The late Sir John Templeton had 10 maxims for investment success. Number 10 was that “an investor who has all the answers doesn’t even understand the questions”. Along with all the standard and risk warnings, we frankly tell every client that while we give advice in good faith we do not claim to be omniscient. Any adviser who thinks they know better than their clients is mistaking a matter of opinion, however well informed, for a matter of fact.
Pension freedom, however, has suddenly imbued many with precisely that delusion. The good and the great of the industry are lining up to dictate we must “just say no” to clients wanting to cash in their pensions. We know better and so, the rationale goes, we are entitled to frustrate their legitimate wishes.
Recently I have told would-be clients with no need for a lump sum they are nuts to even think of cashing in their excellent final salary pensions. But a blanket ban on all clients from cashing in? They must be kidding. If after having had advice and having had the risks clearly spelled out to them clients still want to cash in and pay the tax that is their choice. Moreover if full fund encashments are to happen then far better they are well done by the best firms.
Consider two alternative scenarios. In the first the pension fund is released for an insistent client with execution by the firm that has advised against it. Every due warning is given, precaution taken and process documented. When the claim chasers try it on they will get nowhere. The firm won’t take a hit and neither will its PII or the FSCS.
Now consider the alternative: the “advice” is the minimal rubber stamp required to persuade the trustees to release the funds. It is given for a fat fee by a dinosaur relic. No records are kept and said relic’s run-off cover consists of a plan to run off to a villa in Spain. When his clients claim, the FSCS picks up the bill and, in due course, that means we do. The best of the industry should not be hitting the chicken switch. They should be designing a set of standards and agreeing them with the regulator to minimise the risk to clients and firms alike. Banning firms from benefiting in any way from referral fee backhanders and suchlike would be a start. Only this morning I was offered cash to line up the gullible for “solar panel annuities”.
A final thought for those who think they always know better than their clients. The retiree who wants to cash in to capitalise his own new business might just know something you do not. One gentleman started his enterprise aged 65 with his first month’s pension of $105 dollars. His name? Colonel Harland Sanders. KFC anyone?
Neil Liversidge is managing director of West Riding Personal Financial Solutions