Ban fund-based charging
When it comes to the planned contingent charging ban, in my opinion the elephant in the room is fund-based charging (the most widespread charging practice used by independent financial advisers). If defined benefit transfer advice, initial and ongoing, was conducted using a time-based approach, for example, charged by the hour, then the risk of miss-selling should drastically reduce.
In fact, if you applied time-based charging to all advice, mis-selling overall should dramatically reduce.
So rather than banning contingent charging, perhaps the Financial Conduct Authority should consider banning fund-based charging.
SRC Wealth Management
Hands off our pensions
Nigel Peaple of the Pensions and Lifetime Savings Association recently said that pension freedoms should be scrapped. I could not disagree more, likewise my staff and clients.
My colleagues are sophisticated individuals who know their jobs. They also know how many beans make five. Not one would buy an annuity out of choice. If I were the most cautious individual on the planet, I still would not buy an annuity; I would find the lowest-charged drawdown vehicle and stick my money on deposit before I would hand it to an insurance company.
We do still write annuities for some clients, but I write every one with a heavy heart.
Invariably they are for unsophisticated old ladies with small funds living on a tight budget who need absolute certainty as to what their income will be. For everyone else, annuities are a non-starter.
A 65-year-old gets microscopically more than 5 per cent from an annuity. Add a spouse’s pension and that rate heads further south. You need to live at least 20 years to get your money back, but, statistically, the chances are you are dead by age 88.
If you are lucky you might make a theoretical profit out of the deal, but inflation, even limited to the Bank of England target rate, says you never will. And before anyone says, ‘What about enhancements?’ the reality is that impaired life rates are pathetic for all but deathbed cases.
Pension freedoms and the end of compulsory annuitisation have made it much easier to persuade people to save into pension plans.
Indeed, I only started stuffing my own pension when George Osborne made his famous pronouncement that “nobody will be forced to buy an annuity”.
Insurers long for the old days of forced annuitisation. It was a cartel in all but name. They got away with it and got fat on it for decades.
I will fight Mr Osborne on Brexit every day, but I will happily buy him a pint every day for the rest of his life for freeing me and my clients from the compulsion to fatten the insurers.
I understand that paternalism goes with the job when you work for the PLSA, but the world has moved on.