Why I worry about advice
Should I worry that many people are not taking financial advice?
I have been writing about financial advice in relation to annuities and drawdown for longer than I can remember and along the way I have come up with some brilliant sound bites including:
Some sound bites
- Converting a pension fund into cash and income is one the most difficult decisions in personal finance
- You owe it yourself and your family to get financial advice
- It is simply too difficult for most people to make the right decisions without advice
But despite my many brilliant sound bites many people still think they don’t need advice and end up making their own decisions without my help or the help of other financial advisers.
Who trusts an experts nowadays?
Why should I worry about this? After all grown-ups have the freedom to make their own financial decisions and make their own mistakes. We can’t on the one hand give people the freedom to spend their pension pots exactly as they like and on the other hand expect them to do as they are told by an expert.
Leaving aside the obvious point that I earn my living by earning fees for giving financial advice, and I worry that without enough clients I will not earn enough money.
I worry because many people may be sleep walking into a danger zone where they may suffer a financial shock which will leave them seriously short of money in retirement.
Making retirement decions is harder than you think
Retirement advice is complex and unique because there are many different technical and behavioural factors to take into account.
In order to make the right decisions you need to have a good understanding of the technical matters such as how annuities and drawdown work and the various risks associated with each option. You also need to have a good understanding of the behavioural factors which may affect your ability to make good decisions.
To learn more about these technical and behavioural factors read my guide ‘Retirement advice: an art or a science?
Practice what I preach
I am hard on myself and tell myself I must practice what I preach. After all, if I don’t advice my clients in line with what I write in my guides I can be accused of being a hypocrite
My latest guide is entitled ‘Retirement advice: an art or a science? This gets to the heart of the advice matter.
An art or a science?
The science bit tells us good decisions are made by the logical side of the brain and suggest that there is a technical answer to some of the important retirment questions. For example, if you want your income to last for the rest of your life you need to think seriously about how you arrange your income.
The art bit tells us some decisions come from the emotional side of the brain and may appear irrational to the expert. For example, many people simply want to get their hands on their pension pots because they don’t trust the government of pension companies.
Advice is not like a trip to the doctor
In my experience, good advice is not like the doctor / patient relationship; you tell me your circumstances and I will tell you what the answer, because there are not necessarily right or wrong answers. Good advice is where the adviser and client discuss a range of options, often going around in circles, until the most suitable solution is agreed on. Often the chosen solution is not the most technically correct but the one that the client feels emotionally attached to.
This leads me to conclude, that I should not worry too much about what people do with their money because who I am to tell people what to do especially when there is often not a right or wrong answer and there may be emotional and behavioural factors to take into account.
Why I should worry
But I should worry that people that make important decisions when they don’t understand all the options and don’t understand all the key issues.
This is the reason why I place so much emphasis and importance on making sure people really do understand all the relevant facts and the consequences of their actions. It is only when writing this blog I realise why I have spent so much time writing the guides, top tips and writing the code for the calculators which are all packaged in ‘Your Toolbox’ (formerly known as the Gold Service).
Your Pension Toolbox
I do encourage you to sign up and use the toolbox because it will help anybody who takes their financial security seriously make better decisions and will help them play their role in the advice process.
If this seems like too much work, remember Confucius. He say:
- Tell me and I will forget
- Show me and I may remember
- Involve me and I will understand
Your financial peace of mind and security is so important that you must understand as much as you can