Dan Brittenden writes from Leicester, UK. He is the founder and Managing Director of Trust Financial Planning, which he set up in 2002 with the aim of implementing a more holistic vision of financial planning, that looks beyond the accumulation of money to the impact our money can have on others. More information on Trust can be found at https://www.trustfp.co.uk.
How we invest the money we do not need today but expect to need tomorrow is a key challenge for anyone committed to putting meaningful relationships at the heart of all aspects of their life.
To a relationist, money has no intrinsic value — only value in the context of relationships. A committed relationist is therefore the last kind of client an independent, regulated financial adviser (however professional and well meaning) would like to face, because regulated financial advice is primarily about one thing: risk management. Not the risk of the client losing money but the risk of the client complaining. Whatever ‘objectives’ a client places on the desk of the adviser, the assumption is that a complaint will be raised for failure to deliver on only one of those: the need for a return on the investment.
So where the relationist would be inclined to want to invest in a small number of definable, tangible corporate entities, the adviser would instead want to encourage them to invest in ‘funds’ consisting of a larger, evolving number of assets. And where the relationist would be prepared to tie their money up over the long term, the adviser would likely encourage them to keep all of their assets ‘liquid’.
This is the quandary for an investor looking to make their investment choices an outworking of their relationships. The bulk of all financial advice is provided on the assumption that investors are looking for complete liquidity with their investments and are looking to invest in investment funds, where the actual investment decisions are delegated to a third party. In this scenario there is no relationship between the investor and the investee. The liquidity of the investment means that the investee will be unaffected whether the investor ‘buys in’ or ‘sells out’, and the delegation of investment decision making means that the investee may not even be known to the investor.
At Trust Financial Planning we have grappled with this for more than twenty years. The solution we have arrived at is a two-part financial planning service. First, a Life Plan: a holistic breakdown of the client’s financial ‘objectives’ and ‘means’ as a whole, which we assist the client to construct over a defined period of time. This plan is the client’s and does not involve advice or any decisions in the first instance but is intended to provide perspective (and to stimulate thought and discussion) before going on to make firm decisions. Then, an Active Plan, which by definition will involve making decisions and will involve the participation of advisers and practitioners, to whom we will refer the client.
The benefits of a two part service are twofold. Firstly, clients are fully equipped to engage in the advice process, understanding its dynamics and accepting its limitations. More importantly, however, they are less reliant on the advice process and better equipped to make decisions independently, with the perspective gained from working through the Life Plan process.
This particularly applies to the decisions clients will make, with our support, to invest a proportion of their liquid funds into ‘impact investments’. Impact investments are those where the investor has a direct relationship with the investee – they are literally meeting a funding need without which the investee would not be able to operate. These could be community projects such as housing developments or local broadband or solar energy initiatives, or investments in local farms, businesses or cooperatives.
Impact investments are the only truly relational investments. And yet they pose problems not just for advisers but for relationist investors as well. An essential part of long-term financial planning is after all an effective investment strategy delivering ‘above inflation’ returns whilst maintaining decent levels of liquidity and controls over volatility. Impact investments, which are effectively illiquid, often pay inferior returns, and carry greater risk, cannot be relied upon to achieve this. And yet for a relationist investor, a total reliance on liquid, fund-based investments in their pensions and investment portfolios cannot be right either.
The solution for the relationist is to recognize, honestly, when their long-term needs are on target to be met and when therefore is the right time to begin to reallocate a proportion of their total assets away from advised, liquid investment portfolios into individually selected impact investments. By continually engaging and re-engaging with their Life Plan, the relationist will be able to determine for themselves when that point has come.
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