Can your adviser still service your pension and investments?
In the last 18 months, the global financial services industry has seen a much-needed ‘clearing of the swamp’.
Unregulated intermediaries have become the focus of regulation worldwide. This has resulted in many cross-border financial product providers cutting ties with unauthorised firms for the protection of savers, leaving pension members ‘orphaned’. While some firms have sought new regulatory status to serve their clients, many firms have simply exited the market.
SIPP and QROPS providers have sought to disengage from intermediaries without appropriate advisory permissions and qualifications. This has left thousands of pension and investment members without advice, or, more critically, protected from poor advice.
“Nothing to worry about, you just need to make the instructions now”
Whatever excuses firms and ‘advisers’ have used; if they’re no longer able to service your account, make investment switches or direct withdrawal strategies, they are no longer allowed.
Any actions you take on your account without an authorised intermediary, or regulated report instructing you of the recommended changes to make, are your own. SIPP and QROPS accounts are ‘self-directed’; meaning you are able to make direct changes to your plans without advice, and any changes you make are at your own risk.
Some less scrupulous firms have taken to providing limited guidance to clients; telling their customers it’s normal practice to now allow the client to make critical changes to their accounts. This simply isn’t true; your financial adviser should also act as your financial intermediary. This should be of particularly concern to SIPP and QROPS members living outside of the UK.
Find out if your adviser is correctly regulated, insured and qualified for the advice they provide.
It’s very important that pension and investment portfolios are looked after; cared for professionally, protecting members from mistakes; ensuring actions are appropriate and strategic.
Without a regulated, and insured intermediary (adviser), members are deemed to be making their own decisions, without any professional protection. If you’ve found yourself with a SIPP or QROPS account which you must manage and administer yourself, what should you do?
Only professional, educated and experienced individuals should be managing their own pension and retirement planning. A modest fee (typically 1% pa or below) should be seen as a necessity of financial planning to ‘retail’ clients; i.e. those who don’t have sophisticated-investor status. While many may see the current investment climate as a time where cost savings are attractive, accounts left without an active adviser taking responsibility for their money risk becoming ‘skewed’ and mismanaged.
Use our international regulator directory to cross-check the regulation your intermediary holds.
The importance of regular portfolio reviews & rebalancing
Pension funds should be invested under a diversified strategy. This means the portfolio will hold a range of investment ‘asset classes’; picture a pie-chart of different holdings. A balanced investor, for example, should hold less than 65% equity exposure; while a cautious investor holds under 35%. Cautious portfolios will consist of a heavier ‘weighting’ in property and secure bonds, cash and stable commodities. The higher-risk investor will hold alternative assets and global equities, with little in more stable areas.
Over time, equities may outperform bonds; property may underperform commodities, or vice versa. In the space of just a year, a portfolio which began with 35% equities, may be found to have over 50%. By actively rebalancing a portfolio, it can be ensured that an approach which started as ‘cautious’ remains that way.
Market outlook and the categorisation of risk can also change. In bull markets, equities are seen as slightly lower risk, while under a property crash, property assets become higher risk. Without a professional adviser, members would be expected to educate themselves on market conditions, investment planning approaches and risk mitigation.
Preparing your account for retirement
As pension savers approach retirement, portfolios must be properly prepared. In the final 2-3 years of ‘pre-retirement’ saving, a disinvestment strategy should begin. This will involve reducing the risk approach across the portfolio, while replenishing the cash account in preparation for regular income withdrawals. If a disinvestment strategy is left too late, clients may find themselves taking funds out of the market at a ‘bad time’. This can be shattering for retirees wishing to purchase an annuity.
Financial planning should be gradual, strategic and sensible. Attempting to ‘time the markets’ can be naïve of those reliant on pension savings for lifetime income and financial security. For example, if you plan to rely upon your pension funds from age 65, your adviser should be starting preparation work from your 63rd birthday, at the latest.
How can a regulated professional adviser help?
A professional adviser should be active in their role, accounting for tax and allowances, investments and risk, market conditions and new product opportunities.
The ‘cost’ of advice
Advisers like to view their charges as ‘adding value’ rather than ‘costing money’. A good financial adviser will first review your planning holistically, consider how funds are currently held and invested, product charges and planning opportunities.
In some cases, a switch in pension products may be appropriate in order to better position funds now and for the future. For example, if you hold a SIPP, a QROPS may become more appropriate once you take income. This is typically for those who live abroad and can benefit from cross-border taxation laws or for lifetime allowance planning.
Where a ‘switch’ is made (i.e. change in pension product and/or provider), it must be recommended and justified; it must be more advantageous for your planning. This could be a better fitting product, or offer a lower long-term fee structure. In those cases, advisers will quote you for the work in advance, and be able to deduct agreed fees from your pension funds rather than your pocket.
Those with existing pension savings with only ongoing advice required, advisers will simply ‘take on’ your plan. That means registering as your authorised intermediary; allowing them to correspond with your pension provider on your behalf and make adjustments to your account. For those simply wanting a review and ongoing support, initial fees are rarely applied. Instead, the adviser can agree a regular review service with you, while applying their decided fee to your pension funds.
Advice should not be expensive. It should be relative to the planning undertaken, and appropriate to the funds under advice. This commonly means a percentage-based fee is applied, or a monthly fixed fee, if preferred. Fees are not a long-term commitment. It’s recommended that clients agree a fee and time period when engaging a new ongoing adviser firm. That way, in 12 months or 24 months, the work and fees can be reviewed. Fees can be removed or adjusted at any time, allowing clients to keep advisers accountable for the value of service received.
Find a regulated adviser
If you’re unsure of whether your account is being professionally managed, or have found your pension savings ‘orphaned’ by a previous firm, get in touch. We can link you to a regulated, authorised, qualified and insured professional financial adviser.
Be confident and sensible in your choice of adviser. You are effectively able to ‘interview’ advisers for the job. You’re employing them to provide you with professional financial advice for the long-term, so it’s important you’re comfortable with them as a person, can engage and trust them and have a rounded understanding of what they can offer. Don’t be afraid to ask questions, ask for client references or sight of their qualification certificates. While most regulators hold details of their authorised firms online, this can be limited in scope.
If you’re appointing someone to look after your life savings, be certain to make the right choice.
