The big adviser brands spend a fortune every year in direct mail, so it is not unreasonable to assume that they think they will make a return on their investment. Each unsolicited letter through your letterbox has probably cost between £1 and £10 to prepare and send. Typically a good response would be 1%, so they are expecting to make at least £100 and probably £1,000 from each actual respondent.
Here is an example for a letter from Hargreaves Lansdown, (HL), sent to the spouse of one of our partners, (so a marketing fail there), and not atypical of the breed as a whole. The headline is “Make retirement easier by bringing pensions together”, which seems reasonable at first sight, but my cynical mind poses the question, for whom?
For a fund platform, like HL, multiple pensions are a problem, as they cannot easily hold the funds and take the fees. For the potential client it is more of a quandary; as a rule of thumb, pensions bought before 2002 need further investigation before consolidation, but the majority of pensions bought after 2002 are possibly fair game. The problem here is the advice costs for a pension transfer; £1,000 per pension is not unusual and the differences between post 2002 pensions are likely to be small. Consequently it is hard to justify consolidations on straightforward financial grounds.
Older pensions, (before 2002), may have guarantees, so transferring is not a simple concern, so consolidation before some form of retirement is not necessarily a good idea. As an IFA not dependent on a specific platform, we would adopt a more bespoke approach; if all you are after is a regular one page summary of your pension resources, we can do that as a mixture of our internal client systems and our regular fact-finding activities, without landing you with significant advice costs or taking the considerable chance of a poor outcome if you take no advice and just go for it.
Looking at the other letter sub-headings, I am reminded of the double-glazing industry, where standard technical features offered by all providers are trumpeted as unique and significant on marketing literature. For “dimensionally stable white UPVC profiles”, read “Benefit from new pension freedoms” and for “nitrogen filled, double glazed sealed units” read “save time, save costs and save worry if circumstances change”.
HL have a business model based on a single investment platform with “take it or leave it” investment information available as a free service. If you want proper, regulated, investment advice it is an add-on with a significant ticket price, not disclosed by this letter.
If you received this letter and are about to act on it, please consider a few points before going overboard;
· If you are looking for regulated investment advice, then this is not what is being sold here; the letter is plugging the platform and SIPP services.
· Although there is a caution about transferring pensions if you are not certain it is suitable, it is clear that the process for “execution only” transfers has been simplified. This places the investment risk on you.
· Why have they not provided specific advice cost details? (You will need to have more than £20,000 to qualify for telephone advice and £100,000 to qualify for face to face advice, all at additional cost, (http://www.hl.co.uk/advice/independent-financial-advice). I would suggest that this is not their core business.
· If you ask an IFA for a suitable platform, it is highly unlikely they will suggest HL. 0.45% per annum as a custodian charge is not a bargain.
· Our core business is making the best of your personal finances, not driving volume to an investment platform.
If you would like to know more about how we can help you plan and realise your financial goals then contact us at email@example.com or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.