Making a small step towards a big change

Financial Planning Week is I think making a lot more noise than perhaps we appreciate, and to be honest talking about Financial Planning is not necessarily a news winning story. However, a few things have caught my eye today which I want to draw out:

The debate on charges

There are several stories on this perhaps generated by Hargreaves allowing investment in passive funds and investment trusts but at a cost, and then the argument about how cheap passive funds are against active funds and then how much is a fair charge.

I also saw tweets from “This is Money” saying savers are paying £3.1 billion in hidden charges.

Unfortunately this noise is distracting and actually as many of you who are following me have said actually what we need to see across all distribution channels are clear transparent and simple charging structures.

This led onto a second debate on what is a fair charge, someone tweeted is charging £25,000 for a scheme that saves £100,000 in tax fair. My answer to this is it depends, I know that is sitting on the fence but a legitimate scheme that means you have £75,000 in your pocket may be worth it but care is needed – firstly is this legitimate and if it is are there cheaper and simpler schemes to do this.

So if we can get clear and simple charging structures across all distribution models then I think that is fundamentally an important step in providing a positive image to investors.

You can then test the proposition against – price is what is paid, value is what is received.

Timebomb for Britain’s long term financial future

I touched on this briefly in my last blog, what I want to do is go out and talk in schools, colleges and universities about  financial management, financial planning and finally investing because if we don’t do this then the problem we have now is only going to get worse.

I want to pull out some points from the press release from the IFP:

1.  Only 19% - just one in five people – believe that they are saving enough for their future needs
2. Almost half of Brits are not confident they’ve saved enough to live comfortable when they retire
3. 14% have never made any pension contributions, and a further 31% are not currently contributing to a pension plan of any sort
4. Two thirds of women and over half of men say they worry about money either always or most of the time

We should be scared about this, we have an expectation that we will retire at 65 but in reality this is becoming less likely and in reality we have to accept that we are going to live a lot longer past age sixty five.

What I thought was encouraging was that 46% of people had drawn up financial plans. And this is what I want to focus on; financial planning is a key element of the process. I can set up a financial plan but is it realistic; I may want a big house in five years’ time and put £20 a month a side to achieve this.

Going back to the timebomb if the middle generation are not saving then the younger generation coming up are certainly not doing anything because they have no role models.

Elements to a Financial Plan

On a simplistic level it:

1.  Provides direction and meaning to your financial decisions
2. Considers the whole picture, so one decision impacts on another
3.  Enables you to consider both short and long-term goals as part of your overall life goal
4.  Enables you to adapt more easily to life changes
5. Makes you feel more secure that your goals are on track

Now you can do this yourself, but this can be daunting because actually you have to take hard, cold and detached views on whether your goals are realistic. Going back to the debate over Hargreaves and the Fidelity China Fund, we have two parts of the brain an emotional side which reacts first and a more logical side. Often the emotional side reacts first and we rush headlong in, Hargreaves say this is a good idea so it must be. Our logical brain would try to break the investment first before we invest.

So what am I trying to say, the press want sensational stories and actually financial planning is dull when compared to clients suffering hidden charges which is much more interesting, now hidden charges are important but the FSA are doing something to change this so let’s hope they get this right so let’s park this and focus on something that is fundamental to all of our futures. That is getting out there and telling people why we need to get people to understand the importance of financial planning, I know it is nice to have a new car but that can wait.

I would love this debate to go into parliament and for the politicians to wake up to the fact that actually the financial problems we have now will only get worse if they don’t act today.

As always thank you for your support, you are my runners, you have the contacts, get journalists, politicians, trade bodies, IFAs etc to follow us on twitter and make that difference because in ten years’ time you can look back and say you were part of that generational change and be proud of what you have achieved.

Follow me on Twitter so please spread the word and lets change the world.