Cashflow modelling should be compulsory for retirement advice, says Prestwood
12 November 2017
Prestwood says all firms providing any kind of retirement advice or marketing should use some form of cashflow modelling in an effort to protect consumers from mis-selling and provide greater clarity around retirement options.
The White Paper, which was launched at the Personal Finance Society’s Festival of Financial Planning, was published in response to the growing fears that an ageing population will not be cared for by a government “knee-deep in debt.”
Prestwood founder Paul Etheridge said: “Since 2015, savers have accessed £14.2 billion. The freedom to access pensions has resulted in a swathe of bad advice and mis-selling scams. Our biggest concern is that a whole generation of our society will be unable to afford their cost of living post-retirement.
“We contend that all firms providing any kind of retirement advice or marketing must use some form of cashflow modelling. This is a crucial step towards protecting consumers from mis-selling and giving clarity to them; reducing IFAs’ PI insurance; and restoring faith in our profession.”
Julie Lord, director of Prestwood (pictured) said: “If advisers do not as a community improve the way they communicate these messages of risk and action to their clients, our profession will continue to be slated and called to account. More seriously, our ageing population will not be cared for by a Government knee-deep in debt.”
The White Paper follows Prestwood’s earlier warning in 2014 that consumers were in danger of being “short-changed” if their adviser did not use cashflow modelling.
In the White Paper, Prestwood said: “We explained that pensions freedom did not mean that the rules were any less complicated or less open to mis-selling or scams. We insisted then that a visual picture of future financial situations was vital for individuals especially if they were being advised to move schemes or withdraw their pension funds altogether.”
According to Prestwood, the introduction of the financial freedoms has prompted many consumers to take advantage of the new rules with little idea of how much they expect to spend in retirement or factor in the costs of elderly assisted care. Whilst a growing number of networks, providers and individual advisory firms recommend cashflow modelling is used to show the potential sustainability of income and capital, the majority or those advising on pension issues do not.
Richards added: “Since the introduction of pension freedoms, cashflow modelling has increasingly become an essential planning tool whilst also helping to ensure better client engagement, understanding and confidence. Another aspect of good advice is ‘knowing your client’. Prestwood does not believe pensions specialist firms who have clients introduced to them, can be said to ‘know their clients’. Particularly for execution-only clients, a sense-check using cashflow modelling may cause the client to rethink.”
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