Guidance from the regulator on income drawdown advice and especially how to manage clients who wish to access their capital irrespective of the risks is required “as soon as possible” to help advisers prepare for the challenges of the new pension regime, IFA Graeme Mitchell has said.
Mr Mitchell, managing director at Galashiels-based Lowland Financial, told FTAdviser: “I feel the FCA need to pronounce on income drawdown advice as soon as possible to give guidance on the new regime.
“To me there will be two types of client - the traditional saver looking to preserve income, minimise tax and leave an inheritance to spouse/children - and a new breed of ‘I want it all now’ people intent on spending it, but will surely need advice to minimise huge potential tax bills.”
The remarks echo concerns raised across the sector over clients who would not currently be considered suitable for drawdown but who may demand annuity alternatives after April.
Mr Mitchell’s comments also come ahead of a consultation that the regulator revealed in its guidance guarantee policy statement in November, in which it said it would seek views on launch a review of rules and requirements on at-retirement products ahead of next April.
The regulator said it would in particular focus on rules around income drawdown, including the controversial subject of non-advised drawdown and uncrystallised lump sums. Until formal rules are drafted, the watchdog said firms should treat the new lump sums as they would drawdown.
Generally Mr Mitchell said the new rules should bring opportunities for advice in 2015, as the pensions changes have now become the subject of “dinner party chat”.
However, he also warned that IFAs must be careful that demand from new clients does not impact on existing clients that are already contracted for provision of ongoing support and pensions advice, especially the death benefits for current drawdown clients.
Speaking to FTAdviser, Phil Billingham, compliance and operations director at London-based Perceptive Planning, warned that in the next few months advisers will need to deal with much more misinformation from the media, the ‘bloke down the pub’ and potential pension scammers.
He said he is hopeful that the guidance sessions will push people towards advice and that people would generally have to engage with their finances more this year, but noted that many existing clients will have already made their retirement decisions.
“It is the next generation behind them that must be engaged if advisers are going to continue,” Mr Billingham added.
Mr Mitchell also raised the spectre of the forthcoming general election promising huge upheaval and coalition deals which might distract and result in a re-run in the not too distant future. “People and markets hate uncertainty so that will present challenges no doubt,” he added.
Harry Katz, principal at Middlesex-based Norwest Consultants, agreed that the election looks like a lose/lose scenario.
“If the Tories get in then it looks like we might leave Europe - cue falling markets - but if Labour gets in - wave your cash goodbye,” he commented, adding that a hung parliament that is unable to do anything at all would be the “dream scenario”.
From a macro view, Mr Katz warned that the European economy and a possible Greek exit would continue to be a worry, while many highly-geared Aim stocks are in the troubled oil industry, so suggested there might be insolvencies on the horizon.
Finally, in terms of the next generation of financial advisers, Mr Mitchell commented that with more telephone sales support and fewer face-to-face consultants, new ways of making the job appeal to graduated need to be found.
“Trouble is we are such a disparate lot - maybe a pooled fund from one of the industry bodies to recruit people who could come for work experience without the full expense of hiring and training over several years,” he suggested.
peter.walker@ft.com
