Pensions  

Retirement advisers warned to be scared

Retirement advisers warned to be scared

Advisers have been warned they should be "scared" when they make a plan for a client's retirement.

In a session at the Chartered Institute for Securities & Investment (Cisi) financial planning conference this morning (1 October), Julius Lipner, financial planner at Consilia Wealth Management said this was because of the difficulties of predicting the future.

Mr Lipner also warned advisers to be wary of simple rules about how much a client should draw down every year.

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He said: "If this doesn't scare you, it should do because there is no right answer.

"All the risk is on us, GAD rates have gone, annuity rates are low and critical yield is being phased out.

"The FCA wants advice to be individual and specific and you need to know everyone's objectives so you need to beware of blanket rules like 4 per cent."

Mr Lipner said advisers could approach the issue as planners, using straight line predictions, or as statisticians, using models such as the Monte Carlo simulation, but hew warned there were flaws with each of these.

He said: "Clients just want to know if they are going to be ok. They don't want a 92.8 per cent chance they will be ok."

FTAdviser found in March that stochastic cashflow modeling was the more popular choice for advisers for determining whether a client will run out of money in retirement, despite not being used by widely available adviser software.

Stochastic tools such as those sold by Timeline and eValue, use lots of historical data to illustrate the likelihood that something will happen, such as the client running out of money. 

Deterministic tools, on the other hand, arrive at a specific conclusion based on the values put in by the adviser. 

Mr Lipner said advisers should choose a method which they feel comfortable with and make sure they document the basis behind their forecasts.

He added: "Focus on what you can control, which is fees and expenditure. What you can control is how much they should be spending and the fees and charges of the underlying funds."

Advice software provider Focus Solutions found in August cashflow modelling was 'essential' to the advice process of two-thirds of the advisers it polled.

In its defined benefit transfer advice review this year the FCA had briefly considered making cashflow modelling part of the advice process.

damian.fantato@ft.com