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Advisers back Consumer Panel warning over ‘nightmare’ non-advised drawdown

Advisers have backed a warning from the Consumer Panel on the risks of non-advised drawdown sales, claiming they are an “absolute nightmare” without advice.

Speaking at the Taxation of Pensions Bill committee hearing last week, Consumer Panel member Teresa Fritz said the prospect of growth in non-advised drawdown in the wake of the Chancellor’s Budget reforms was a major worry.

Pension providers have already raised concerns about the prospect of savers entering complex drawdown contracts without taking advice. Earlier this year, the FSCP published an influential report highlighting an increase in problems from the use of online non-advised annuity sales.

Fritz said the issue of non-advised sales is even more urgent with drawdown and could see customers sold inappropriate products.

She said: “The big area of concern is the growth in non-advised streams. It was worrying enough with just annuities but is more worrying with complex products like income drawdown. 

“For regulated IFAs it should be business as usual – they will just have more customers.

“If people have gone down the route of non-advised, a lot of consumers don’t understand they have gone down a route without protected regulated advice. Execution-only services can look very much like advice. That is the big difference – you don’t have that redress to the Financial Ombudsman Service.”

Advisers echo these concerns and suggest advice should be widespread for anyone taking drawdown in order to properly manage risk.

Worldwide Financial Planning IFA Nick McBreen says: “Non-advised drawdown is an absolute nightmare. If people are entering drawdown then they are entering a complicated solution and that needs careful planning and advice.

“If they don’t take advice, it is likely they will make the wrong decision as they don’t know anything about it. 

We have had years of people taking the wrong annuity option if they stay with the provider and we will have the same thing with drawdown.

“Unless you are an expert investor with a huge amount of experience, it should be fully advised. Otherwise people will make a complete pig’s ear of it.”

FortyTwo Financial Planning director Alan Dick says: “If you go it alone and you make a bad decision then tough, but if you go to an adviser and he gives you bad advice, then at least you have somewhere to go back.

“It is a sounding board and someone to question and think through the decision. Advice has a massive role to play in drawdown and it is very questionable whether anyone should enter drawdown without it.”

Expert view


When the Consumer Panel raised concerns about non-advised income drawdown, I was interested to hear their thoughts. To say I am concerned is an understatement. I have always held the view that some “DIY” investors have done a very good job managing their pension pot.

But the non-advised world is different. At the end of the day it is a product sale, often to financially inexperienced people, many of whom believe they are actually getting advice.

We all know one of the main risks posed by income drawdown, post-April 2015, will be that too much money is taken out too soon, leaving the hard-up pensioner struggling to make ends meet later in retirement.

If a pensioner chooses the non-advised route, who is there to help them manage this risk? Who will advise them on setting a sensible level of income? 

Who will monitor the investment performance to ensure income levels are sustainable?

The cynic in me can already see non-advised brokers rubbing their hands with glee. Not only have they found a way of replacing the turnover they have lost from falling annuity sales but they will no doubt find a way of charging an annual fee for this; recurring income without the headache of giving advice.

High-quality, fee-based, independent advice is crucial at retirement. I fear unless we are careful, non-advised brokers will encroach onto the IFA’s natural territory, leaving a trail of unfortunate investors in their wake.

Phillip Bray is marketing and relationship manager at Investment Sense 



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. There is a very easy solution this. Totally non-advised drawdown plans. The regulator has a responsibility to protect consumers. This is simple, easy and pragmatic way to do close the stable door BEFORE the horse bolts.

    If someone doesn’t want guidance and wants drawdown, fine but unless it its recommended as being suitable by a professional adviser then they should not be allowed to do this.

    Come on Mr Wheatley, man up and do this. For once get something right at the right time without the future need for costly reviews of trends et al.

  2. Depending on size of fund non advised drawdown will go ahead as many clients will not pay upfront for the advice either because they cannot afford it or they will not realise that a relatively reasonable fee will have to be paid for an adviser to take on the risk involved in giving advice. There is no stop loss so advisers could be held liable years later by those at the FOS who do not understand financial workings

  3. They are going to get advice from MAS and TPAS. Yep going on again about these incorrectly named organisations and the confusion they are going to create. Every time I see a MAS advert on TV, if you need financial advice, set up by Government go to MA, I feel sick. Its not advice, the Government does not pay but it implies they do and the consumer believes they are getting financial advice. They are not regulated so will they have redress to the FOS and FSCS?

    Drawdown should be an advised product. well at least for a few years to give time to educated the consumer. 200,000 retire each year, if we say 12,000 advisers agree to work in this market, that is 17 additional appoints per adviser. There is the capacity, I wonder if there is the will to actually gain the correct consumer outcome.

  4. It’s amazing that the FA industry is so heavily over-regulated, yet things like non-advised drawdown can be allowed to take place. We have had instances where providers have poached our clients, sold annuities directly and set up wholly unsuitable products – eg 50% spouses benefit for single people etc. If no advised DD happens next year, a lot of clients will be disadvantaged, the regulator knows this, but will they do anything about it? I doubt it. Which begs the question – what is their real purpose?

  5. 32 Years of Hurt ... 20th November 2014 at 4:21 pm

    Make it an advice only product ……… but what about the thousands of adviser’s who have taken early retirement from FS and don’t require ‘education’….. I’m sure they won’t want to pay an adviser for something they already have knowledge of!.

  6. My suggestion below is NOT an ideal solution, but something along these lines could be worked up by a group of advisers as a sensible balance of consumer protection and freedoms.
    As with there being a default assumption on occupational pension schemes that transfer is inadvisable so reasons for have to be clearly articulated, a similar approach should apply to Drawdown post April 2015.
    1. any drawdown which is not taken as one lump should be advised as an annuity MAY have been more appropriate and there WILL be tax implications.
    2. any crystallisation of a whole pension fund below a set line, perhaps based on say 3 x the Lifetime allowance or based on the 40% tax threshold should NOT require sign off by a qualified adviser. That way people/with smaller pots can crystallise without the risk of significant amounts of 40% tax.

    As I say, this is NOT a fully thought through idea, but I am sure that by bouncing the idea around a pragmatic solution to achieve a balance of protection and freedom could be achieved. If that was made part of the guidance guarantee i.e. the TPA or CAB look at facts and tell consumer based on the information you have given me, you MUST obtain sign off by an adviser with 1 above OR with 2 above, we recommend you get advice still, it will cost you a minimum of £x to get advice compared to your fund value of £x as most people can then see whether the cost of advice almost definitely outweigh the value OR that it is proportionate to the fund size and the piece of mind of advice is of value and hence worth paying.

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