We call ourselves financial planners because we take an holistic approach to your money and life decisions but at the end of the day whatever you call it; wealth management, financial advice etc. does any of it make any difference to your financial outcomes?
The Financial Conduct Authority has recently published a consultation paper to see how consumers have reacted since George Osborne introduced "Pension Freedom" in 2015. There is evidence here that yes it does make a difference!
Much of the report is not that interesting to the average consumer, but I was fascinated to see how policy affects behaviour.
"We have seen that many consumers, particularly when focussed on taking their tax-free cash, take the “path of least resistance” and enter drawdown with their existing provider. We expect levels of engagement to increase over time as pot sizes grow. However, as pots become bigger, those who do not engage effectively could lose out on income in retirement, through poor investment choices or paying higher fees and charges." (Section 1:8)
This was exactly what happened before 2015, except the default path of least resistance was an annuity from the existing provider. That was bad enough, many were lured by a free toaster to take the annuity when they could have got a much better deal shopping around...expensive toaster that!
I just don't understand how we have got so obsessed with swapping our energy provider every year or shopping around for the best car insurance and yet we pay so little attention to our finances.
Here's a shocking statistic; 94% of customers who accessed their pot without advice, selected their existing provider’s offering. But those who received financial advice in 75% of cases moved to another provider.
The problem is now annuities are not the default option, your money moves from a phase where you were paying in, to a phase where you are drawing out. This is called "Drawdown" and it is critical your money is optimised at this point to help it last as long as you need it to.
Another shocking statistic; around a third of "Drawdown" customers DO NOT KNOW WHERE THEIR MONEY IS INVESTED... Don't you think you should just take a little bit of interest in this?!! Because here is the real shocker...
"We saw that some providers were ‘defaulting’ consumers into cash or cash-like assets. Overall 33% of non-advised drawdown consumers are wholly holding cash." (Section 1:12)
"Someone who wants to drawdown their pot over a 20 year period could increase their expected annual income by 37% by investing in a mix of assets rather than just cash" (Section 1:13)
Having a diverse range of assets rather than being fully invested in cash could increase income by as much as 37% over 20 years. That's part of what we do for you, make sure your risk is managed and your charges are as low as they can be and that you don't pay more tax than you should.
Financial advice gets a bad press and sometimes I can understand why, but does this surprise you...how much difference advice makes? Yes you can do it alone, but the suggestion here is things have not gone so well for the many people who didn't get help.
Ruth Power (Director of Business Development)
Read the paper here...if you can't sleep :-)