Limited options
The illiquidity, indivisibility and difficulty of valuing more complex investments can also limit the financial planning options that are available. Phased vestings – say, a small monthly tranche of drawdown or uncrystallised funds pension lump sum – can provide a tax-efficient combination of tax-free lump sum and taxable income. However, it would be wrong to assume that is always needed.
Some clients may be willing to trade some flexibility in retirement planning; placing a greater emphasis on an investment that they wish to keep. Others will see the solution as moving out of these more complex investments, prior to retirement.
But for many it will simply never be an issue. Between defined benefit pensions, annuities and Isas, their income needs are taken care of. Their main interest in the pension freedoms, if they have picked up the message, is the opportunity to pass the fund on to their next generation. Like Warren Buffett, their ideal investment time horizon may have become “forever”.
The inherent characteristics of more complex investments can have advantages, too. Unlike the cash and collectives client, they will not be logging on at frequent intervals to check their fund value; there is no point. This is highly significant as such clients can be less demanding and lower cost in some regards. Those invested in collectives need proactive managing and communication. Despite this, I wonder how many logged on during the recent market turmoil, got spooked and contacted their adviser?
Platforms have been a phenomenal success, beyond even the headlines. Not only do they take the lion’s share of new Sipp business, they are not uncommon as part of a broader set of investments in bespoke Sipps.
However, the greatest opportunities to add value in financial advice may lie outside “plain vanilla” investments and there are ways of making complex investments more manageable.
Andy Leggett is head of Sipp business development at Barnett Waddingham
