On the Money
Why a high Phi factor is good for you
Yes, we’re talking “unscrupulous salesmen” getting in touch out of the blue and convincing the over 55s to let them have control of their pension pots.
A report says on average victims lost £32,000 each last year. Ouch. I read of one gullible chap who handed over his £360,000 pension fund to some crook who phoned him and convinced him that investing in car parking spaces in the Sahara Desert was too good to pass up. Doh.
According to a recent report by the Financial Conduct Authority a third of the over 75s and a fifth of the over 55s have been targeted by investment scammers. What happens if you take their cold call and believe their sales patter? You say goodbye to your life savings. Yes, it’s as simple as that. And you will have no redress. In other words, it’s gone for good.
You might ask how we’ve managed to get into this crazy position. Well, it’s not straightforward.
Start off with the fact that there’s never been any financial education in this country for generations at school, college or university. Decade after decade young adults have left full time education without a scooby on taxes, interest rates, inflation, saving or investing.
What makes it worse is there’s far too many who never grasped simple arithmetic, never mind maths. Eccentric Actuary Ned Cazalet, who actually writes in plain English, says “the problem with investing is that 50% don’t know what 50% is.”
Next up, we have a crazy system where to give pension advice, especially if you’re independent, you have to sit the equivalent of a university degree in the subject, and then prove you keep up to date with continual learning year after year. However, because journalists – despite being unqualified – are exempt from FCA rules they can give advice to their heart’s content with no accountability when things go wrong. As they usually do.
Add to all that successive Governments tinkering and radically changing the rules over the last 30 years, breaking promises left right and centre, and pensions have become a dog’s dinner, unless you know what you’re doing.
If all of that wasn’t bad enough, the 2008 financial crisis has driven interest rates so low that annuity rates, which turn a pension pot into income, have plummeted by at least three quarters. (Though old plans could have buried deep in the small print high rates guaranteed in higher interest rate times).
So with all that in mind it’s hardly surprising that in 2015 when George Osborne, having worked out on the back of a fag packet that if he declared Pensions Freedom he’d benefit from an explosion of extra tax receipts, I went on record predicting a mis-selling scandal had been born.
After all, we’d seen it all before in the previous Pensions Freedoms of 1988. Goodness knows the damage caused by that over the years.
But, hey, we’re OK now. The FCA has now declared “cold calling”” is illegal. That should fix it then, eh? Wonder if they’ve noticed it’s been illegal for as long I can remember to burgle someone’s property ? It still happens.
So, before you are tempted to move any pension pot from where it is now, take plenty of time to check with experienced qualified independent specialists. But given all I’ve said above, how do you know where to go ?
The obvious thing to do is ask around for recommendations. However, research recently in from the US may offer you some added assistance. Its Centre of Applied Research has identified a factor within the investment industry which measures the integrity and client friendliness of businesses in the sector. They call it Phi.
The higher the Phi factor the better the client satisfaction and employee engagement with their clients.
It’s an alignment of Purpose, Habit, and Incentives. The Centre found even a small increase of 1% in a Phi factor was associated with 55% greater odds of client satisfaction.
So, if you’re looking for pension advice you can trust, how do you find such an advisor ? Here’s a few things to look out for:
A culture of long term relationships, solid leadership, a staff who buy into the caring culture, clients being treated as people not numbers, an obvious humility, emphasis on continued education and learning, effective client communication (keeping it simple), fair transparent costs and benefit structures which encourage long term relationships not quick bucks at your expense, and a belief in goals, outcomes and process.
So take your time to find advisors like that. They’ll be too busy to cold call you and once you find them stick with them. Your retirement depends on them.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.
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