INTERVIEW: Alan Reid, partner, Cornerstone Asset Management
‘Pensions advisers need more rules, not guidelines’
Alan Reid’s office, on the 12th floor of Edinburgh’s unloved Exchange Tower, is almost a metaphor for the pensions industry – something that has loomed over many people’s lives and which they have preferred to ignore.
That was until this year when new rules were introduced giving people greater choice over their pension pots. As a result of the changes more of those nearing retirement are becoming more interested in the big beast of the savings industry.
“It has gone from being a simple pension to being a pot of savings that can be used to plan your life,” says Reid. “We are definitely seeing more people. They are showing more interest and they are reading a lot about it.”
Greater interest brings benefits to all concerned: retirees who are taking more control over their own money and independent financial advisers like Reid’s Cornerstone Asset Management which earn higher fees. Even the government gets a cut as it knows that allowing people to take lump sums from their pots will mean a higher tax take on money that would otherwise have been spent on annuities, and therefore kept out of its reach.
Generally speaking, Reid, a partner at Cornerstone, is delighted by the changes which follow the scrapping of commissions two years ago. “The industry has moved on from the door-to-door salesman to a more client-focused business that is built on relationships,” he says. “People are no longer locked into one or two options. They can use the money to pay off debt, even start a business. ”
The changes will also feed his firm’s bottom line, adding a further £1 million a month to Cornerstone’s £2.5m monthly income.
Despite these benefits, the so-called “pension freedoms” have sparked some concern over the extent to which individuals may cash in their savings, leaving them without an adequate pension when they come to retire. After the failings and shortcomings that brought the industry into disrepute there have been warnings that it was ill-prepared for the changes and that there is a risk of another crisis. Reid shares these worries and would like the government to take action to tighten up some of the rules.
“The government should set a limit on how much people need to have in their pot before they can withdraw it,” he says. His firm will turn away anyone with less than £75,000 who wants to cash it all in.
“It certainly bothers me that this could be another mis-selling scandal,” he says. “It is up to the government to sort this out. We need firm rules from the regulator rather than guidelines so that everything is black and white and we do not lie awake at night wondering if we’re going to be hit with a big complaint.”
He points to research revealing that only two in every ten advisory firms are providing a full advisory service. Some firms are walking away all together because they are afraid of being caught up in another scandal, he says.
Reid has spent 20 years in the financial services industry, first with TSB in Lanarkshire where he still lives before moving to St James’s Place and then opening a Glasgow office for Albannach which was sold three years later to Towergate.
In 2012 Reid teamed up with Albannach founder Laurie Dempster and former colleague Jason Hemmings to establish Cornerstone and the firm now has 15 staff managing £140m for clients who include some well-kent faces.
The firm is working on its next stage of growth with two products ready to be launched at the end of the summer.
One will be a “whole life” wealth plan that will consider an individual’s future spending needs such as a child’s wedding, school fees and helping them with their first home.
The second will focus on the older, already retired population who may need to think about paying a care home, meeting their day-to-day expenses if their partner dies and what should happen to their property and other assets.
“Individuals now need to look at their savings over their lifetime and how they intend to pay for a range of things, as well as ensuring they have enough to live on in retirement,” he says.