City-based IFA firm Bradbury Hamilton is braced for a busy few months as pensions freedom begins from 6 April.
Speaking to Retirement Planner, managing director Sheriar Bradbury, says the freedom and choice reform package brought in by Chancellor George Osborne in his retirement-focused 2014 Budget has invigorated his client base.
Bradbury says: “There is plenty of new business there to be done. There has been a big increase in interest from clients who want to find out what the pension changes are about.
“I think that is going to lead to a busy spell, not only for us but for all IFA firms, certainly in the coming months. And I think that will go on.”
Osborne used his March 2014 Budget to sweep away the effective requirement for retirees to buy an annuity with their pension pots. He gave savers complete access to their savings at age 55, subject to normal taxation rates.
Previous to the pensions freedom and choice announcement Bradbury Hamilton was firmly set on the acquisition trail. In the firm’s 22-year history it has bought the client banks of 47 firms from retiring advisers.
But the acquisition push has been put on hold (for now, at least) as the firm checks in with its high net-worth and mass-affluent client base to highlight pressing planning opportunities ahead of April’s pensions freedom.
Bradbury says: “Historically, what we have been doing is looking to buy the client banks of other retiring IFAs. We have done a lot of activity in this area for a number of years.
“But what we are realising is we have a big database of clients and I want to make better use of what we have already got.”
Bradbury says while the complexities of the changes are not yet fully understood, there are key planning opportunities that can be taken advantage of before 6 April.
“We don’t know the exact details at the moment (I am sure it will get clarified in practical terms in the next few months). But what I can say is that there are a lot of planning opportunities over the next few months before April.”
The IFA said Bradbury Hamilton deals with a number of clients who are small business owners and who put the maximum contributions into pensions.
“If these people are over 55, they can potentially take tax-free pension commencement lump sums out and they can get the cash out, either draw under capped drawdown rules or simply not take any income.
“The advantage of doing that before April is that they can take the benefit as they are over 55 and they can continue to fund at the maximum level, which is £40,000 a year. That can be very advantageous, particularly for business owners – if they want to use the capital. If they wait until after April, they are going to be restricted to only £10,000 a year of on-going contributions.
“That is an example of planning opportunity that could be very useful for certain types of people. We have a number of clients in this area who would find this relevant.”
He also says the treatment of inheritance tax and pension planning is “another big area which will be significant” for advisers and clients.
“The ability for people in the longer run to pass on pension funds to their next of kin leads to further opportunities and more areas of advice.”
Bradbury Hamilton is currently analysing its client bank and targeting clients who might benefit from pre-April advice so they can position their investments accordingly.
Bradbury says: “Even if it is just a conversation, what it has done is massively increase activity. We had a surprisingly busy December – the last three months of the year have been really busy in new business terms. It has been a little bit of a distraction from our plan to acquire businesses because we have been so busy.”
The price is right
As pensions freedom brings increased new business to advisers it is essential they charge accordingly, says Bradbury.
“What I think is very important for advisers to do is to make sure that they completely get to grips with all the changes so they can advise their clients comprehensively and in a holistic way.
“But also, it is important that they accept there are quite a lot of risks in terms of giving this kind of advice and they charge appropriately. There are some people who I think do not price themselves correctly.”
Bradbury adds there were two important areas for advisers to think about when it comes to the cost of advice: “They cover their overhead expenses, but they also need to factor in the risk of giving this advice. I think if not done properly, it is fraught with potential problems further down the line.
“They have to make sure they put the effort into it, but effort has to be justified in the money that they are paid.”
While pensions freedom brings increased financial advice opportunities, potential problems could also arise, warns Bradbury.
“There are a number of things that these new rules will throw up, which could potentially have implications that haven’t as yet been foreseen. It is important that you try to cover as many bases as you possibly can.
“You have to be very diligent to ensure things are not overlooked. I see this as a potential source of huge problems as well. It is obviously a source of huge potential for advisers, but a source of huge pitfalls as well.”
Defined benefit transfers are on Bradbury’s list of potential future problems: “Clients sometimes have selective memories when things go wrong. Advisers have to make sure that they comprehensively cover the warnings on this kind of advice.
“They need to be quite careful. Personally, I think it is quite dangerous. But if the client wants to do it, then you will find companies that will be quite happy to do it.
“There are going to be new opportunities, but the question is how well will it be done and will there be detriment to clients? Some people are going to have final salary schemes with transfer values.
“If you look at the Australian experience, when they gave people freedom to access their pension pot, a lot of people spent it within 15 years. I am not advocating a nanny state here, but there needs to be some caution.”
While Bradbury is happy to help his clients take advantage of pensions freedom, he is also concerned about the less well-off and their access to advice post-Retail Distribution Review.
“As a firm, we are fine. We have clients that are high net worth or mass-affluent – that is our database. They are comfortably off or wealthy people. They are the ones who get the advice. But for your average person, who are they really going to go to now?
“We have seen a big move out of the market by the banks. The ordinary person has not got much in the way of advice at the moment. The reason for that is because it is too expensive to provide that advice.
“You cannot load the cost of the advice in the products any more, which is what the old commission system used to do. But fundamentally, you have a whole load of people who still need advice, so what are you going to do about those people? That is the bulk of the population.
“If you do not do something about that, the country is going to have an enormous problem.”
He adds: “People who are in financial services and have decent clients – they will do very well. But for the clients who weren’t earning that much, who used to deal with advisers when there was commission – meaning the adviser could spend some time with them – they are the people who are going to suffer.
“They needed somebody to convince them to do things. They needed somebody to explain why these things are important and they don’t have that now.”
CV: Sheriar Bradbury
- Sheriar Bradbury founded Bradbury Hamilton in 1993 to provide clients with accessible, pragmatic financial advice suited to their personal and business goals. He worked in accountancy before working as an adviser within the Porchester Group and Berkeley Morgan, where he built extensive lists of clients.
- Sheriar studied economics at university.
- Bradbury Hamilton was an Retail Distribution Review (RDR)-ready firm almost ten years before the RDR became compulsory. In 2007, the firm was awarded Chartered status.
- Bradbury Hamilton’s growth is driven by a continuing acquisition of IFA firms, and to date more than 48 businesses have been acquired.