Some advisers have dropped clients because they refused to stay within their agreed budget in drawdown, according to Platforum.
In its report, The evolving advised retirement landscape 2019, published yesterday (July 25), the research company found advisers were refusing to deal with clients who are not able to stay within budget.
The report stated: “A few advisers told us they effectively have to police clients’ expenditure to ensure they don’t run out of money - even terminating relationships with obstinate clients who refuse to stay within budget.”
Richard Bradley, research director at Platforum, said when a client enters drawdown there is an increased risk of running out of money during retirement. The advice firm also carries risk as they recommended drawdown in the first place.
Mr Bradley said: “When we spoke to advisers, the biggest risk they identified for clients in retirement was clients making excessive withdrawals – more risky than sequencing risk and longevity.
“We’re therefore seeing advisers focus heavily on ongoing monitoring of drawdown portfolios and cashflow modelling to ensure the money will last.
“While it may sound unpalatable to most advisers, a few told us they are effectively compelled to police clients’ expenditure so they stay on track.”
He added: “Advisers tell us they make great efforts to explain the consequences of overspending, but they need to ensure that they are documenting the advice and stark warnings they’ve given clients.
“The safest course for an advice business could be to terminate relationships with clients who ignore such advice.”
Alan Chan, director and chartered financial planner at IFS Wealth & Pensions, said he empathised with advisers facing this problem.
Mr Chan said: “If some clients are spending well above their agreed amounts, not one-offs but every single year, then it will severely hamper the sustainability of that income. It leaves the adviser between a rock and a hard place.
“An adviser may feel that it’s their duty to look after their best interests and this could mean protecting clients from themselves essentially.
“And if your prudent advice cannot stop a client from making excessive withdrawals then they may feel they have little option but to terminate the relationship, because clearly they are not a client that requires financial planning or advice.”
Advice firms may have no choice other than to drop clients who do not listen to advice so that they can avoid a Financial Ombudsman Service (Fos) complaint, he said.
Mr Chan said: “Chances are good that that very client could go on to make a successful complaint to Fos because they’ve now run out of money and their adviser has just let that happen after all these years.”
In the report, Platforum stated that due to the introduction of pension freedoms in April 2015, which allow individuals to access their pensions in any way they like from age 55, advisers “should increasingly expect their retirement propositions and decumulation strategies to be put under the microscope”.
Meanwhile, advisers have called for more innovation in drawdown products.
The report stated: “We’re getting the same feedback from advisers: they want investment technology and products that are suitable for clients in drawdown.
“However, product providers and platforms tell us that they are finding it hard to create solutions until they have got their heads around advisers’ post-retirement propositions.”
amy.austin@ft.com
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