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Robert Reid: Providers have no role in Budget guidance

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I remember a long discussion about conflicts of interest following an Institute of Directors course for non-executives which I attended as a director of Sofa. We were wrestling with a phrase or series of phrases to illustrate or, better still, define what constituted a conflict of interest. One sage took it upon himself to state the best way to avoid a conflict of interest is not to have one.

The discussions about providers possibly delivering impartial advice made me recall the discussion over conflicts of interest. Clearly, those suggesting that providers had a role are yet to enter the moral maze that is managing or, better still, avoiding conflicts.

But worse than that, some see this as a call centre service. Given the dreadful advice inflicted on many buying annuities this way, whoever puts this forward can’t see the people for the pounds.

We do, however, need to avoid assuming that face-to-face is the only way forward. After all, this is new territory and it needs new thinking, such as presenting to affinity groups and integrating with other media to provide a collective approach.

This all needs a way forward that recognises the value of advice. And I am not talking about a simplistic scale of fees, especially one with no geographic adjustment.

We need to reverse engineer here and determine what is needed to deliver a low-cost service that will not attract the wrath of the Financial Ombudsman Service.

In a recent presentation, I finished off with a slide on the proposed changes from the Budget. Several  enquired about the tax back home working with the regime here.

I think the tax will be withholding and when you consider double taxation, few treaties will include using withholding taxes as an offset. As such, double taxation in its worst sense could take hold.

We then moved on to longevity or, as more normally stated, trying not to outlive your money. Webb has suggested a simple determination for longevity and once again made me wish he knew when to keep quiet. What we need is the detail, not self-indulgent sound bites.

At the presentation I suggested it was simple. Should you wish to avoid running out of cash, take the current date away from your date of death and you have the longevity question answered.

One member suggested I was being flippant. No, I countered, I was simply underlining that what looks simple is often highly complex.

It is only when you think about all the moving parts that need to be considered that you realise that even if products were simpler its life that makes things complex.

One other example of conflict that still makes me smile; in playing football for the Boys Brigade, my fellow full back had enquired of my plans for the night. I explained I had a first date with a young lady.

He then took on the part of mentor, coaching me in what he saw was essential in the art of seduction. When I arrived to collect the said girl he (my fellow full back) was the one who answered my knock on the door. To say he was conflicted was putting it mildly. One person’s conflict is all too often another’s opportunity.

Robert Reid is managing director at Syndaxi Chartered Financial Planners 

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Robert, I entirely agree. The big issue with annuities has always been the issue that people do not move away from their existing provider, despite OMO. And who is responsible for that? According to the FCA thematic review, as reported in the Treasury consultation on the Budget’s pension proposal, something like 60% of those buying an annuity fail to look elsewhere and something like 80% of them would have been better off had they done so.
    There is a clear risk of a conflict of interest if product manufacturers are involved in the process. However well they may manage it, they would be better off without that potential conflict so they shouldn’t be involved.
    Nice example, by the way – I hope that you’ve improved on the disclosure front since those days!

  2. Once again a really good article by Robert Reid.

    Personally I think the budget proposals are really good and even the temporary increase in Trivial and small pot limits is going to sort things our for all those people with really small pots as for the majority, unless they have a guaranteed annuity rate, up to £30k will probably be better taken in one lump the year after ceasing to receive earnt income and the three “msll pots of up to £10k each makes taking them out and putting them in to something else to provide a sercure lifetime income will often be more appropriate than an annuity (once debt has been reduced)

    Can we afford to risk advising the people with pots of under say £50k total under the current regulatory (FOS) regime however?

  3. TEST COMMENT TEST COMMENT

    Please delete, moderators

  4. The big issue for the future will be when (as will inevitably happen, such as it did not long after the introduction of drawdown), the investment markets take a big hit and what were largely unsophisticated investors with little capacity for risk in retirement, who should not really have been near a drawdown contract, find themselves in a crisis situation when their pot of £50,000 drops to maybe £30,000.

    Wait for the claims, there will be plenty and put all the caveats in you like, the view will surely be that they were placed in too much risk at outset. Then your fee will be dwarfed by your compensation/PI excess.

    We need robust guidelines from the regulator and government on dealing with smaller pots where investors have very little other fall-back savings and quickly, or quite frankly we will be lining ourselves up to be shot at and one thing is for sure, the government et al will not rush to our defence.

    Pensions advice? Good luck with that!!

  5. Sascha Klauß 16th May 2014 at 5:13 pm

    For all the very interesting points in this article, all I can think about is the question of whether this football match took so long ago that Reid was playing in the old-fashioned 2-3-5 formation, or whether this long chat took place with Reid about 40 yards out of position on the wrong flank.

    I played football at school in the “C” team of useless boys who were just left to get on with it, and either explanation seems perfectly possible.

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