A common feature of many file checks is missing or unclear client information.

Missing information is generally due to the adviser not having raised the topic or asked the question but unclear information is often a result of a poorly designed fact find document. If the question you ask is unclear then the client’s response is likely also to be unclear. This situation often arises in the context of ‘retirement’ advice. Let’s take a closer look.

What is retirement anyway?

Gone are the days of old when people started work in their late teens, worked at the same place for forty years then ‘retired’. In those times retiring was unambiguous and meant ceasing work and living on whatever pension was available.

However, the world of work has changed in the last few decades. In particular, since the introduction of the ‘Pension Freedoms’ in April 2015, individuals now have much greater control over how they manage their financial arrangements. The removal of the compulsion to purchase an annuity (and historically low annuity rates) has meant that many individuals have chosen to access their pension funds using drawdown in one form or another And, of course, most of these individuals would have transferred to a drawdown plan as a result of financial advice. That advice should be based on a full understanding of all key information about the client and his or her financial situation and objectives. That is where the lack of clarity can come about.

In the transfer/drawdown situation, it is clearly key to identify the client’s retirement needs and objectives, but how do clients respond if they are asked when they intend to retire? Is it clear what their needs in retirement are? And what does retire actually mean?

In our experience there frequently seems to be an assumption that clients will need to access their pension funds when they ‘retire’. In many instances this may not actually be the case.

Many fact finds ask clients when they would like to retire, but what exactly does that mean? It could mean stopping work altogether, reducing the hours they work or even embarking on some new career or vocation, but some people have no idea when they will actually stop working, so without clarification here this can leave advice open to question. Use of the client’s own words is vital here.

And what about their income needs?

Some clients may need to access their pension funds before they cease working, some at the point where they decide not to work any longer, some at a future date which is known or unknown, or some not at all, but frequently we see advice aligned to an assumption that the client will access their pension funds at a specific  date/age so they need to consolidate their existing arrangements now and move to a new arrangement that provides access to drawdown.

Of course, this usually involves advice costs (usually initial plus ongoing), but if the client’s actual needs aren’t clearly established – do you really know when the client will need to access their funds and exactly how much – this often results in the client incurring additional costs that they either don’t need to bear, or don’t need to bear now.

In the absence of clarity about the client’s plans, the end result is that they may be placed in a solution that they may not need to use and for which they have incurred additional cost and as we’ve mentioned countless times previously, extra cost for no good reason usually equals unsuitable advice.

COBS 9.2.6 states that if a firm does not obtain the necessary information to assess suitability, it must not make a personal recommendation to the client.

So, do you really know your client and are you absolutely sure if and when they will access their pension pot?

A related problem question 

“How much income will you need/want to have when you retire?” This has the same ‘retire’ problem and needs to be amended to reflect the income required when they start drawing on the fund. And that could be phased if the client for example intends to carry on working in some capacity for a while or if there is a period between stopping work and state pension age where an income shortfall will need to be filled.

The question also does not adequately identify whether the income figure is net or gross, joint or single, in today’s terms or has been rolled up to reflect inflation in the interim.

The moral of this tale is that advisers need to ask exactly what they want to identify. There are no silly answers, only silly questions!