Key Questions to ask financial advisor on Pension

mbbetter

Hi all,

Here is the situation:
I am 32. Currently I don't have a pension. My employer is now going to pay £2500 a year into a pension.

I have a meeting with a pension advisor tomorrow arranged by my employer. I'm preparing myself for a painful experience. I had a dealing with a pension advisory back around 2007. The opening question from him was "... so tell me, how risk adverse are you?... say rated from 1-10?" I was unimpressed with this approach, we then had a relatively long exchange about risk vs return and how I could move funds to a safer fund plan as I approached retirement. I asked him if I could at least guarantee to get back the cash I put into the pension. He said that no investment was guaranteed and that "under very, very, very extreme circumstances" I'd not get this investment back. I didn't take out a pension and thought I'd give the whole industry a miss.

I know its short notice and I've done a bit of reading, but if anyone has the top 5 questions for a pension advisor that would be great,.

Cheers!

CannySaver_2

Hi

Interesting topic, I would put my top 5 things I would as the adviser as follows:

1. Are you independent? If not why not?
2. What options do I have for paying for your advice and how will this affect my return?
3. What qualifications and experience do you have in this field?
4. What is your investment proposition? Personally I would avoid advisers who pick funds themselves
5. What ongoing service will I get for you and how will I pay for it?

Clearly these are not definitive but they are where I would start.

He will clearly have a whole list of questions to ask you and should spend a significant amount of time discussing the various types of risk, as well as your goals, existing provisions, financial priorities etc.

The Canny Saver

yelf

More fool you for not investing in 2007. The adviser should run through a questionnaire to determine your risk profile, not just ask questions.

With Profits funds do not fall in value - so thats an option. But as you have 35 years until you retirte my advice would be go 100% equities if you want some decent returns (you currently need to get around 4.5% net just to maintin the purchasing power of your money)

yelf

CannySaver wrote: »

1. Are you independent? If not why not?
2. What options do I have for paying for your advice and how will this affect my return?
3. What qualifications and experience do you have in this field?
4. What is your investment proposition? Personally I would avoid advisers who pick funds themselves
5. What ongoing service will I get for you and how will I pay for it?

1.The FSA are killing independence with the RDR - so if theyre not independent its not a big issue. 80% of indepenents only use 5 providers.
2. if it s aworks pension then the chances are its all paid via AMC - otherwise the employer would be paying for the hourly fee.

dunstonh

The opening question from him was "... so tell me, how risk adverse are you?... say rated from 1-10?" I was unimpressed with this approach, we then had a relatively long exchange about risk vs return

excellent. Risk v return is important to understand and can be the most lengthy part of a meeting nowadays.

I was unimpressed with this approach,

Why are you unimpressed with an adviser trying to ascertain your tolerance to loss? It is one of the most important things to get right.

I asked him if I could at least guarantee to get back the cash I put into the pension. He said that no investment was guaranteed and that "under very, very, very extreme circumstances" I'd not get this investment back. I didn't take out a pension and thought I'd give the whole industry a miss.

Again, he has given a fair response.

There doesnt appear to be a failing with the adviser here but with you not willing to understand how investments work and running away from it. So, my questions in your shoes would be aimed at understanding investments and how they work.

atush

The risk is quite small of younotgetting back what you put in. For a start, you would have to 'lose' all that your employer put in, and all the taxman puts in as well (as your contribs are uplifted by tax relief). Then you have the pension and advisors charges. Those who don't get back what They put in are those that leave a pension within the first year or two mainly. and those who might put 100% into some risky fund and sell when it is down. Statistically, you have a small risk of walking out the door of your work and being run over. Or a meteorite falling on you etc.

None if these are statistically likely to happen to you. As this money should stay in your pension for 30 years (and grow). And you have now missed 4 years contribs out of possibly either distrust or lack of knowledge. Sad, but you have time to make it up.

mbbetter

Many thanks for the advice much appreciated.
I was probably a little unfair in my previous comments so apologies. I was unimpressed back in 2007 as (from what I can recall) there were no facts or numbers to explore my tolerance to risk. It was very fluffy and the discussions did not have much financial context.
Back in 2007 I chose to invest by getting on the property ladder. I did this at a real push and needed to divert everything towards this cause. This was a decision that has worked out very well for me.
Anyway the meeting was much better this time around (perhaps because I am a little more informed).

atush

Well, if you made money in 2007 on houses buying at the peak, then maybe you aren't as risk averse as you think?

I think you are older and wiser than in 2007, and so understand more. And maybe the IFA is better at getting things accross? Anyway, good luck on your decision. Turning down 'free money' is never a wise thing to do IMHO.

dunstonh

I was unimpressed back in 2007 as (from what I can recall) there were no facts or numbers to explore my tolerance to risk. It was very fluffy and the discussions did not have much financial context.

Your tolerance to losses and how you act in different situations regarding risk cant really have many figures put on them. psychometric testing is to give an overall picture of how you react in events.

It is not uncommon for someone to say that they will accept a loss of 25% without concern. However, when that 25% loss actually comes, they do get concerned despite saying they wouldnt. So unless you have investment experience and have gone through a number of downs as well as ups, you cant really say how you are going to react. Hence why psychometric testing is commonplace now as it allows them to look at scenarios you may have been in an see how you react. It also allows a look at contradictory answers (i.e. someone may say they can accept a 25% loss but would be concerned if they lost £15k on a £100k investment).

The majority of FOS complaints on investments come down to a difference of opinion on risk. The minute the returns go through a negative period, complaints go up. The adviser is required to show their evidence as to how they have ascertained your risk level. Usually by documenting a summary of the conversation and often by having a questionnaire as well.

mbbetter

Very good points.

I may have been lucky with the house purchase, and stupid to turn down the free cash. These were just choices that worked for me to focus on short term goals at the time.

It still comes across as a little bit like voodoo when the questionnaire comes out, prior to really explaining how a pension will work or the types of pension available.

I can only compare the experience back then of pension advice with that of the only other financial advice I sought - my mortgage application (actually in the end I did this myself as it seemed the “independent” couldn’t arrange mortages with first direct or the post office). I understand that mortgages and pensions are very different products and perhaps not comparing like-for-like. But the mortgage was very much a numbers game, I could see what the risks were on fixing or not fixing, how the term, and deposit changed matters, what the fees were etc etc. I didn’t need a psychometric test to conclude that I would prefer to go with a fixed rate and review after 2 years rather than fixing for 10 or going for a full variable.

I’ve dabbled in sharedealing and P2P lending, I am currently stoozing. I'm very familiar with advantage gambling and can sit with a set of numbers and reach a risk level I'm comfortable with to gain certain advantage (usually using other people’s money eg. bonuses).

I don’t have all the answers but I’m not stupid when it comes to understanding financial products.

You will have to forgive me, when the questionnaire comes out I still get a little underwhelmed with the service.

Incidentally the company they recommend is Aviva, they haven’t recommended me a product yet, but have put me into category 2...

Cheers again for all the replies.

mbbetter

It is not uncommon for someone to say that they will accept a loss of 25% without concern. However, when that 25% loss actually comes, they do get concerned despite saying they wouldnt. So unless you have investment experience and have gone through a number of downs as well as ups, you cant really say how you are going to react. Hence why psychometric testing is commonplace now as it allows them to look at scenarios you may have been in an see how you react. It also allows a look at contradictory answers (i.e. someone may say they can accept a 25% loss but would be concerned if they lost £15k on a £100k investment).

Totally agree. If I was putting my house on a red roulette spin, I'd describe myself as risk adverse, and not do it. If I was putting a £10 on I may even stick it on a single number (32).

Thats why I find the whole question and discussion pretty meaningless without the numbers (which again happened today).

I think the point I'm trying to make (badly), is I would like to explore the scenarios such as that you set out above, with my actual numbers (a very small investment). Understand what the process are and the triggers or events that would to cause these scenarios (loss or gain). Thats the advice I'm looking for.

I may well quite like to have a small % of my net worth invested in an agressive but risky approach over the long term. If I understood the relative risks and what causes these.


Cheers