I once had a client who said: “Give me a one-handed adviser”. He went on to explain that I kept on saying ‘on the one hand this and other hand that’, but he just wanted the answer.
I understood his frustration but as soon as I explained there was not one right answer and it was important to consider both sides of the argument he was happy with my two-handed approach.
Sadly, I am not sure how many ‘two-handed’ advisers are left because some advice seems to be of the one-handed variety and most non-advised sales certainly are. Advisers, brokers and their clients often fall into one of two camps; those who favour the flexibility and control of SIPPS and those who prefer the peace of mind and security of a packaged plan such as an annuity or fixed term income plan.
In my area of retirement there is a big divide between annuities and drawdown.
On the one hand (here we go again!) there are people who simply dismiss annuities as irrelevant and think pension drawdown is the only option. On the other hand, there are people who are attracted to the guarantees provided by annuities and who think drawdown is too risky.
It can be argued that there is a third way, e.g. fixed income plans, because their options that combine income security with flexibility.
In one respect annuities and drawdown are just different sides of the same coin – both convert pension pots into income but one is guaranteed and one is not.
But in another respect, they are very different financial arrangements and increasingly advised or sold in different ways.
An annuity is essentially an insurance policy that guarantees the annuitant (or their partner) never runs out of money.
Drawdown is essentially an investment proposition where the pension pot is invested in the stock market and income is withdrawn at regular intervals.
In some situations, the best solution might be a combination of annuities and drawdown in order to get the right balance of income security and flexibility. The logic is that for some people the best solution may be a combination of products rather than a single product solution because it can reduce the overall risk. However, this is time consuming advice and sadly not enough people take combination option seriously enough.
So, what will it take to get more people to receive two-handed advice?
We need encourage more people to get advice in the first place because no-advice solutions do not encourage a balanced discussion about different solutions. Clients who make their own financial decisions may not be aware of all of the different options.
Also, advisers should be encouraged to consider the advantages of a combination of options. Some providers have done some very good work in this area by helping advisers present multiple options to their clients.
It is difficult to give good advice with one hand tied behind your back so advisers need to have both hands on the wheel.