As usual, Lorna Bourke has done little to further the cause of sophisticated financial journalism with her latest article on income drawdown.
While I agree with her that advising on drawdown should become a special activity, her assessment of the market and the reason why clients use the schemes is entirely wrong. In addition, her pathetic example illustrates only the type of client who should not take a drawdown contract.
Since the introduction of drawdown, I have made my position clear both to product providers and the PIA – this type of advice should be a specially regulated activity.
Drawdown advice cannot generally be considered on its own merits but requires an holistic financial planning approach based on the client's long-term income and capital requirements. This requires a strong working knowledge of personal taxation, investment planning and pensions.
Once the most appropriate course of action is identified, the adviser must be in a position to provide a regular investment monitoring and financial advisory service to the client as these types of scheme inevitably require ongoing investment, pension and tax advice.
For this reason, I believe the minimum requirement would be AFPC including G60 if the adviser is to prove overall competence. In addition, some form of investment monitoring software such as Hindsight or Micropal would be needed.
So far as the types of client taking up these plans are concerned, overall pension income is not always the main motivational factor. Ms Bourke's one-dimensional assessment of client objectives is, I am afraid, all too common among those who have no experience of providing financial advice.
Most clients want to retain control of their capital and enjoy the flexibility that a phased/Sipp/drawdown product offers.
Many clients are only semi-retired or are starting a new career which requires an initial income or capital boost from their pensions. Most have additional capital or other sources of retirement income. Few are idiots or dupes. All understand the risk associated with drawdown and require value for money from their adviser.
Advice of the standard and quality required for this type of product is no simple matter, however, and does not come cheap. Ms Bourke and her compatriates have to realise that there is no such thing as a free lunch and the standards of advice they call for will not be delivered on the cheap.
As the director of a company that offers advice in this market, I can assure Ms Bourke that, although the average case may not cost 5 per cent to advise on, it does cost more than 1 per cent. In addition, there is an ongoing cost associated with the additional monitoring which amounts to 0.5 per cent.
Our advisers are remunerated by salary only, with no sales bonus. Our clients can choose either a fee or commission-based route. Those clients who do opt to take advantage of these plans understand the costs and why they are levied. They are also significantly more sophisticated than Ms Bourke gives them credit for.
While I understand that Ms Bourke's brief is to be contentious and to raise awareness, she should also try to gain a better understanding of her subject. I unfortunately cannot afford to be blase with regards to facts and figures as my clients rely on qualitative research and information. If only the same could be said for some financial journalists.