PensionsMar 11 2015

IFAs to reap rewards of new landscape

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Financial advisers are at the dawn of a new era in which their services become even more important in delivering better outcomes for clients following the new pension freedoms.

This is the view of Stephen Bozeman, senior product strategist in the global retirement strategy group at BlackRock, who, along with John Stopford, co-head of multi-asset at Investec Asset Management and Ian Smith, chartered financial planner, Central Financial Planning, spoke at a panel session on the reassessment of risk following the pension changes at the second FT Adviser Freedoms Forum event, held at the Crowne Plaza Hotel in Birmingham.

He said: “I think the market here is moving in the same direction as in the US, where individuals have much more freedom around what they can do, and the reality is that the majority have no idea what to do. They need to be told what to do.”

Managing expectations

However, with opportunity comes risk, according to fellow panel member David Trenner, technical director at Intelligent Pensions, who spoke of the need to manage clients’ expectations following the implementation of the pension freedoms.

He said: “I think sometimes product providers and politicians think people give bad advice. What happens is that we give advice, we take into account the individual’s needs, we tailor our advice to their requirements, but unfortunately we are not crystal ball gazers, and our friends at the Financial Ombudsman Service expect us to crystal ball gaze.”

Another area for concern raised by Mike Morrison, head of platform technical at AJ Bell is that of clients transfering from defined benefit to defined contribution schemes in order for them to take advantage of the new DC flexibilities.

Echoing these concerns, Chris Daems of Principal Financial Solutions said his firm would refuse to offer such a service because of the risks involved. David Geale, head of investment policy at the FCA, said the regulator was more concerned about cases where detriment could occur as a result of a transfer – though instances where the transfer might be in the client’s interest were being looked into.

The topic of the evolution of at retirement products is one that provoked a flurry of responses during the final panel session of the event in Birmingham.

According to Ros Altmann, the government’s business champion for older workers, those at retirement age will be likely to do nothing when the pension changes come into effect because people are working longer, so there is less of a need to secure a pension income.

Mr Geale said: “It is early days. There seems to be variations, but not anything particularly new, innovative or exciting – which is perhaps what we all expected. I think we would like to see the kinds of products that service consumers, but we do not have a particular picture in mind of what we want to see.

“What we do want is providers to start with customers’ needs in mind. Think about what they would want before developing new products.”

Product complexity

David Cartwright, head of insight and consulting (wealth and protection), at Defaqto, said: “You can definitely over-engineer products so they become too complex. Some of these products in the marketplace at the moment would be impossible to use.”

He added: “Yes to flexibility, but flexibility with simplicity, which also identifies the value of the product.”

Chris Daems said annuities would remain a major product in the marketplace, though demand for the financial offering has plummeted.

He said: “I am comfortable with how annuities are now.

“The danger is that annuity manufacturers will fight to release products when actually they do not really need to.”

Ms Altmann said pensions were not the only savings that needed to be made into retirement, adding that the government should do more to incentivise the public to save for future healthcare.

“We should allow people to withdraw money from their pension, tax free, for care costs or set up an Isa that would allow people to do the same thing, that could be passed on free from inheritance tax,” she said.

Describing this idea as “Machiavellian” , fellow panel member, Toby Nangle, head of multi-asset at Threadneedle Investments, said that providing an incentive for pensioners to leave something for the next generation would be the only way to fund long-term care.

Richard Hulbert, insight analyst (wealth) at Defaqto, predicted a surge in demand for small self-administered scheme pensions because of the flexibility they offered.

Gay Nebel, director at PML Financial Services, said that future pension products should be based on the clients’ needs instead of those of the insurance company, and reflect the flexibilities of pension freedoms.

However, according to Damian Coleman, head of individual distribution at Scottish Widows, product education was a more pressing area of concern.

Gender

Citing figures from the provider’s recent women and retirement report, Mr Coleman said the study found that 7 per cent of women and 14 per cent of men did not know what an annuity was. Another 15 per cent of women did not know what a pension was.

He added: “We have a collective responsibly to make sure people are knowledgeable on what is out there in the current environment before worrying about what might happen in the next 12 months.”

For Icki Iqbal, former director at Deloitte, the pension changes would result in more people opting not to invest their pension savings.

He said: “The key issue for people who are disinvesting is getting the decision right and choosing the product that has the flexibility to do that.”

Panelists

• Stephen Bozeman is senior product strategist in the global retirement strategy group at BlackRock. Before joining BlackRock, Mr Bozeman managed Barclays Global Investors’ pension outsourcing platform, PensionSpan,

• John Stopford is co-head of multi-asset, Investec Asset Management. Prior to this he was responsible for the management of Investec’s South African fixed income assets from 1998 to 2004.

• Ian Smith is director and chartered financial planner at Central Financial Planning. He has been an IFA for more than 25 years. Before this Mr Smith was regional organiser at the Institute of Financial Planning.

• David Trenner is technical director at Intelligent Pensions. He has worked in pensions for more than 35 years. Prior to joining Intelligent Pensions, Mr Trenner was a training consultant at Scottish Life.

Myron Jobson is a features writer at Financial Adviser