Why is wealth management so last century?

Plan Portfolio Partner - Capital Asset Management London, Independent Financial Planner

“21st-century kids are being taught by 20th-century adults, using the 19th-century curriculum on an 18th-century calendar.’ Tom Hierck, Education Consultant

Having their kids home-schooled for several months during lockdown gave many parents a rare close-up look at the content and methods of the current education system. For most, it looks identical to their own education experience, the only difference being lessons delivered over Zoom or MS Teams.

Indeed, if today’s schoolkids’ grandparents or great grandparents observed little Johny or Jenny sitting on a laptop being taught the current curriculum, it would have been instantly recognisable, despite their own education taking place in the pre-internet age         

Learning by rote, maths, history, English, geography, and science has been the staple diet of the school system for at least a hundred years. As media guru, Gary Vaynerchuk said, ‘the education system is predicated on memorization when in a world of Alexa and Google, I can find anything in seconds for zero cost’ 

Skills like critical thinking, problem-solving, and communication will equip a child entering the workforce far better than an ability to recall details of the periodic table.    

Prevention is better than cure

The medical profession doesn’t fare much better with the focus still stuck on treating the illness rather than the cause. If you have a blood sugar level of 5.9, you’re considered in the ‘normal range’ and diagnosed as non-diabetic. The moment you hit 6.0, you’re diagnosed as diabetic and will be prescribed drugs to control the disease and attempt to bring your reading back under the dangerous level.

Currently, half a billion people are living with diabetes worldwide and the number is projected to increase by 25% in 2030 and 51% in 2045. I’m no medical expert but this is crazy. 

We know what causes many diseases, can track key indicators, and stop problems from happening in the first place and yet the strategy appears to be to wait for problems to be diagnosed before getting to work to fix them. 

The problem with personal finance

So, it’s no surprise that if the multi-billion-dollar industries managing global education and healthcare are struggling to stay relevant, the similarly vast wealth management sector struggles with the same dated approach to solving its customers’ problems.

Take the obsession with finding a ‘star fund manager’ to try to ‘beat the market’. In other words, pay a large fee (larger than you think, but that’s another story) to an educated, experienced professional fund manager and have her use her skills to try to outwit all the other educated, experienced professional fund managers in the world.

Research has existed for decades that proves that a simple, low cost, globally diversified portfolio that tracks the returns generated by the markets is far more likely to outperform the armies of well-intentioned experts placing bets on the future direction of stocks or bonds.

Simply put, most fund managers who promise to ‘beat the market’ continually fail to deliver on that promise. The latest research from analysts, SPIVA1 confirms that over 80% of fund managers don’t beat their benchmark. Can you imagine an 80% failure record being considered acceptable in any other industry?

Misunderstanding risk

Personal finance is a highly regulated industry, populated by compliance professionals and consultants keen to protect the investing public. Rightly so.

However, in their quest to help, they’ve inadvertently created a bigger problem, particularly around the issue of risk. If you’re thinking of making an investment, you’ll be asked to complete a ‘risk profile questionnaire’ ’prior to committing your money.

You can expect to be asked questions such as ‘How would you feel if your investments lost 20% of their value?’ and ‘How much insurance do you have compared to your friends?’

The answers you give will influence how your money is invested. So, if you say you’d feel bad if your investments fell by 20%, you’ll be offered a portfolio stuffed with assets that rarely fall by that level, such as cash and bonds.

The problem with that is that that there is a direct link between risk and reward. If you hold, so-called, low-risk investments, you can expect to experience low returns. After you factor in tax and fees (particularly if you are paying for expensive ‘star managers’), those returns may be less than the rate of inflation.

If your investment returns trail the long-term inflation rate, you’ll suffer a permanent loss of capital and your ability to fund your future lifestyle could be seriously compromised.    

Surely that’s a bigger risk than any short-term, perfectly normal, market volatility?

In other words, the current risk profiling process used by the finance industry aims to find out how much pain you feel capable of accepting – and then gives it to you, with little thought of the unintended consequences.

Using history as our guide, the only logical place to allocate long term investments is the global equity market. Investing in a diversified portfolio of the best companies in the world and benefiting from their ingenuity, creativity, intelligence, and hard work is a superpower that will over time help to build and protect personal wealth. 

However, like the education and medical professions, outdated thinking is creating a costly barrier to progress.

Cracking the code

We need to get back to First Principles thinking and ask why are you saving and investing at all? It’s probably to help build a positive future, provide for your family, create financial freedom, and make the most of the brief time you have on the planet.

The good news is that a proven formula does exist. One that considers the lessons from history but crucially also embraces the latest 21st-century thinking, to provide the greatest opportunity for long term success.

Like all formulas, it costs of several parts, this one summarised as P+P+P 


Before you even consider investing you need to have a clear vision of what you’re trying to achieve and by when. In the medical world, prescription without diagnosis is considered negligence.

The golden rule when it comes to personal finance is to start by creating a time-specific, money specific financial life plan. This then is your ‘North Star’, your reason for investing in the first place and will be referred to throughout your journey.


Once you know where you’re headed, the next step is to organise and structure your resources in an optimal way. This means allocating those resources using a proven methodology, whilst minimising overexposure to frictional costs like tax and fees.

It also means taking care, not only of your financial capital but also your human capital. If you’re still working, the value of your ability to earn well in the future can be managed and protected to create security for your family and underpin your financial plan.

Getting organised and optimized takes effort but the positive impact over the years ahead can make all the difference to your long-term financial success.


‘We have met the enemy and he is us’

There are plenty of challenges but the single biggest one could be you. It seems that we humans aren’t wired correctly to act calm under pressure. The ‘fight or flight mentality that’s hardwired into our DNA and has kept us safe for as long as we’ve been on the planet also turns out to be a serious hindrance on the road to financial freedom.

In the ‘always-on’ media-driven world, where bad news sells, a perfectly normal short-term wobble in the investment markets could see you pressing the panic button and selling your carefully constructed portfolio to reduce your stress levels.

At times like this, having someone in your corner who knows you and your family, cares about your success and has the experience to guide you through challenging times is the third and most valuable part of the formula.   

A trusted adviser, a sounding board and a ‘critical thinking partner’ could be the difference between failure and success and be worth multiples of the fee you’ll pay.

This is what 21st-century wealth planning looks like. Built on a solid foundation of knowledge and research established over the last century but then blended with an innovative approach that embraces technology, behavioural science, and modern thinking.

If your GP suggested using leeches to improve your health, you’d be looking for a new doctor. When it comes to your financial health, always look for an adviser who embraces the modern success formula; Plan + Portfolio + Partner.

Alan Smith

  1. https://www.spglobal.com/spdji/en/research-insights/spiva/

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