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The Good, the Bad and the Ugly

Three very different stories about the financial advice profession he saw in the space of a couple of days inevitably put Tim Sargisson in mind of the title of a well-known spaghetti western.

As it is August and many of us are on our summer holidays, I thought a more whimsical title might be appropriate. The underlying theme of today’s piece, however, is anything but whimsical. The idea behind the title came from three stories I read in the space of a few days last month, which highlighted all that is good, bad and ugly about our profession.

First, let’s start on a positive – the news that those seeking help from a financial adviser are better off by an average of around £40,000, compared with their unadvised peers. The findings from the International Longevity Centre think-tank show the benefits of advice, where affluent advised customers upped their liquid assets by around £12,000 and pension wealth by £31,000 over those who did not obtain advice.

Advice also led to greater savings and equity investment, while 90% of those canvassed said they were happy with the advice they received. The report concludes that trust and financial capability were the two biggest drivers for those seeking advice.Here, however, is the rub – trust and financial capability are clearly important, but where there is the yin there is usually the yang and this is certainly the case here. The news the Financial Services Compensation Scheme (FSCS) has seen claims involving bad advice to move retirement savings into risky assets in SIPPs increased by more than a third.

The FSCS annual report and accounts show SIPP compensation has increased from £78m in 2015/16 to £105m in 2016/17. It is a twist of fate that the bad side of our business was reported the same day as the think-tank findings were released.

This is a truly shocking set of numbers and reinforces a point I have stressed time and time again –  if you are one of the 78% of advisers who pick funds for your client, just how robust is your investment selection process in terms of truly understanding what you select? Are you ensuring you de-risk your business?

Because, for the client, this whole process is still a crapshoot – in other words you may be a client who ends up with one of the good guys, exuding trust and financial capability. Yet you might just as likely end up with one of the bad guys, who sees fit to invest your entire life savings in ‘ethical forestry’ or a ‘green oil plantation’, or some such toxic product despite all the warnings and a £105m compensation bill, just for the current year.

And do not kid yourself into thinking this sort of activity has stopped. Only the other day I was directed to a SIPP and SSAS website that is awash with this noxious stuff.

Reputation being trashed 

This shames us all because, while we might see ourselves in the same league as other professionals such as accountants and solicitors, I cannot see them putting up with their reputation being trashed by their peers in this way. If we are prepared to keep seeing this as somebody else’s problem, this issue will not go away on its own and those FSCS bills will keep rolling in.

Finally, the ugly, which is a story in last month’s Daily Telegraph of a reader who was hit with a £20,170 tax bill due to ill-advised pension withdrawals.  Had he taken advice, I am sure any adviser worth his salt would have structured the withdrawal process to mitigate his tax liability.

For all the sterling work that goes on in promoting investment strategies, however, the same cannot be said of our skills in making the public aware of how we can help in these areas. Our marketing talents are lamentable. So expect to read a whole heap of stories about people with ‘unfair’ tax bills because they ‘didn’t know’ – and did not know who to turn to for help.

To be considered truly professional, we advisers have to find ways to engage with people to help them – and to help them avoid these sorts of costly mistake.

Published on 8th August

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