Pension flexibility is almost upon us and many IFAs are rubbing their hands with glee about the opportunities for the advice sector. However, it is not all good news and those of us who have real concerns about our clients’ long-term financial sustainability are pulling hard on the reins, trying to bring some control back into the process.
My challenge to the advice industry is this: are we advisers or are we order takers? If we are advisers, then it is our duty to make sure clients act in their best interests. That means somehow putting the brakes on a spending free-for-all and persuading clients to think carefully about sustainable income.
It seems to me there are real misconceptions about pension savings. What the industry needs to make clear to the public is that a pension fund is an investment fund: it can be managed in terms of growth and risk just like any other investment and retirement does not have to trigger wholesale action. The old mindset of “I’m retiring so I need to spend my pension fund” no longer holds true. The real benefit of pension flexibility is just that: the pension can now be more easily managed to provide varying income needs throughout retirement.
However, it is a sad fact that flexibility is going to bring as many problems as it does solutions. For every client that uses the new rules sensibly, there are going to be others that will see their pension fund as a bank account to do as they wish with. Many will buy the sports car or take a world cruise on the basis of living for today, never mind about tomorrow.
The bottom line is that for all except those with very small pension pots, advice will be absolutely essential – and I mean advice, not “guidance”. Sources of help and support are looking increasingly limited. For example, we have heard of one local major provider that has backtracked on plans to build a 30-strong second line team to offer direct client support on pension access, presumably as a result of the additional criteria imposed by the regulator. Guidance providers like Citizens Advice will do their best of course but they will not be qualified and – importantly – they will not be regulated, so who knows what outcomes they will deliver.
Our stance is clear. We are advisers and, to do our job properly, we must take our clients through a fully advised process. That means we do not do “insistent clients”; we do not do execution only. If a client wants to go it alone they will do so without us. This not only protects our clients but us as well.
The advice sector has worked hard over the past few years to be seen as a professional group with high ethics and transparent processes. There is a huge reputational risk to the industry looming with pension flexibility and I am certain we are facing horror stories and misselling claims as those who have failed to plan for the longer term find themselves with no pension fund left. The best IFAs will not be afraid to put their heads above the parapet and say “no” to clients who will not listen to advice.
Carl Lamb is managing director of Almary Green