Andrew Megson, Executive Chairman at My Pension Expert, looks at the sources of distrust in financial services and how the industry can turn its image around.
Today, the topic of trust in financial services looms large. With decades of mis-selling PPI, investment scandals, and zero industry transparency, it is little wonder that many individuals have a hard time engaging with financial advisers.
This is a crying shame. Advisers play a vital role in helping people develop a tailored financial strategy and achieve their monetary goals – the current climate of economic volatility has only accentuated their importance.
The financial pressures brought on by COVID-19 have upended many people’s financial strategies. Individuals have been forced to dip into their savings or, in some cases, even bring forward their retirement date due to redundancy. Naturally one would assume that it would pay to consult a professional when re-evaluating retirement and investment strategies.
Yet, Britons are still reluctant to seek advice. According to research from My Pension Expert less than two thirds (38%) of UK adults ever sought the help of an IFA. Even amongst those aged 55-plus and approaching retirement age, this figure stands at only 46%.
Such figures are concerning. They suggest that many people are making complex financial decisions unaided. And without an in-depth knowledge of the industry, or various financial products, they might find themselves worse off in the long term. Clearly, urgent action is needed.
Re-tracing the history of adviser fees
Adviser practices have certainly been questionable over the years, with little to no transparency surrounding how adviser fees were calculated, and many individuals in the industry working on commission and resorting to pushy sales tactics.
With decades of mis-selling PPI, investment scandals, and zero industry transparency, it is little wonder that many individuals have a hard time engaging with financial advisers.
Worryingly, My Pension Expert’s aforementioned survey revealed that almost one in five (18%) of individuals lost money following the recommendations of a financial adviser in the past. Likewise, a further 26% of UK adults said that they felt pressured into purchasing a financial product, despite not fully understanding what it was. And it these negative experiences that have shaped Britons’ opinion of advisers.
Thankfully, in 2012 the FCA took action to tackle unethical practices with the retail distribution review (RDR). This means that IFAs are now only able to offer fee-based advice.
But in spite of the great strides made by the FCA, the regulatory changes have not been enough to mend savers’ relationships with intermediaries. Indeed, many are steadfast in their belief that financial advisers will not act in their best interests.
Too much choice can be a bad thing
As a consequence of such deep-rooted mistrust, many people prefer to make their own decisions about how to handle their pensions and investments.
This is troubling, as there are such a vast array of savings and investment products on the market for savers to choose from, individuals may fall victim to rushed and ill-informed decisions.
Indeed, too much choice can sabotage the ability to make well-reasoned and logical decisions. Research in academic settings, including a notable study conducted by Columbia University suggests that this is the case, as the group of subjects with more choices made knee-jerk decisions, compared those with fewer choices, who made their choices based on greater reason and individual preference.
Apply these insights to the world of financial planning, and problems start to rear their head. Our survey uncovered that the majority (65%) of individuals prefer to free guidance that can be found online, instead of seeking out independent financial advice. And although many will have a good grasp of their finances, relying solely on self-governed advice can be particularly harmful in the long-term.
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Repairing broken bonds
Clearly, the industry needs to do more to repair its damaged reputation.
In addition to the FCA’s work, a good start in this regard would be for the regulatory body to make the benefits of independent financial advice more widespread. Take for example, the fact that regulated financial advisers are obligated to reinstate an individual’s original financial position if their advice leaves them worse off. Few savers know this, and many might be more willing to take advice safe in this knowledge.
Further to this, the results of My Pension Expert’s survey suggests that individuals also want to see the FCA come down even harder on unscrupulous advisers, with the overwhelming majority (78%) of respondents stating that they wanted to see harsher punishments for IFAs engaging in unethical practice. Meanwhile, a similar number (73%) believe that tighter regulations surrounding independent financial advice are in order.
Ultimately, the financial services industry has some work to do when it comes to restoring its reputation. Particularly as the UK progresses along on its roadmap out of lockdown and the economy eventually stabilises, savers are likely to remain in need of regulated financial advice. Although it will not happen overnight, so long as the industry takes steps to improve transparency and public understanding, I have every confidence that individuals will be more willing to seek advice to secure their financial futures.
For the past 16 years, Melanie White Terry has been working through her financial advisory firm, Harbor Financial Group. Her clients are primarily busy and highly successful professionals or entrepreneurs that have comfortably broken the six-figure barrier and want to secure their legacy.
Harbor Financial Group helps clients crystalise their objectives and take the time to understand what they want to accomplish from a business and personal perspective; giving them piece of mind.
What are the typical challenges that clients approach you with in relation to the management of their finances?
Most people don’t have the time, knowledge or inclination to implement all of the ideas and opportunities they want to pursue. Many have done some good planning. They have existing relationships with very good advisers. They have spent a lot of time talking about these things but, for some reason, the job never gets done. We will never undo any of the good work that they may already have in place, we tend to focus on their areas of vulnerability. We take responsibility for seeing their plan to fruition.
We typically explore some or all of the following seven areas:
- Family income and security
- Asset Shifting
- Asset Distribution
- Estate Equalisation
- Business Succession
- Asset Protection and Estate Depletion
- Charitable opportunities
What are the most important aspects that need to be ironed out in order to achieve satisfactory result and a well-organised retirement plan for your clients?
Understanding my clients’ objectives is paramount. I want to know how they feel about the areas they would like for us to consider: security for themselves and their spouse, estate distribution, general terms of their will or plan, succession plan, key employees, and tax issues.
It is also important to gather information about their family, business, real estate, liquid assets, qualified plans, life, disability and long-term care insurance, liabilities, charitable giving, and advisers.
Identifying issues and gaps in their planning and how they feel about them is critical.
Lastly, our clients should have enough discretionary income and/or sufficient assets to be able to either execute or at least begin the plan and the willingness to learn about what might be non-traditional planning opportunities.
How do you assist clients with finding out if they are compliant with federal requirements applicable to retirement? What are the key issues that they face in relation to compliance?
We collect statements to support all of the information that we gather and keep up with the changing laws and regulations by taking applicable continuing education courses and leaning on the consultants on our team that have a wealth of expertise in tax law as attorneys and CPAs.
Additionally, we do a proper fact-finding analysis to determine their time horizon, investment risk tolerance and ensure that they are in plans for which they qualify, based upon their income, employer plan offerings, business structure, employee information etc.
How can your clients ensure that as much of their estate goes to their family on their death?
Insurance is one of the foundations in a comprehensive planning strategy. We assess the amount and type of coverage they have already relative to their objectives and determine if there is a gap to fill.
We tend to recommend that our clients have enough life insurance to replace their income and pay off liabilities to creditors and Uncle Sam. When appropriate, we may recommend establishing appropriate trust documents.
Disability income insurance is recommended to protect what could be their greatest asset; their ability to earn an income.
Long-term care planning is recommended to protect assets because most of our clients did not budget for an additional $7,000-10,000 per month of expenses to self -insure above their retirement expenses.
Does Harbor Financial Group offer any solutions in respect of maintaining and growing wealth for future generations of the same family?
We make it a common practice to reach out to beneficiaries and other family members of our clients to address their planning needs as well.
Contact details:
9861 Broken Land Parkway, #150
Columbia, MD 21046
Telephone: 410-740-4719
Website: harborfinancialgrp.com
Email: mwhite@ft.newyorklife.com
Phil McGovern is the Managing Director of MPA Financial Management Ltd., a financial services company based in Warwickshire, United Kingdom. The firm started in 1998 but since 2010 the company has grown rapidly - from managing £40M to currently managing £380M on behalf of clients. Here Phil tells Finance Monthly’s readers more about the services that his company provides and offers his tips on
retirement planning.
Can you tell us more about MPA Financial Management and the services that it offers?
We believe in employing people who have high emotional intelligence and can relate to normal people. We spend a lot of time and money training our staff to high levels of educational achievement through the CII and we have a strapline of Inform, educate, inspire. We want to inform, educate and inspire our clients and staff to meet their long-term goals of financial and personal satisfaction.
We mainly manage money on behalf of clients in various tax wrappers and 70% of our business is pension-related. We also offer the full range of mortgages, life and health protection but over the years pensions and investments have grown substantially.
We offer 3 main services on the wealth management side:
-MPA Private Client for clients with investable assets in excess of £500,000 pa. They are offered quarterly reviews, access to discretionary fund managers or model portfolios or bespoke offerings. We also arrange special lunches with fund managers and industry speakers and access to other professional services.
-MPA Wealth offers pension and investment services from £75,000 to £500,000. We usually recommend a Model Portfolio service from our panel of MPS (5 companies) which are risk rated against Distribution Technology. Clients will get annual or biannual reviews (depending on size).
-MPA Lite is a cost effective solution for small portfolios which uses 7IMs passive risk rated portfolios, under £75,000 in size.
We also run a post retirement investment solution that combines Prudentials PruFund Growth (40%) with Brewin Dolphin Balanced, reducing volatility down by 2/3 and performance by 1/3 (as against using Brewins only).
We offer whole of market mortgage service and a will writing and probate service. We are increasingly involved in long-term care planning.
We are pension transfer specialists and have advised many clients on the merits of transferring out (or not) of defined benefit schemes.
Can you outline the process you go through to assess your clients’ current financial situation and assist them with identifying financial goals and concerns?
We complete a comprehensive factfind in the early stages trying to ascertain, in the clients’ own words what they are trying to achieve with their finances.
We spend a lot of time trying to work out the clients’ attitude to investment risk and their capacity for financial loss using our own in-house questionnaire.
We then recommend investment solutions that will match their risk and long-term plan and recommend the tax wrappers that are the most tax efficient way of investing the money.
We then ensure that we monitor the performance of the investments, and the tax consequences on an ongoing basis so that they meet their goals. We spend a lot of time communicating with them to keep them happy about their investments and helping them understand how they react as they do
How should individuals plan for early retirement? What options are available above and beyond a pension?
Ideally, they should start early. Many clients come to us just before or at retirement and want us to manage the money for them when the wealth has been built up.
There are many ways to structure a retirement plan. We tend to use ISAs, OEICs, investment bonds, EIS and VCTs to get a balance between risk, reward, income, growth and tax efficiency. We will also use investment property as another asset that can generate income and capital growth.
Advising on DB transfers has become a large part of the advice process in the last 2 years while transfer values are so high and that has to be factored in to the advice process.
In your experience, are individuals fully aware of their assets and worth so that they can take advantage of tax planning? Which types of assets are usually missed?
No, in my experience they do not understand the difference between all the tax wrappers we use. They generally have an idea of worth but we take a lot of time explaining the strategies that we use to maximise returns and minimise tax.
Maximising pension contributions using carry forward is complicated and they don’t understand that. Also, the planning for high-earners’ pensions and the Lifetime Allowance is something they don’t understand.
We maximise ISAs and invest other monies in a general investment account and use this to fund ISAs each tax year. This works up to £250,000 but over this CGT becomes an issue. Therefore, we then use investment bonds as a very tax efficient income generator.
We use AIM portfolios for IHT planning alongside trust work.
What solutions do you offer in respect of maintaining and growing wealth for future generations of the same family?
We can aggregate asset value for family members so that they can benefits from large fund discounts. Discounts start over £500,000 and children with an ISA for £20,000 could get the investment with no initial charge and a reduced ongoing charge with Family Discount.
We have joint meetings with children so that if anything happens we have met them.
Also, trust-based work and long-term care leads to dealing with the children and beneficiaries.
As a Managing Director of MPA Financial Management, what are your key responsibilities? What does a typical day look like for you?
My key responsibilities include managing the day-to-day business, the finances, recruitment, marketing, strategic planning, discipline, investment management and also looking after a large client book.
I sign off all the DB transfers for the company and get involved with compliance and process for DBs.
A typical day would be as follows:
-Wake up at 4am, check the company bank accounts to see what money has come in today;
-Leave for office at 7.30;
-Catch up on emails and paperwork. Probably review sign offs for DB transfers sitting on my desk (usually at least 6);
-Write financial planning report for a client;
-Go on various platforms to check on performance of various portfolios;
-Maybe have a review meeting with a client. Administrator will prepare paperwork, so will check for accuracy. Check Intelliflo back office system for notes of previous meeting. Look at Analytics for research on portfolio;
-Meeting with client lasts usually 1 hour. Pass on notes to admin and any work to do;
-Have meeting with Admin manager for updates on how things are going. Deal with any issues;
-Talk with Office Manager for any logistical issues need to know about;
-Constantly replying to emails from clients or reps;
-May meet with rep from investment company;
-If any spare time, I tend do some investment research or talk to clients;
-Get home at around 6pm and carry on responding to emails I have missed.
What is your vision for the future of the services that MPA Financial Management offers?
I want us to be a firm that is respected countrywide for the levels of service it gives to clients and the level of ethics it employs in dealing with everyone. I want us to help more and more people reach their financial goals without having sleepless nights.
Our long-term target is to reach £1BN in funds under management and to keep striving to drive down investment costs for clients.
Website: http://www.mpafm.co.uk/
Michael Hosford is the Founder & CEO of Synergy and its two branches - SynergyPRO & SynergyPhD. Founded in 2001, Synergy Insurance and Investment Advisery Services helps clients build and manage their wealth. SynergyPRO is the company’s branch that serves the MLB, NFL, NBA and entertainers that Michael and his company have been fortunate enough to represent.
In June 2017, with the help of Co-founders Kurt Marozas and Alex Pina, Michael launched and franchised SynergyPhD to serve pension professionals nationally. This branch is helping people who are educators, fire fighters, and police officers properly select their pension options at retirement.
Here Michael speaks to Finance Monthly about the start of his career, the motivation that drives him and his goals for the future.
Your upbringing was slightly unusual, however you founded your own company during your senior year at Southwest Texas State
University. How did you manage to achieve this and what was the motivation that was driving you?
I think when you grow up without a father and your mother moves out of state when you are 14 years old, this leaves you with two choices. You can either fold or fight back at your chance for a successful life and take advantage of the American Dream. I chose to fight back!
Early on, I learned a few things about myself – that I did not like feeling embarrassed, or not having nice clothes and having to stand in the free lunch line at school. I wanted more and I knew understanding money would be a good start. I put myself through college by working for four years at Wal-Mart, and then launched Synergy, an independent financial advisory firm, during my senior year at Southwest Texas State University.
I graduated with a BBA in Finance in 2001. In 2002, I was asked to address the advisers at a large financial services firm at their Leaders’ Conference in Hawaii. In 2002, I was also named to American General Life’s prestigious Legion of Honor.
I have spoken all over the nation to clients and advisers and I have qualified for the Million Dollar Round Table (MDRT), Court of the Table, and Top of the Table on numerous occasions. In addition to helping hundreds of teachers understand and improve their pension plans, I have helped many HNW individuals including NFL and MLB professional athletes, properly structure their wealth distribution plans. I believe that my success comes from treating each client the way I would personally like to be treated and giving them the care and attention they deserve.
What attracted you to the financial advisory field?
The ability to help people properly plan their future, protect what they have and take care of their families should death, disability or the need for long-term care arise.
What is Synergy’s philosophy?
Our philosophy is protection with steady growth and a complete understanding of the situation, despite what your retirement plan will look like when considering pensions, social security, other assets and net of taxes. I think the reason people are not good at retirement is simple – ‘they have no experience at it and they have never done it before’. To me, it’s important that a future retiree knows where they stand and gets properly educated on insurance and certain annuity products that can provide stabilization and growth when they need the money most. Our philosophy can be described as ‘choose not to lose’.
What would you say are the specific challenges of assisting clients with insurance?
I think one of the challenges is the name ‘insurance’ itself and what some people think about it. If I am on a plane and want to take a nap, I just tell the person next to me: “I sell insurance”, and they won’t say a word to me!
In all seriousness, the ‘fee only’ adviser, and certain talk show hosts, have denounced insurance because they simply do not or do not want to understand the leverage, strength and value these products provide. I jokingly say: ’None of my clients wanted those products prior to being educated, but once needed - they love them’.
What strategies do you implement to minimize financial burdens in regards to insurance packages?
Our strategy is education - help people understand that life is not based on a 20-year or 100-year ‘average rate of return chart’. Life happens daily and there will be both good and bad news. Both scenarios require the need for money. Don’t tie it all up until you’re 59 or when you lose your job. Be in a position to utilize your assets.
Your firm also provides investment advisory services – how are most financial investments structured in Texas?
The investment advisory service allows me to utilize fee-based accounts or charge a fee, should a client simply want an outside option. This allows us to buy low after any market corrections. Given that I am licensed in several other states, I would imagine that Texas is similar to other states and we use the wide range of products available to us.
How do you assess levels of risks for investment strategies? How can you accurately assess the level of risk that an individual is prepared to accept?
We have a unique way of planning. We utilize products that have built-in guarantees to provide a steady and somewhat, predictable income distribution plan. Clients either accept or reject this offer. With markets at all-time record highs, I am concerned that people who say they are ‘risky’ could lose and lose badly, while needing the money they’ve invested. I do not want to be a part of that - I have not forgotten 2001 and 2008.
In what ways has your company changed in recent years?
In recent years, Synergy has downsized some of the adviser affiliations and we are moving forward with a more focused group. We will focus on the franchise model of bringing people in with a high desire to be an entrepreneur, people that have the income or savings to transition into becoming a franchisee and are excited about the opportunity. We’d like to work with professionals that have a high desire to help people, individuals that have won at life previously and want to help SynergyPhD grow into the #1 recognized firm for helping pension employees properly choose their pension options at retirement.
What excites you about the future?
At age 38, married, and the father of four children, I am excited about the future. With 17 years of experience, I feel as excited about this industry as I did at age 21. I am prepared to have 100 franchisee store fronts across the nation within 10 years.
Contact details:
Email: michaelh@synergytx.com
Website: https://www.synergytx.com/
Twitter: @SynergyPro7
Thomas Dorbert has worked for a number of European banks (Dresdner Kleinwort Germany, BNP Paribas France, Mediobanca Italy) mainly in Structured & Leveraged Finance, and had developed a broad network within the whole financing community. His experience spans over 25 years of working within numerous sectors – from capital markets, through to deep restructuring, from LBOs through to investment grade lending, providing neutral financing advice in any situation. Here, he tells Finance Monthly more about debt funding trends in Germany and offers a behind-the-scenes insight on one of the most complex multi-jurisdictional restructuring cases – the Scholz Case.
The funding landscape has dramatically changed – new debt funding trends in Germany, alternative funding options available for corporations which seek to deviate from traditional banks – could you tell us more about the recent changes and their impact?
The lending landscape in Europe and Germany has changed a lot over the last years. More non-banks have come to the market and terms have become more aggressive again. Huge liquidity has led to low margins and cov-light or less structures.
Debt funds have become very important, having pushed into the markets not only in LBO deals, but also lending to large and mid-sized corporates. Generally, those funds are more expensive than banks but also more flexible.
Another development is the growing importance of alternative asset financing. We see an increasing number of those structures providing security to lenders and better terms to borrowers.
An additional source of capital are private placements or notes. Market liquidity is huge (e.g. “Schuldschein” in Germany) with money from institutional investors like insurance companies, pension funds, international banks or family offices. Clients can chose between a widely spread investor base or some larger block investors.
What challenges do you face when starting a new case?
Each specific case has its specialities and must be analysed thoroughly. A transparent communication with top management and shareholders is crucial for us. Being able to explain the strategic rationale and conveying an attractive debt story to new (financing) partners is the core element. This is why we have to understand every detail translating it into the language of a credit committee. Getting the message across is often key for success. Consideration of tax issues combined with financial advisory can add a lot of value and safe real money.
However, network, communication and a sound understanding of our client and financing partners are more important than modelling skills, which are a basic tool but cannot generate success.
From a client´s point of view, what is special about being a financial advisor at KPMG and how do you convince your clients to trust KPMG as their advisor?
Generally, we have a very individual look at any situation and the client can see that. Undoubted loyalty, broad expertise and network, as well as creative thinking are key. Our teams are used to work together and this has often led to successful dual or triple track processes where clients keep all the options until very late in the process. In the last 12 months we have pushed through a decent number of cases where alternatives in equity funding, hybrid money or debt financing were structured and finally implemented. The client remains in the driver’s seat because we simply do not adhere to standard solutions.
What were the most remarkable facts about the Scholz case?
In a nutshell: in one of the most complex and difficult cases many people have ever seen, we managed to keep Scholz on its feet. We started with a huge debt burden, an overwhelming number of stakeholders fighting against each other and decreasing profits and cash flows. To run a truly competitive global dual track process (Debt and M&A) for an asset that some people called “a falling knife” was a challenging job. Our global process led to two binding offers and eventually a take-over by a Chinese investor willing to buy a big chunk of the debt at a discount, a stabilized company continuously supported by the banks and a solution finally accepted by all parties. After all the dust has settled, most stakeholders were satisfied with the results.
To summarize:
To get the best out of a situation, a financial advisor logically has to offer the complete 360°- range of Corporate Finance services like Debt, M&A and IPO as well as other services like Tax or Accounting in parallel with experienced specialists in these fields.
We develop financing structures fully adapted to the individual strategy, cash flow profile and investment horizon of our clients. We follow our client´s guidance when it comes to tough negotiations without impacting long term banking relationships.
In numerous deals, the solution eventually adopted has been found through a dual or triple track process that has pushed different options in parallel with competitive processes.
Important factors are the advisor´s independence from any sales-driven own interest, global reach, a broad network and long experience of the individuals in successfully structuring similar transactions.
