Recently, our Head of Quality & Operations, Jo, wrote an article for Nucleus as part of their series on suitable advice. Catch up below…
“Can I ask you to cast your mind back to 2014 for a moment; we were all reeling from Gwyneth and Chris ‘consciously uncoupling’ and England being knocked out in the World Cup group stages.
And if the Ice Bucket Challenge didn’t wake you up, then the announcement that the way pensions were to be taken was to be totally revolutionised, certainly did.
There was mass panic that all of our clients were going to take all of their pension funds at 12.01 on their 55th birthday and buy a super yacht… or a pedalo (depending on the funds available). However, 2015 rolled around and this didn’t happen (well not all the time) and this was due to in no small part to the amount of planners providing suitable advice to their clients.
Yes, my view may be skewed in that I only tend to deal with new model advisers and those planners who offer a great, holistic service but I was encouraged by the common-sense approach so many people seemed to take following their planning meeting.
Taking that into account and while not teaching you to suck eggs in any way, I’d like to share my top five tips for suitable advice around pension freedoms.
Clear and specific objectives.
The FCA hates a generic objective, as do I. The advice must show that it meets specific objectives but if they are absent, it’s much harder to prove you’re providing suitable advice. I’d much rather see a “the client wants to buy a yacht when he’s 68” than “the client wants flexibility in retirement”. Don’t we all? The outcome would be the same. Switching to Nucleus to provide growth until such time they hit retirement, at which point they move into drawdown… but the client (and your compliance) much prefers the specifics.
This should be completed at outset and regularly. Include a variety of scenarios and stress tests. This is invaluable to the client who can be shown exactly what it means to take an income and how a change in retirement date, growth or withdrawals can impact them.
Drop the jargon.
Honestly, clients do not want to hear about how a growth of X% and withdrawals of Y% result in a net loss of Z% to the power of blah. They want to know they can take £10,000 a year from their pension and not have to die earlier than planned. It’s really that simple. Do all of the calculations and formulas you want for your file. When you see your client, keep it simple and straight forward. Avoid percentages and basis points and long words such as decumulation. Can they afford to retire when they want, with how much they want, or not? That’s what they want to know.
I see a lot of client meeting notes with people worried about inflation, the global economy and let’s not even touch on the dreaded B(rexit) word. I always say to people, don’t panic. If you have a good plan in place, provided by a good planner, these external things don’t matter. Yes, there will be fluctuations and some turbulence and it might get a bit rocky, but if the cashflow has been tested and stood strong, the plan is likely to be unshaken much over the long term. Keep calm and carry on for wont of a better, less used, outdated phrase.
Risk is a bit of a buzz word for me at the minute. I can see a great plan for a client based upon a generic balanced level of risk. I’m always wary seeing someone who’s need for risk exactly matches their attitude to risk and their capacity for loss. I would like to see a need for risk being more calculated as in, you require £10,000 a year in 10 years time and your based on your current value you would need a X amount of growth. That’s the risk you need to take. The risk you want to take may well be very different. It’s finding a plan that compromises between the two. Capacity for loss is a different being altogether and should not be linked to the above two. I would expect to see further calculations showing exactly how much the client can afford to lose these funds; how much and for how long. This can be easily shown via cashflow, but should be a specific amount, not just a generic sentence such as “low to medium losses can be tolerated”.
I’m off for a ride around on my pedalo now, but if you have any questions, feel free to drop me a line.”