This blog’s written for the advisory community, but if – like me – you are considered a target for wealth management – you might want to read it too.
Consumers approaching the tipping point from saving to spending their pension pot are urged to take advice. Much is made of the low take up of Pension Wise and subsequent take up of regulated advice. I myself turned 55 in November and took advantage of a free consultation with TPAS (which was helpful). This article is about the concerns I have in engaging an adviser to manage my “wealth”.
Firstly, flattering as it is to be considered “wealthy”, I am not. I have no equity in my house, having rented for many years and “invested” what equity I had in a wooden boat. I have little cash and some directly owned shares which I feed into an ISA as I pay higher rate tax. I have a family and a boat and I intend to look after both.
What I have in “wealth” is the best part of £400,000 which is invested by Legal and General at a cost to me of around £1,000 a year. This £1,000 is an all in cost – including the cost of buying and selling stock within the portfolio.
I have had various quotes from advisers to manage my money, they have increased the cost to me by between £3000 and £9,000 pa. Relative to my “wealth”, this may not seem much, but I have decided to limit the drawdown of my money to 4%pa to ensure that I have a reserve for contingencies (long term care). A total cost of management of £10,000 pa is only 2.5% of my capital but represents over 60% of the income I am planning to take. What is more, I will be paying a marginal tax rate on my income of around 30% but will have to pay for the advice out of taxed income at 40%.
I am also concerned VAT which I charge for advice, but doesn’t appear on two of the quotes I have received. It is hard to understand why VAT is payable for advice on a non- insured product when it’s doing precisely what the insured product’s doing!
These are the total cost of intermediation and I appreciate I’m being asked to pay for asset management, transactions, the platform and a discretionary management agreement (as well as for financial advice) but when the cost of ownership equals the utility of ownership – something is wrong.
I feel as if I am being made to feel wealthy so I spend money like a wealthy person. But an income of £16,000 pa is not much to live on, it is a splendid addition to a living wage, but is not a wealthy wage!
I have a second concern about the offers of advice I have been given – succession. The advisers I have spoken to have been as old as I am. Statistics I have seen suggest little succession planning in the wealth sector. I am at risk of having to pick a succession of wealth managers. That sounds disruptive to my planning. I know from my own experience as a pensions consultant that switching advisers costs my clients, that’s why they appoint my firm and not me! There are also issues around personal accountability.
My third concern over appointing an adviser to manage the way I spend my pension savings relates to the precarious circumstances of my own health. I am healthy today but there is a history of mental illness in my family that suggests I may suffer from rapid cogitative detoriation. I have responsibilities not just for myself but a number of dependents (and a boat!). I am attracted to being in a trust where other trustees can step up if I cannot manage.
I have shared these concerns with the advisers I have talked to. All three have empathised with me but point out that these are systemic and they can’t do much about them. Costs are costs, advisers retire and people like me lose their mental faculties.
I think that financial advisers could do more. There are many people like me. I am at the top end of the problem the FAMR is trying to address. I am classed as wealthy but I do not feel secure, I am healthy but I am slowing down, I am scared about extreme old age and don’t want my money running out before I do.
You may say I worry too much but I’ve been in the business of financial planning since I was 23 and I don’t know many financial advisers who started out when I did.
To sum up, I do not trust any of the offers I have been made to deliver against my insecurities. By comparison, I have a small defined benefit pension that is paid by trustees, costs me nothing in advisory fees and requires nothing from me but the provision of my bank details.
I could of course buy an annuity and might end up doing just that. But I do hope that something comes up in the next few years which works for me as well as those who manage my money.