Clients who wish to access their pension savings against their advisers’ better judgment and advice are, not surprisingly, causing a lot of head scratching and debate.
FCA technical specialist Rory Percival has recommended three steps for advisers faced with this problem. And the FCA has published a factsheet designed to help.
The FCA is basically saying advice must be simple and concise to make sure the client understands. The risks involved with the client’s desired route must be clearly highlighted, and it must be clear that their chosen route is not the adviser’s recommendation.
Naturally, good documentation is vital to show that the whole financial position has been examined, and the adviser has not profited by selling an inappropriate product with the proceeds.
But many advisers naturally remain wary, fearing that a few years down the line clients and regulators may suffer collective amnesia, provoking a rash of compensation claims.
The FCA says that there are likely to be very few instances of clients going against advice. I am not so sure.
The FCA says that there are likely to be very few instances of clients going against advice. I am not so sure.Let us consider this from the investor’s point of view. I have got a defined benefit pension worth a tad over £30,000 which I wish to cash in.
The rules say I must take advice, but the cost of that advice will be a tidy chunk out of a pension this size. I want to cut corners to keep the cost to a minimum.
So I will shop around until I find someone willing to sign off cheaply saying we have discussed the issue and I have rejected their advice.
The question is, will that adviser have the necessary proof that the issue has been fully discussed and explained? I suspect not.
Let us say the client does stick with an adviser who explains everything fully and keeps documentation.
Over many years in personal finance journalism I have learned that consumers will at times hear precisely what they want to hear. All your wise words are reduced to a babble of “blah blah blah” because they want to take a certain course of action, and that is what they will do.
They may use their pension to pay off a debt and then get into debt all over again. But you are their adviser, not their nanny.
Good record-keeping should provide protection (although in your position I might well consider tape-recording conversations).
What it comes down to is whether you want the worry of doing business against your recommendations and the potential hassle of having to defend a case later – even if you are certain to win it.
This is one I can see from both standpoints. I understand the frustration of consumers and the concerns of advisers.
But if you disengage from this business entirely you risk doing clients a disservice because your advice may stop them making a costly and foolish decision. And if they wish to press on regardless, then they may come to respect you all the more if they live to regret it.
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With Friends like these…
Friends Life’s decision to restrict options to taking all of a pension or an annuity is a lose/lose situation for clients.
The letters to the 1,300 clients might as well have said: “You can have a pathetic income or donate a sizeable chunk to the taxman.”
Friends Life says this a temporary situation. So what should be done about it?
There have been suggestions that the government should have legislated to force pension companies to offer all aspects of the new pension freedoms. I disagree.
Instead the government should tell any company that chooses to restrict options – either by not offering them or charging ridiculously high fees for them – that it must allow clients aged 55 or over to transfer their money out without penalty – no matter what their pension contract might say.
That should focus a few minds.
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Woodford wins either way
A year on from the launch of Woodford Equity Income, performance data suggests that those who rushed to the exit of Neil Woodford’s former funds at Invesco Perpetual were both right and wrong.
Woodford’s new fund has gained almost 20 per cent since launch, but Mark Bennett, now running the Invesco Perpetual funds, has made around 13 per cent.
Both beat the sector average of around 9 per cent.
So the wisest were not those who abandoned Invesco Perpetual but those who found Woodford money from an alternative source.
Of course this is looking at one year’s data with the benefit of hindsight.
However, the strong performance suggests that each has a place in investors’ portfolios – as long as they can stomach the addiction to tobacco.