The power of professional financial planning

CFP® professionals benefit their clients holistically in ways beyond growing their wealth. Clients realise this, as shown in the FPI and Financial Planning Standards Board’s Value of Financial Planning Research 2023 study.

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A significant study by the Financial Planning Standards Board (FPSB) shows that South Africans who work with CERTIFIED FINANCIAL PLANNER® (CFP®) professionals have a better quality of life, enjoy greater financial confidence and resilience and are more satisfied with their financial situation than people who have non-CFP® financial advisors or who do not use an advisor.

The FPSB Value of Financial Planning Research 2023 study took the form of an online survey of 15 332 respondents across 15 countries in February 2023 by independent research company MYMAVINS.

The research had three objectives:

1. Lead the conversation about financial planning.

2. Measure the benefits of CFP® professionals.

3. Understand next-generation clients.

The study examined the value of financial planning for consumers while debunking myths surrounding financial planning and analysing the future of the profession.

The South African survey, undertaken in conjunction with the FPI, involved 1 005 respondents. To be included in the survey, respondents had to be over 25 years of age and earn over R1-million a year or hold more than R600 000 in investable assets.

The sample included both advised and unadvised consumers. Advised consumers (519 respondents) were those who were currently working with a financial planner, who sought financial advice as needed or who had received financial planning advice in the past three years. They included 105 clients of CFP® professionals. Unadvised consumers (486 consumers) were those who had never received advice from a financial planner or had not received advice in the past three years. Table 1 gives a breakdown of employed versus retired respondents.

KEY FINDINGS

The survey introduced the FPSB Value of Financial Planning Index, a quantitative measure of the financial and non-financial value for consumers of financial planning across four metrics: quality of life, financial confidence, financial satisfaction and experienced value.

The index measures differences between those who do not use a financial planner and those who do (scores range from 0 to 100). The CFP® Professional Delta is the positive difference a CFP® professional has on the lives of clients.

1. Quality of life. Non-financial personal assets are the key pillars of a “good life”. They include health, personal connections, capabilities, purpose and life satisfaction. A CFP® Professional Delta score of +5 showed that consumers who worked with a CFP® professional experienced a better quality of life and greater life satisfaction (72%) compared with their unadvised counterparts (67%).

2. Financial confidence. Measuring financial confidence included a personal assessment of security and the ability to achieve goals and manage risks. A CFP® Professional Delta score of +4 showed that consumers who worked with a CFP® professional felt far more confident about their finances (61%) than those who were unadvised (57%).

3. Financial satisfaction. This metric measured consumers’ personal satisfaction with their financial situation, including their spending behaviour, financial risk management, ability to adhere to a financial plan and overall wealth. A CFP® Professional Delta score of +4 showed that consumers who worked with a CFP® professional reported higher levels of satisfaction (54%) than those who were unadvised (50%).

4. Financial planning experience. This measured the directly attributable value of the experience of financial planning and working with a financial planner, as well as tangible financial benefits such as financial gains and meeting critical financial needs. A CFP® Professional Delta score of +1 showed that clients who worked with a CFP® professional enjoyed a better experience (75%) than those who were advised by other professionals (74%).

“Trust, honesty, integrity and loyalty no money can buy! Those are the most important foundations my relationships are built on. To have a financial advisor with those qualities is the best investment bonus ever!”
Client of a CFP® professional | Female, 58, Gauteng

TAKEOUTS FOR CFP® PROFESSIONALS

Of the 105 respondents who used a CFP® professional:

  • 74% agreed with the statement, “I am successful in sticking with my financial strategies” versus 64% of unadvised respondents.
  • 84% agreed with the statement, “I am satisfied with my day-to-day cash flow and spending confidence” versus 73% of unadvised respondents.
  • 80% agreed with the statement, “I am satisfied with risk management to protect my wealth” versus 70% of unadvised respondents.
  • 94% said the services provided by their planner were meeting their needs.
  • 86% agreed with the statement, “My CFP® professional has supported me to make the best financial decisions I can”.
  • 88% agreed with the statement, “My CFP® professional has helped me manage financial risks in my life”.

BENEFITS BEYOND MONEY

The survey underscored the benefits the clients of CFP® professionals enjoy beyond purely financial ones:

  • 80% agreed that financial planning helped fulfil life dreams.
  • 65% said financial planning positively impacted their family life.
  • 83% felt they could cope better when faced with health issues.
  • 62% reported that financial planning positively impacted their mental health.

DEBUNKING MYTHS ABOUT FINANCIAL PLANNING

The survey puts to rest several popular myths about the profession:

Myth #1: Financial planning is only for the rich. 
Fact:
Quality of life, financial confidence and financial satisfaction see improvement in the advised, even those with lower incomes. Advised respondents earning less than R1.25-million a year showed higher scores on all metrics compared with unadvised respondents in this income group.

Myth #2: Financial planning is only needed at retirement.
Fact:
Advice has benefits to quality of life, financial confidence and financial satisfaction at all ages. Almost half of Gen Y respondents (47%) cited buying a property as their top trigger for seeking financial advice.

Myth #3: Financial planning costs more than its worth. 
Fact: The experienced value of financial planning delivers benefits that far outweigh the fees clients pay. Almost nine in 10 advised clients (87%) agreed that financial advice had brought more value than it costs.

Myth #4: Advisors lack objectivity.
Fact:
Unadvised consumers have concerns about finding a trustworthy financial planner. However, the evidence shows that advised consumers overwhelmingly trust their advisors to put their interests first – 94% of respondents using a CFP® professional said they trusted their planner and 87% valued their planner for being independent.

Having a financial planner gives peace of mind because they help you establish goals and achieve them. It also reduces the risk of losing money because you know the decision you are making is the best one. Since you are helped by a professional, you have confidence.”
Client of a CFP® professional | Female, 28, Gauteng

YOUNGER GENERATIONS

Of the 1 005 respondents in the South African survey, 508 were Generation Y or “Gen Y” (born between 1981 and 1996), 284 were Generation X or “Gen X” (born between 1965 and 1980), and 213 were Baby Boomers or “BB” (born prior to 1965).

Gen Ys are proving to be highly engaged with their finances and are open to the value financial planning can bring. Now established income earners, Gen Ys are on the verge of receiving unprecedented levels of intergenerational wealth via inheritance or gifts.

Almost half of Gen Ys (47%) and a similar percentage (43%) of Gen Xs already have or are likely to come into an inheritance or major financial support – 32% of Gen Ys and 44% of Gen Xs expect to do so in the next five years, and for some, the amounts will be significant. Over half of Gen Ys (54%) said they would turn to a professional advisor for help with their inheritance as opposed to obtaining help from family or friends or using other sources.

The survey found Gen Y is different from older generations in the following respects:

  • While face-to-face advice is a top choice (73% of Gen Y versus 82% of Boomers), Gen Ys are significantly more likely to turn to digital channels to manage their finances (77% of Gen Y, 70% of Gen X and 67% of Boomers are using apps or websites to help with budgeting, investments or credit).
  • Gen Y is more hands-on, having greater experience with direct investing: 19% of them had taken up direct online trading since 2020, with a further 13% already trading before the pandemic and continuing to do so.
  • Gen Y prioritises socially responsible investing: over 90% of Gen Ys prefer to invest in companies that have some purpose beyond profits, higher than Boomers (seven in 10).
  • Gen Y is more interested in investing in novel, non-traditional asset classes. Crypto assets are more popular among younger generations: 40% of Gen Y respondents claim to currently have some crypto assets and 35% would consider it. This compares with 44% of Boomers who would not even consider it. However, Gen Ys are under no illusions about the risks crypto presents: 60% of them agreed that it is a “very risky investment”.

PERCEPTIONS AND BARRIERS TO ENTRY

Clients who have interacted with CFP® professionals are highly likely to recommend them to others. The Net Promoter Score (the difference between promoters and detractors) for CFP® professionals is significantly higher than for non-CFP® advisors: +34 versus +28.

The CFP® designation is widely recognised even among respondents who do not use an advisor (55% of them were aware of it). Of those, 74% agreed with the statement “The CFP® designation is the only globally acknowledged mark of professionalism for financial planners”.

So, what are the ongoing barriers to entry, and what would trigger someone to see a planner? Key reasons for not using a financial planner were:

  • Finding someone I could trust. (Gen Y 34%, Gen X 35%, BB 45%)
  • I feel it is too expensive. (Gen Y 32%, Gen X 38%, BB 40%)
  • Lack of urgency, I will do it when I am older. (Gen Y 23%)
  • I don’t know where to start. / It’s too complicated or confusing. (Gen X 24%)
  • Finding and assessing a suitable planner. (BB 27%)

Key triggers were:

  • Buying a property. (Gen Y 47%, Gen X 24%, BB 13%)
  • Coming into a substantial sum of money. (Gen Y 37%, Gen X 48%, BB 53%)
  • Approaching retirement. (Gen Y 34%, Gen X 50%, BB 41%)
  • Have more financial control/grow wealth. (Gen Y 36%, Gen X 38%, BB 47%)
  • Financial distress/bankruptcy or debt. (Gen Y 37%, Gen X 40%, BB 31%)

CONCLUSION

Money is a source of stress for many people. For some, it can take a personal toll, affecting their quality of sleep and even their mental health. The current economic climate isn’t helping. The global economic outlook is strained, with stubbornly high inflation, rising interest rates and living costs squeezing family budgets. The good news is that professional financial planners can enable people to take control of their financial lives, empowering them to feel more confident and stay on track to achieve their goals.

Lelané Bezuidenhout, CFP®, CEO of the FPI, and Dante de Gori, CFP®, CEO of the FPSB, say the survey endorses the value of professional planners in today’s uncertain world.

Bezuidenhout says, “Obtaining professional financial advice from a CFP® professional is important as they have specialised knowledge and expertise in various financial planning areas. CFPs® create personalised financial plans, helping clients achieve their financial goals, manage risks, optimise tax strategies and operate with a fiduciary duty to prioritise the client’s best interests. The findings of this study show that consumers should entrust their financial planning to a professional, and more specifically, a CFP® professional.”

De Gori adds, “In this current volatile climate, where unexpected events can send shockwaves through the global economy, the role of financial planning in general and of CFP® professionals in particular has become even more critical in empowering consumers to make informed financial decisions and achieve their long-term goals while enjoying a better quality of life. The findings in this global study illuminate a compelling reality: the immense value that CFP® professionals bring in supporting clients’ financial needs amid times of uncertainty, reinforcing the reputation of the CFP® certification as the global symbol of excellence in financial planning.”

“He is a certified financial advisor with ongoing studies, knowledgeable in keeping up to date with compliances, market performance, and products.”
Client of a CFP® professional | Female, 65, Western Cape