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The realities on the advice frontline post-pension freedoms


Dramatic changes to the retirement landscape over recent years have created a huge demand for advice, but delivering this profitably is a formidable challenge.

Money Marketing invited industry experts to a roundtable debate on the future shape of retirement advice and how best the industry can meet the growing demand, including from clients with less wealth.

Defaqto wealth insight consultant Gill Cardy shared research recently conducted by the firm into how advisers are coping with this emerging need. The figures suggest despite a 78 per cent increase in demand for retirement advice, 23 per cent of advisers say they do not outsource any part of their advice process at all. This included advisers not wanting to use multi-asset and multi-manager funds, but rather putting together investment portfolios themselves.

Yet the research also showed 55 per cent of advisers say they need to spend more time on reviews for clients at retirement than those in the accumulation phase. For 30  per cent, this extra time amounted to an additional two hours of work per client.

Cardy said: “There is a debate to be had about whether that makes any sense from a compliance point of view, but if there is this pent-up demand of people coming into retirement, it takes longer to do reviews and they are saying, ‘I’m not outsourcing any part of my investment process’ – where is all the time going to come from to deal with it all?”

Barnett Waddingham senior consultant Malcolm McLean said the initial political positioning around pension freedoms woefully underestimated the complexity of the measures. “It was all made to sound very simple…just treat your money like a bank account. Now, anybody who took that message onboard would probably soon realise there was a big difference between the encashment of the pension pot and running a bank account, in terms of the tax implications.”

He said is it is this unexpected complexity that is the key driver of increased demand for advice. “The Government underestimated this as well. It was all done seemingly on the back of an envelope. Nobody knew what was going on and they came up with this system which was  untried and untested.”

Million Plus financial planner Graeme McColgan believes a major task for advisers in the wake of pension freedoms is dealing with clients who simply want to empty their retirement savings under the misguided view that “pensions are bad”. He said: “A lot of the enquiries we get are a quick phone call, ‘I want to take out my money from my pension’. There’s this disillusionment with pensions and now they have got the chance of taking out their cash.”


He added: “The number of clients I’ve had who phone me up to say, ‘I want my money out of my pension, can you sign the form to say that I’ve had advice?…I say, ‘Well, absolutely not, but let’s sit down and talk about it’. But they will say ‘no that’s not what I want. I need someone to sign the form.’ And they’ll hang up and they’ll phone around four or five other advisers until they get the answer they want. This is where I see a real scary problem.”

Plutus Wealth Management chartered financial planner Sebastian Hurst said he had also experienced this attitude from some clients. He said: “We have lot of phone calls asking ‘can we sign this form?’. Absolutely not. If we have advised that means we take on an enormous amount  of risk. I could not just go to the doctor say, ‘I want this prescription signed’.”

Educating the public around the role of an adviser has always been difficult, and McLean argues more needs to be done by the Government and regulators to make the advice definition clear.

He said: “One of the problems is of course people actually don’t understand what advice is. We have this confusion now between information, guidance and advice and all the rest. To the man on the street it is all the same thing and they go along to Pension Wise and expect to be given advice. Perhaps they go away thinking they have had advice, but they haven’t. In my experience, many of the conversations you have in that sort of environment end up with the statement, ‘well, what do you think I should do then?’ and the answer is, ‘well, I can’t tell you that’. Everybody comes out pretty frustrated after all this.”

Since the roundtable, the Financial Advice Market Review has called for the advice definition to be amended, though it is not clear whether this alone will aid consumer understanding.

The need for savers and retirees to absolutely understand their own responsibilities and that of any adviser they choose to employ is particularly crucial given pension freedoms and the shift from defined benefit to defined contribution schemes.

Standard Life head of adviser and wealth manager propositions David Tiller argued at a macro level, there is a massive transfer of risk away from governments and corporate entities onto the end consumer.

He said: “It’s happening globally, it’s not a UK phenomenon, and it’s going to continue. Depending on what estimates you believe, the amount of money in defined contribution pensions, estimated to about £300bn at the end of last year, is going to double within five years and treble within 10. To believe it won’t grow, you would have to believe governments and corporates are going to take risk back and certainly governments don’t have the money to do so. Corporates now are so heavily regulated that the amount of money which has to be reserved to cover guarantees and the like are making them reasonably unattractive in the market at the moment.”


So if the consumer is stuck with the risk, a lot of these funds are going to end up requiring advice, he argued. Furthermore, he pointed out advice required by retirees is changing dramatically under the new pensions regime.

Tiller said: “There is a fundamental difference between the sort of advice given around drawdown and giving somebody an annuity in terms of the ongoing relationship and the complexity involved.”

He also warned clients may be blindly walking into their decumulation phase with the same type of portfolio that they had pre-retirement. “The assumption that something in accumulation is appropriate in decumulation is not a good assumption,” he added.

McLean had a word of warning on lifestyling plans, where risk is dialled down on a phased basis in the run-up to a set retirement date.

“One thing that concerns me is the number of old-style lifestyle plans that are still there. It just cannot be right in the new brave world that we’re in now. I never agreed with the idea of a lifestyle plan, which automatically moves people out of equities at a fixed date because they’re quite capable of changing the retirement date. The whole thing can blow up quite badly.”

But McLean said they were even more outdated given recent pension changes. “They’re now completely passé as far as I’m concerned. We should be looking at a completely different approach.”

Tiller said in order for the adviser market to function efficiently there needs to be more of a separation of duties between investment management and financial planning.

“When we talk about investment, we tend to use a sort of collective, cover-all term. But there’s actually very different things going on. One part is about looking at markets and identifying opportunity, which has very little to do with the client. It’s about understanding the market, understanding the companies in the market or the data streams, how to balance that portfolio, how to diversify and take away risk. That’s one thing. But actually, probably the more challenging thing is matching it to a client.”

Echoing Tiller’s point, Hurst said the adviser market needs a fundamental shift in focus. “We get too carried away with the underlying investment proposition and that’s just one small cog in the ultimate retirement piece,” he said. “What’s the most important thing is we must know what the client needs, and actually that comes with thorough budget planning. It is very important to address their minimum income requirement.”

The whole solution might include options like downsizing and other decisions that are not purely about the investment market. Hurst also pointed out with so much uncertainty over the future pension system clients also need a place where they can put their money while they make up their minds about the future.

“Actually a lot of drawdown money is a short-term parking,” he said. “We talk about investment strategies and how advisers haven’t necessarily caught up or are not necessarily doing the right thing. A lot of them actually are using drawdown as a short-term holding. They’re waiting to see what Chancellor George Osborne is going to come up with next.”



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