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Pensions – Questions to ask your Adviser

November 4, 2015 Home life No Comments

Pensions Update and Top Tips

In the recent UK Budget, George Osborne proposed a significant shake-up of UK pension arrangements, which if introduced, will allow individuals to extract all their pension savings in a lump sum at the point of retirement, subject to their marginal rate of income tax in that year.

Those who require the security of a guaranteed income will still be able to achieve this by purchasing an annuity. If an individual does not want to purchase an annuity, or cash-in their entire pension fund, they can remain invested and access their pension fund over time.

Craig Wallder of Moore Stephens Financial Management has pointed out that although Jersey’s pension legislation is currently under review, liquidating the entire pension fund has been possible for some time using drawdown contract. “Taking an income directly from the pension fund is also available to Jersey residents using a Retirement Annuity Trust Scheme or RATS. RATS allow complete control of a pension fund in the post-retirement phase:

  • Income can be drawn from the pension fund as required or remain invested where it may continue to benefit from future investment growth.
  • Income withdrawals do not need to commence at the same time the lump sum is drawn.
  • Upon death, the remainder of the pension fund can pass to a spouse, or the spouse may continue to take an income from the RATS with the balance passing to the estate when they die”.

Questions You Need to Ask your Pension Adviser

  • What qualifications do you hold?

To be able to advise clients, financial advisers must have a qualification at Level 4 or above of the national Qualifications and Credit Framework. Some advisers will also have attained specialist qualifications in pension or investment advice or have obtained Chartered status potentially indicating a higher level of competence over and above the minimum.

  • How are you paid for your services?

Following the introduction of the Review of Financial Advice (RFA) in Jersey, commissions have been outlawed for most forms of business. This means that advisers need to charge a fee and this can be based on a range of different methods, the most common being Fixed Fee, Percentage Fee or an Hourly Rate. You need to have a clear understanding of which applies to the business you are transacting and then ask yourself, “Does this seem reasonable for the work being done on my behalf?”

  • Do you charge for the initial consultation?

Usually the clock doesn’t start running until after the first meeting with a financial adviser so you are under no pressure to use them if you’re not impressed or you simply don’t ‘click’.

  • What is your typical client profile?

Ensure that your demographic is one the adviser is used to dealing with as different advisers have different target markets. It is important to establish from the outset that the adviser understands your needs and is used to dealing with clients in similar situations.

  • How do the services you offer differ from other financial advisers?

What specialisms does the adviser have and what sets them apart from their competitors.

  • Are you part of a larger organisation?

Large companies have greater resources they can call on to enhance their overall service proposition and can be more competitive on charges than smaller groups due to economies of scale.

  • What ongoing service will I receive from you?

You want to establish a relationship with your adviser so it is important to know how often the adviser will meet with you and how frequently you will get will valuations and updates.

  • Do you outsource any aspects of your service to third parties?

Some advisers recognise that the service they provide can actually be enhanced by delegating some aspects of their overall offering to third parties. No one can be an expert at everything, so it is important that the adviser knows, and admits to, their limitations.

  • Does your organisation provide any other services?

Banking, accountancy and general insurance may be provided by other parts of the organisation resulting in a more comprehensive overall service offering and be more convenient for clients.

  • How do you ensure that the products and services you recommend are suited to my circumstances?

This is part of the Know Your Client (or KYC) requirement under the Law and expect to be asked some quite probing questions about you and your personal circumstances. Be suspicious if the level of questioning appears to be quite superficial since the adviser is unlikely to know enough about you to offer properly tailored advice.

  • Do you employ any form of risk profiling?

Risk profiling is also part of KYC and it is a process to assess the level of risk you are prepared to take in the pursuit of your financial goals. Risk tends to be subjective, so various tools, generally involving psychometric questionnaires, have been developed to give an element of objectivity to the process. This will help to ensure that the investments chosen for you fit with your requirements.

  • How secure is the information that I provide to you?

You want the assurance that the information you provide is kept completely confidential. Since much of the information you provide will ultimately be held in electronic form, how secure are the servers that it will be kept on and where are they hosted?

Thank you to Moore Stephens for their help in devising these questions


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