How Wealth Coaching Can Complement Financial Planning

There’s a crunch coming in Australia’s financial advice industry. The irresistible force of a growing market for financial advice will meet the unmovable object of a fall in the number of financial planners. Planners have been exiting the industry in droves and Adviser Ratings indicates that this decline has been about 16% over the last year and is likely to continue for several years.

The population bulge of people approaching retirement has a significant need for sound financial advice, but the advice market is being squeezed by a range of factors including insurance and compliance costs, additional training requirements and banks exiting the sector. The obvious result is that it will only be the rich who will be able to afford full-service financial planning. So what of the middle-low asset holders who are just as much in need of sound advice but could not afford the multiple thousands that advice would cost?

One solution to this dilemma is what can be called wealth coaching. The obvious analogy is that of a personal fitness trainer, but for your financial health and well-being. The coaching term is appropriate because it implies a team effort between coach and client, where the coach provides a framework, guidance and motivation for the client to embark on their own financial journey.

Of course, as important as defining what wealth coaching is, it’s perhaps more important to define what it isn’t. That’s due to the very strict ASIC rules regarding the provision of financial advice. They are documented in RG36 Financial Product Advice and Dealing and RG244 Giving Information, General Advice and Scaled Advice. These set out clear guidelines for anyone practising as a wealth coach about what can and cannot be discussed or recommended to clients.

Through all the dozens of pages of legalese, the nub of it relates to what constitutes personal financial product advice. If it does, you can only provide it by holding, or as a representative of, an Australian Financial Services Licence. Of course, it is expensive to get one, and that impacts on the costs of the advice.

A wealth coach, not operating under an AFSL, cannot provide that product advice. So what can they do? Well, the starting point is exactly what most financial planners do. They collate and document the client’s current financial circumstance: income & expenses, assets & liabilities. They then assist the client to formulate their financial goals and objectives. So far, so good. It’s the next step – creating the strategies and action plans to take the client from the here and now to their desired financial future that is different. Planners can provide specific financial product recommendations. Coaches must broach this area in only general terms.

They can however, enhance their client’s financial literacy, provide a broad education about financial markets and encourage them to engage in their own research and learning. Another important step is in referring the client to other professionals such as lawyers for estate planning, accountants for tax, their super fund advisors and yes, even financial planners for financial product advice. The difference however, is that with the services of a coach, the client will know exactly what they need from the professional and can focus only on that, rather than fall victim to the potential for over-servicing.

After the initial framework is developed, the coach and client can have an ongoing relationship in reviewing progress to plans with the coach acting as a motivator and educator. In this way the coach is the General Practitioner of the client’s financial health, providing referrals to specialists as the need arises.

So, there is hope for clients who have been priced out of the financial advice market but still need formal guidance. It also provides some benefit to the financial planning industry who can collaborate with coaches to focus on delivering specific advice to well-briefed clients. This may well be the dawn of the post-Royal Commission era where wealth coaches arise as a solution to the severe shortage of affordable financial planners for the burgeoning pre-retirement market.