As I continue my studies into the value of financial planning advice for my masters degree, I have been amazed at the level of academic research that has already been done into this interesting area. Of particular note is the fact that much of this research concludes that financial planning advice can add significant value for clients with all levels of family wealth.
Also of interest is the fact that financial planning advice would appear to add the most value during times of financial stress. It seems that financial planning advice helps to reduce losses, even more than it seems to enhance gains.
I am looking into the intangible benefits of financial planning advice. My clients often report feelings of security and peace of mind once we have concluded our initial financial planning process. These feelings are only enhanced as the relationship develops over time. I am seeking to find out the value that clients place on these intangible benefits. This is quite an undertaking and has lead me to consider research in many other areas such as healthcare, public services and economics.
As the time for me to begin my dissertation draws closer, I am surprised by the parallels that can be drawn between financial planning and many other professions. When I started this project, I never thought that research into inhaled insulin for diabetics would be having such a significant influence on how I design my research project!
I will keep you updated on my progress (if I have time) as the big deadline for submission draws closer.
With all of the excitement and media comment surrounding the new pension freedoms, the 6th April itself seemed to pass without incident. While some providers have reported an increase in call volumes, it would appear that for the moment, there has not been a gold rush on the nations pension pots.
All of this new freedom and flexibility is fantastic for those who wish to use their pension pots to fund a lump sum purchase, a holiday or even a Lamborghini. However for those of us who still wish to generate an income for life with our pension funds, we have a tough choice to make. Do you purchase an annuity with the guarantee of an income for life, but with loss of your capital sum, or, do you opt for a drawdown pension and draw an income out of your invested lump sum.
While the latter option will be appealing to many, especially given the ability to pass on any unused funds to a beneficiary, it does come with a health warning.
You see the problem with this approach is that none us knows exactly how long we are going to live and therefore, how long this pot will need to last for. The main risk here is what we would call ‘sequence of return’ risk. That is to say, in what order do the returns on your fund occur. We all know that over the long term asset backed investments tend to out-perform cash, but they are volatile. The impact on your retirement of a 10% fall in your fund value during the first year will be very different to a 10% fall in year 10. It is very important to diversify and smooth the returns of the market as far as possible in order to protect your fund from sudden falls, especially in the early years.
This article from the Telegraph sums this up fairly well and is worth a read if you are considering taking a drawdown pension. While I am certainly in favour of the new flexibility rules, it is important that we consider all of the risks involved before taking the leap!