



  1. Online questionnaire. This can be goals based, or measure due to the level of volatility you can endure, and figure out the kind of portfolio recommendation

  2. Product or portfolio proposal. Based on #1, they will recommend 1 or 2 portfolio from a few predefined portfolio

  3. Managed portfolio adjustments. On a recurring basis, a portfolio manager will help you rebalance your portfolio

  4. An overall portfolio view. The robo-advisor will show you your portfolio, with certain information about your goal, your progression

  5. Algorithm based rebalancing. Instead of #3, smart computers will automate the rebalancing after you approve the rebalancing

  6. Self-learning algorithms that will pick the composition of the funds based on the objectives of the portfolio


Now according to Deloitte’s research, there are different levels of robo-advisors:



The typical robo-advisor right now rest somewhere between 2.0 to 3.0.


Some prominent examples in Singapore will be:



  1. iFAST MAP

  2. Smartly

  3. Stashaway

  4. Autowealth


These robo platform would typically charge an advisory / wrapper fee of 0.50% to 1.0% for differentiated service offered as compare to the standard unit trust distributor or brokerage firm.


Then there is also a platform fee for making use of a third party platform that work with the robo-adviser firm. For example, robo-adviser A needs a broker to transact their ETF transactions for them. So this broker platform will levy a percentage fee to the robo to make use of their brokerage services. This is typically passed to you the clients. Of course, there are robo-advisors that absorb this cost.


This is on top of the ETF or index funds’ expenses ratio that the fund chargers us annually.


As a summary the fees that you are likely to be levied are:



  1. Fund Expense Ratio (0.10% to 3.00% depending on whether the robo-advisor users low cost index funds or ETF, which tends to be lower, or unit trust, which tends to be higher)

  2. Wrapper Fee or AUM Fee (0.5% to 1.0%)

  3. Platform Fee (0% to 0.30%)


As they are technology driven, they streamline the portfolio management process and the buying and selling of the underlying funds.


They abstract away a lot of the complexity, and in some cases, helps you better control your emotions, and provide value add functionalities driven by technology.


Summary


I had some tough luck trying to address my protection needs in the past, before I got into this financial blogging world. And as a financial blogger, I been asked a lot by friends, readers, can you recommend me some folks to work with them on their protection and wealth building needs.


So I draw out a short list of requirements and I think this list covered most of it.


If I were to prioritize what is important it would be:



  1. Competent, have Integrity and Ethical

  2. Provided a Good Set of Financial Assets for Selection

  3. Plan out your Protection Needs

  4. Comprehensive Financial Planning Based on Your Unique Situation

  5. Behavioral Coaching

  6. Carry Out a Financial Health Check

  7. Surround #1 to #6 with technology to improve engagement, and communication


And I feel that the rest are good to haves. If we have the above, you have a team that is competent to handle your unique life situation, follows up periodically to ensure your plan is OK, coaches you so that you do not make grave mistakes in wealth building and have fundamentally sound protection and investment products for the long run.


Is technology important enough that we should increase the priority in what we look for in a financial planning solution?


I view the technology as an enabler that is crucial but some aspect of planning requires a human being involved.


My friend Christopher Tan from Providend reflected that, within the industry, many are afraid that technology have disrupted many industry and the financial planning industry will suffer from the same fate.


As someone who owns a firm that tries to be automated and one that is very human financial planning centric, he does see that technology can streamline many human aspects that are repetitive and certain decision making aspect of planning. He does see technology nudging the clients into not making behavioral investment mistakes.


However, there are certain nuance area of planning that will require a human touch.


So the ideal solution is probably “bionic”. This means that it is a human solution, augmented with deeper technology assistance.


I have a pretty good idea what the revamp DIY Insurance will offer, but I do not have an idea what would you like to see in your ideal financial planning solution.


When you seek out a financial adviser, or team, what are your priorities or your wish list.


So over here, I have a survey form. If you can, help me fill up this survey and let me know, when you look at a financial adviser, or a team, to plan for your wealth protection AND wealth management, what do you look for?


What is it that you found lacking in this space in Singapore?


This article is a collaboration between Investment Moats and DIYInsurance. The views are of InvestmentMoats.com alone. I am an existing customer of DIYInsurance and recommend DIYInsurance due to the quality of the product, the service and the integrity of the people behind it.


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