Drawdown can seem a bit like one of those optical illusion pictures that pop up on the internet every so often. The dress that some swear is black and blue, while others are convinced its gold and white; the trainers that could be pink or green. Look again on a different day and chances are you will see the same thing from a very different perspective.
Gale and Phillipson chief executive David Carr is well aware of the dual nature of drawdown since pension freedoms, with it being both an opportunity and a challenge.
“In general, pension freedoms are helping to create better outcomes but there will often be the need for a helping hand or advice. If people aren’t being advised they risk running out of money or retiring with an unintended reduction in income. Non-advised drawdown is an anathema to us,” he says.
“Drawdown needs to be advised because so much can go wrong when you don’t have someone talking to you about where to invest assets and how much income to take. Also, people could go into products with excessive charges for drawdown if they don’t shop around.”
A helping hand through guidance that stops short of regulated advice is all well and good but given how people use their money in retirement is such an individual decision, the essential ingredient for Carr is cashflow modelling.
“It’s difficult to advise people in drawdown without having some sort of cashflow modelling to explore how they would use it. Advisers use cashflow modelling to work out how much income people can take or the impact of taking a lump sum,” he says.
If Carr had his way, more people would take advice much earlier, shop around for it and be prepared to challenge on costs to make sure they do not pay too much for it.
What is the best bit of advice you’ve received in your career?
Invest in your own personal skills.
What keeps you awake at night?
I sleep well, but if my son Alexander wakes up, that wakes me up.
What has had the most significant impact on financial advice in the last year?
The uncertainty around DB transfers.
If I was in charge of the FCA for a day I would…
A day would be short but if I had a year I would do nothing and see what happens. Many people in charge make changes and tinker all the time. After a year we could see what really needs improving.
Any advice for new advisers?
Work for an ethical firm with a great client proposition.
“The problem is people are too trusting of advisers. There is not just a need for advice, there is a need to challenge advisers and ask ‘why am I paying this price?’” he says.
“Also, a lot of advice firms are interested in clients with a set level of accumulated assets. People need an adviser to tell them how to accumulate savings but they never get the advice if they don’t have the savings. Our pricing structure means we can take people on with relatively small levels of assets and in five or 10 years’ time, they are the ideal client.”
Carr feels that sending out wake-up packs at age 50, as proposed by the FCA in its Retirement Outcomes Review, is not going to make much difference to advised clients, who will already be receiving advice on what they should be doing in preparation for retirement. For non-advised clients, he feels issuing the packs then is still far too late.
“Even younger advised clients talk about what they should do for retirement – but at age 50 it’s too late to be doing something significantly different if your provision is significantly inadequate,” he says.
Pensions is an area Carr has viewed from various angles throughout his career. He started out as a trainee actuary with Friends Provident in 1982. After four years, he became an actuary/pension consultant at Watson Wyatt.
By 1997, Hazell Carr – originally an actuarial training business Carr set up with Graham Hazell in 1988 – had given way to a new business focused on support services for firms undergoing the compulsory pension review in the wake of the pensions misselling scandal.
The firm broadened its services to pension administration and management in 1999 and was sold to Xafinity Group in 2008. Carr then joined wealth manager Jonathan Fry, which merged with Easby, Gale & Phillipson in 2015 to become Gale and Phillipson.
2015-present: Chief executive, Gale and Phillipson
2009-2015: Chief executive, Jonathan Fry
1997-2008: Chief executive/co-founder, Hazell Carr
1988-1997: Co-founder, Hazell Carr Training
1986-1988: Actuary/pensions consultant, Watson Wyatt
1982-1986: Trainee actuary, Friends Provident
“In any merger or acquisition the key thing is not to implode and avoid negativity. We’ve kept the clients and the advisers and not closed offices. Ditching local offices represent a huge risk for the business and bad client outcomes. That was our philosophy – everyone should have advisers as close to where they live as possible. We think that was the right strategy and that’s why it has gone well,” says Carr.
“We’re committed to good communications with employees – we have a lot of meetings and group briefings. Sometimes you’re telling people things they don’t want to hear, like they’re having to change procedures, but at least then they can deal with it. Knowing about change and any issues is much less disruptive than uncertainty.”
Three years on from the merger and there is still plenty going on. The firm has just bought two “reasonably sized” firms and is on the lookout for the next round of acquisition targets. It is also revamping its dynamic cash management service – which ensures clients always get the best rates on their deposit accounts – later this year.
“Continuing improvement is one of the features of a growth business and incremental change is one of the features of working here. If you can’t cope with change, you can’t cope with this industry,” says Carr.
However, some things in the industry do make Carr nervous. Defined benefit transfers, for example. He says he’s no longer an actuary because the CPD required was no longer relevant to his daily job but they do have actuaries in the firm.
“They are experienced in DB transfers and we know we could give advice in complicated cases. But we’re nervous about giving advice on DB transfers and only advise on these in rare circumstances,” he says.
Like many advice firms, Gayle and Phillipson is concerned that any DB transfer business conducted now could have an impact on future access to professional indemnity insurance, particularly if the FCA decided to review all DB transfers 10 years or so from now.
“The truth is, you can advise people on the different options available to them at the time and some will be better off and some worse off in the future. It’s impossible to determine.
“I know a lot of firms who are choosing not to advise in this area and the difficulty is you then get someone else providing the transfer before being closed down by the FCA. The regulator and PI environment has created bad outcomes for some clients and I’m not sure how this problem can be easily solved.”