Alistair Cunningham: The charlatan movement endangering cashflow planning

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Marketed by the Government as supporting freedom and choice, misuse of flexi-access drawdown has the power to destroy an individual’s lifetime wealth. With this in mind, it is not unreasonable a product-related recommendation should cover the necessary detail in a way that is appropriate to the individual, highlighting relevant risks and benefits with due consideration.

As financial planners we are in a position of great trust and power, and regulation exists to enforce a de minimis level of compliance to these rules.

A cashflow plan does not follow such rules but the power to do harm is no less. I recently read a plan where a 35-year-old inheriting a sizable sum was told with confidence she could stop working without fear of running out of money.

This is a bizarre and extreme example but to make such an assertion for anyone is frightening. This particular individual is a bright City worker and was left puzzled and, to a point, ripped off as she had paid a significant four-figure sum for a document that made such bold conclusions.

Genuine prominence was given to her and her partner’s objectives, which, having received the inheritance from a parent who had died young, focused heavily on tax-efficiency. In this regard, a trust was recommended to save 40 per cent tax on death of the couple. But no reference was made to the 6 per cent charges every 10 years on this multi-million-pound legacy. With a potential joint lifespan of five, six or more decades, this would likely be more than the tax they were trying to avoid.

The report, with a fervour bordering on fanaticism, also destroyed the deceased father’s investment strategy. He had never taken advice and his fund holdings looked like a “who’s who” of multi-asset vehicles but they were diverse and, while costly, had performed excellently. It was clear from the mantra in this independent adviser’s report, however, they firmly believed the only way to invest was in passive.

But the real issue was the assumptions, which were complex when they should be simple and simple when they should be complex. Price inflation was quoted to three decimal places but their budget, apart from an increased sum to fund for children’s school fees, was assumed to be level for life.

Their life was expected to end on their 90th birthday. How can anyone purport to project life expectancies 55 years from now? There was nothing about any potential need for long-term care, the risk of living “too long” or gifts and legacies for other family members (most of which would not even be born yet).

There is a dangerous charlatan movement rising, which offers “happiness for sale”. I am actually a believer in cashflow planning but it is the process that is important, not the outcome. We must rigorously challenge the assumptions and never, ever peddle surety.

The true skill in being a financial planner is to highlight risks and how to mitigate them. It is not to give peace of mind when clients should be fearful.

The “holier than thou” approach to planning is dangerous in the extreme and can – no, will – do more long-term damage than paying over the odds for the “wrong” investment strategy. There is a lot wrong with product-oriented sales but there is at least as much wrong with this false Utopian variety of snake oil.

Alistair Cunningham is financial planning director at Wingate Financial Planning