The advice journey

Luke Holloway highlights key takeaways from the PFS’s latest retirement and investment webinars

Throughout the coronavirus pandemic, the PFS has continued to deliver continuing professional development through online webinars, all of which are now available to view on demand on the PFS BrightTalk channel.

The recent retirement and investment specialist series, ‘A new era for retirement income advice’, was developed in partnership with Just Retirement. There are many key takeaways from the webinars – here are 
four of them.

1 Clients at a loss to understand

The first episode focuses on two fundamental aspects of retirement planning – capacity for loss and spending hierarchy. Martin Lines, business development director at Just, speaks to former Financial Conduct Authority (FCA) technical specialist and Personal Finance Professional columnist Rory Percival about key needs and objectives around these elements of advice.

The FCA defines capacity for loss as the client’s ability to withstand losses such that they do not have a material impact on their standard of living. Mr Percival says: “From the client’s perspective, I don’t think that they necessary understand about capacity for loss when they first meet an adviser. It is probably not something that they have thought about before. So, in practice, the adviser is often going to have to talk through capacity for loss with the client. I would suggest that they talk about ability to meet their standard of living rather than using jargon. Ask: what sort of income do you need to maintain your standard of living and how much flexibility is there?

“Although clients may not have thought about it before, they know what their outgoings are, or with some assistance can get to that position in a reasonably straightforward manner,” says Mr Percival.

I think this is an area where a lot of advisers are not doing a particularly good job and not meeting the regulator’s requirements

2 Getting the right answers 

The webinar also goes into detail about how to establish a hierarchy of spending needs and goals, explaining how each need and objective should be clearly identified, prioritised and quantified. Time horizons also need to be determined. Mr Percival says  asking the right questions in the right order is essential.
 
Mr Percival says: “I think this is an area where a lot of advisers are not doing a particularly good job and not meeting the regulator’s requirements. A lot of advisers rely on the two or three questions that are in the capacity-for-loss section in the risk profiling tool they use. These ask the right question, but do not always get the right answer.

“The dropdown menu answers – little, moderate, high level, those sorts of answers – are not adequate and this method does not meet the regulator’s requirement.

“The fact-finding approach that the adviser should be taking with the client is: what level of income do you need to maintain your standard of living, what level of flexibility is there within that? Then go away and assess the suitability,” he concludes.

3 Time is a great healer

In another webinar, Justin Waine, investment director at Puma Investments UK, talks about the topical subject of value investing and the opportunities it can present.

Mr Waine summarises the pros and cons of value investing, displaying empirical evidence to illustrate his points. He then goes on to discuss the performance of growth vs value over time and broaches a key question: what happens to your investment when a crisis such as Covid-19 hits?

A case study by financial planners Tilney shows that if an individual invested into the global stock market 
at their peaks before such events as the global financial crisis of 2007 or Black Monday in 2011, that investment would still be worth significantly more today.

Mr Waine says: “Even if you were to invest right at the peak just before the biggest disaster, you would still actually be delivering positive returns in the equity market. If you can do it at the bottom of the market – which is hard to do – or if you can do it stock by stock, when stocks are actually feeling depressed as a value investor does, you can deliver even better returns.”

He continues: “You have got to look at the performance of the portfolio overall and look through the short-term volatility of things like coronavirus. While they do have a very real economic impact and massive social impacts, in terms of where they will impact the stock market in the long run, they will be things that we put behind us.

“You have to take a long-term approach to investing.”

4 Advice revisited

Another webinar tackles the importance of ongoing advice and guidance, examining key factors in the review process. James Dingwall, founder and CEO of compliance specialists Thistle Initiatives, says: “It is not just five years ahead we are planning for; it could be 20 or 30 years in the future that we are looking at the implications of that initial advice. 

“It is very important that cashflow forecasting is challenged with the individual to make sure that they understand what retirement planning looks like and what their needs and goals in retirement are.”

Mr Dingwall continues: “Then we must consider the ongoing servicing of that client. Assuming the adviser has an obligation to deliver an ongoing service – which a majority do – it is really important that you sit down and discuss with your client if their objectives have changed, how their life has changed, what the markets 
are doing; and it is vital that the adviser is in a position to really understand the client’s objectives and how they are changing.”

To find out more about PFS webinars planned for 2021, visit: brighttalk.com/channel/17182 
 
Luke Holloway is editor of PFP

Image credit | Ikon