Remember when advisers were more likely to read about Robocop than robo-advice? Intelligent Pensions managing director Steve Patterson does.
Patterson, winner of Best Retirement Adviser at this year’s Money Marketing Awards, started building his own business in the 1980s and has long embraced technology to help steer clients in the right financial direction.
Prior to the introduction of drawdown in 1995, Patterson developed a retirement analysis system that could help clients with phased retirement planning. More recently, Intelligent Pensions – launched on the back of this system in 1998 – has developed a new corporate proposition called Pathways, which offers online guidance for employees in workplace pension schemes who are within five years of retirement.
So Patterson has no problem with technology having a key role in the advice process as long as the process ends with “real advice”.
He says: “The front end of our Pathways proposition is robo-advice. It is ‘light touch’, which makes it economically viable but it is still regulated. Scheme members can go onto an ‘annuity or not’ tool available on our website and free to employers. It gives them a red, amber or green outcome – if they should be buying an annuity it’s green. The first stage of the process can be automated and extremely efficient but it should then be followed by an online consultation with an adviser. A blend of online and real advice is what the regulator should be considering. There is no magic wand in robo-advice.”
Patterson says robo-advice can be informative for the user, particularly if tools allow people to play around with different scenarios and learn about things like the trade-off between the security of income and flexibility. “If security of income is the top priority you have to compromise on flexibility and investment growth. Robo-advice is reasonably good at presenting that.”
But Patterson is troubled by the way robos are being viewed by the regulator as a possible solution to the demand for advice outweighing the supply of advisers. “It’s potentially dangerous.”
His fear about robo-advice is part of a wider concern about the lack of clarity over the difference between guidance and advice in the context of employers’ liability. He says employers are worried about their own liabilities for any advice they facilitate to their employees.
“There has to be clearer rules on where the liability lies. At the end of robo-advice there should be real advice signed off by a regulated adviser, so if it turns out to be inappropriate the employee has recourse to the Financial Ombudsman Service. The need for absolute clarity between advice and guidance is essential – the FCA has got to come out of its shell and publicise this.”
With a background in engineering, it might be surprising that Patterson went into financial services. But when he graduated in the 1970s engineering jobs were difficult to come by, given the state of the construction industry and the economy. So he looked at alternative careers, settling on a direct-sales job with Abbey Life.
“Abbey Life gave me an opportunity to build my own client bank and I still have most of those clients now. The key thing I learned in direct sales was the development of motivational skills; salesmanship. People need to be motivated. That’s why we’ve ended up with a savings gap.
“For all the flaws in the commission system it worked well in getting people to save for retirement, get life assurance or pay a PHI [income protection] premium. And it motivated the adviser in the form of commission. It did lead to problems but, for the most part, it worked.”
Patterson became an IFA when a former Abbey Life colleague approached him with the idea of setting up their own advice firm, Carruth Associates.
“It worked well for two years but we wanted to follow different paths, so we decided to split up our partnership in 1984 and build our own businesses. I went down the professional connections route, serving accountants’ client banks while looking after my own.”
When personal pensions came along in 1988, Patterson capitalised on the need for phased retirement planning tools with the development of his retirement analysis system. Later, the introduction of drawdown underlined the need for a sophisticated retirement modelling system and Patterson soon realised he could roll out the system he had developed to the wider market, working with other advice firms.
“What had become obvious was how valuable it was to clients: it was visual, the analysis was on a screen and it was interactive.”
Patterson says his biggest challenge was to encourage clients to hold their nerve during the financial crisis in 2008. “I was spending my family holiday in Cyprus talking to clients over the phone. It was that serious. But because of the investment strategy we designed for clients none were in a position to make a forced sale.”
That strategy involved investing in different asset classes in different funds, so excess gains on a sovereign bond fund meant, rather than selling equities at depressed prices, more equities could be bought at a discount.
So having survived choppy waters during the financial crisis, has Brexit been similar so far?
“The problem Brexit creates is uncertainty and markets don’t like uncertainty. But we were delighted with the lack of calls coming into the office after the referendum result.
“We were prepared in advance so we were geared up in case clients wanted to go to cash. We had one client who wanted to switch half his portfolio for cash. But there were no panic reactions; probably as people understand how we manage their money, how we are counter-cyclical and don’t react to short-term events.
“In the context of world equity markets most people invest in global equities, so Brexit is not a big deal. In terms of the overall global situation, it will be regarded as a blip.”
What is the best bit of advice you’ve received in your career?
My father, who was a practising solicitor, told me your clients can turn out to be your worst enemies. You have got to look after clients and do your job properly or you could be on the receiving end of a complaint. And when it comes to money people can react strangely.
What keeps you awake at night?
The Scottish football team.
What has had the most significant impact on financial advice in the last year?
The misconception that robo-advice is a solution in its own right.
If I was in charge of the FCA for a day I would…
Make it clear what the difference is between advice and guidance.
Any advice for new advisers?
Client retention is the key and that means providing a good service on a consistent basis
1998-present: Managing director, Intelligent Pensions
1984-1998: Managing director, Carruth Financial Group
1982-1984: Partner, Carruth Associates
1980-1982: Assistant branch manager, Crown Life
1977-1980: Associate, Abbey Life