Anyone who dabbles in philosophy is likely to come across the concept of logical fallacies. Those of us who aren’t quite Bertrand Russell material may think of these as arguments that simply don’t stack up.
One of the most common examples takes the following form: “All X are Y, therefore all Y are X.” The flaw in this kind of alleged reasoning is exposed by a statement such as “All cows are animals, therefore all animals are cows” – which is obviously a non sequitur, as they say in the trade.
Similarly, consider this: “All 911 Turbos are Porsches, therefore all Porsches are 911 Turbos.” Although non-petrolheads might need to do a quick spot of research, this assertion is also easy to disprove. The conclusion clearly doesn’t follow from the premise.
So far so good. We’ve got the hang of this already, right? But hold on. Here’s one that might take rather more unravelling: “All financial planners are financial advisers, therefore all financial advisers are financial planners.”
Thoughts, anyone? Does this constitute a logical fallacy, like the others, or is it actually a fact? Might this be a case where X and Y are genuinely one and the same?
This isn’t a trick question, less still a bit of fun. I believe we all need to work out where we stand on this issue, otherwise the consequences over time could be serious – if not devastating. Let me explain why.
The idea of a manifest distinction between financial advisers and financial planners has gathered momentum over the past few years. As a result, broad definitions – adopted both within our industry and by sections of the media – have emerged.
It’s now generally felt that “financial adviser” is something of a catch-all term. It’s increasingly applied not only to IFAs but to pretty much everyone from brokers to bankers.
Meanwhile, “financial planner” has become closely associated with offerings such as long-term cashflow modelling and detailed projections. You know the sort of thing – clients get to find out what they might be worth if they live to be a hundred and if compound interest contrives to consistently works its magic in the meantime.
A related narrative that also appears to be gaining ground is that financial planners tend to earn more than their adviser counterparts. The implication is that they’re in some way superior, but I suspect a more accurate and straightforward explanation is that they charge more in the first place.
Financial planning of this type has a role to play, of course. After all, there are plenty of millionaires who might take comfort from hearing they could have several more millions to fall back on by the time they rack up a century.
Yet such a service remains hopelessly out of reach for the vast majority of people. Moreover, it’s likely to be of little use to them anyway.
By way of illustration, imagine someone with modest savings inherits £10,000 and wants to invest it as sensibly as possible. There would be scant value – if any – in trying to anticipate financial events and milestones for decades to come, as this would entail too many assumptions on the basis of negligible evidence and limited funds.
There would, though, be significant merit in good advice. The recipient of that £10,000 would very likely appreciate a few expert insights into how to get the most out it in the short-to-medium term.
Such advice could well include how to at last achieve a decent credit rating – one of the bona fide gateways to a better life. It’s routinely supposed that people are saddled with bad ratings because they’re poor, but the cause is often that they lack the guidance they need to spend wisely, save effectively, prioritise efficiently and avoid rash decisions.
And this is what really worries me about the notion that a financial adviser is one thing and a financial planner is quite another: it promotes disparity. It encourages a damaging divide that undermines the case for universal financial advice.
By pushing the idea of a professional group that’s somehow a class apart, we’re inviting the destruction of the wider market for advice. We’re giving the extremely unhealthy impression – not just to consumers but to ourselves – that our industry exists solely to serve the elite.
In my opinion, this really is one of those rare instances where where all X are Y and all Y are X. Advisers are planners, and planners are advisers – or at least they should be.
Both advise. Both plan, albeit not always with the same time horizons in mind. Both attempt to make a positive difference to the lives of others. Both should respond to each client’s specific requirements and objectives. We might even dare to point out that both sell products.
The failure of logic here lies in pretending otherwise – yet that’s precisely what we seem to be doing. It pains me to say it, but you don’t need to be Bertrand Russell to deduce that we’re in ever-growing danger of building a system that panders to the wealthy and abandons everyone else.
Andrew Goodwin is co-founder and CEO of Truly Independent and the author of ‘The Happy Financial Adviser’.
