Cast your mind back to 2014 for a moment.

    Some of us were reeling from Gwyneth and Chris’s ‘consciously uncoupling’, while others were reeling from England being knocked out in the World Cup group stages.

    And if the Ice Bucket Challenge didn’t wake us up, then the announcement of the revolution that was pension freedoms certainly did.

    There was mass panic in some quarters that everyone was going to take all of their pension funds on their 55th birthday and buy a superyacht… or a pedalo, depending on the funds available.

    However 2015 rolled around and this didn’t happen, at least, not to the extent that some people feared. This was due in no small part to the amount of work put in by planners providing suitable advice to their clients.

    Admittedly, my view may be skewed in that I only tend to deal with forward-thinking advisers and those planners who offer a great, holistic service.

    But I have been encouraged by the common sense approach so many clients seemed to take following their planning meeting.

    Taking that into account, I thought I’d share my top five tips when it comes to suitable advice around pension freedoms.

    1) Clear and specific objectives

    The FCA hates a generic objective, as do I. The advice must show it meets specific objectives but if these are absent, it’s much harder to prove you’re providing suitable advice.

    I’d much rather see an objective stating “the client wants to buy a yacht when he’s 68” than “the client wants flexibility in retirement”. Don’t we all?

    The outcome may be the same, regardless of how the objective is stated. For example, the outcome may be switching to a particular investment solution/platform to provide growth until such time as the client hits retirement, at which point they move into drawdown.

    But the client (and your compliance department) much prefers the specifics.

    2) Cashflow planning

    This should be completed at outset, and completed regularly.

    It's worth including a variety of scenarios and stress tests. This is invaluable to the client who can then be shown exactly what it means to take an income and how a change in retirement date, growth or withdrawals can impact them.

    3) Drop the jargon

    Clients do not want to hear about how a growth of 'x' per cent and withdrawals of 'y' per cent result in a net loss of 'z' per cent to the power of blah. They want to know they can take £10,000 a year from their pension and not have to die earlier than planned.

    It’s really that simple.

    By all means, do all the calculations and formulas you want for your file. But when you see your client, it's important to keep it simple and straightforward as much as possible.

    Try to avoid percentages and basis points and long words such as decumulation. Can they afford to retire when they want, with how much they want, or not? That’s what they want to know.

    4) Don't panic

    I see a lot of client meeting notes with people worried about inflation and the global economy, and that's before we get to Brexit.  

    But planners will know that if there is a good plan in place, provided by a good planner, these external things don’t matter.

    Yes, there will be fluctuations and it might get a bit rocky, but if the cashflow has been tested and been proved to stand strong, the plan is likely to be unshaken much over the long term. Keep calm and carry on for want of a better phrase - it's clichéd because it's true. 

    5) Risky business 

    Risk is a bit of a buzz word for me at the minute.

    I can see a great plan for a client based upon a generic balanced level of risk. But I’m always wary when I see someone who’s need for risk exactly matches their attitude to risk and their capacity for loss.

    I would like to see a need for risk being more calculated. For example, you require £10,000 a year in 10 years' time and your based on your current value you would need a x amount of growth. That’s the risk you need to take.

    The risk you want to take may well be very different. It’s finding a plan that compromises between the two.

    Capacity for loss is a different being altogether and should not be linked to the above two. I would expect to see further calculations showing exactly how much the client can afford to lose of these funds; how much and for how long.

    This can be easily shown via cashflow, but should be a specific amount, not just a generic sentence such as “low to medium losses can be tolerated."

    I’m off for a ride around on my pedalo now, but if you have any questions, feel free to get in touch.


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