Wide-ranging pension reforms in 2015 have put Britons in charge of their retirement savings for the first time ever. Millions of savers are now expected to enter the stock, bonds, exchange traded funds, and real estate markets directly. Many of these investors will eventually reach out to a professional money manager or investment advisor to help them shepard their capital.
But how does an investor know their money manager has their best interests at heart? After all, conflicts of interest and bad actors are far from uncommon in the wealth management industry (William Robins, Citywire, 28 June 2017).
Across the pond, American and Canadian regulators are gradually pushing towards a framework for financial advice based on ‘the fiduciary standard’. According to the American Investment Advisors Act of 1940 (Office of the Legislative Counsel of the U.S. House of Representatives., 2018), a fiduciary is an advisor who commits to putting his or her own interest below that of the client. In other words, the advisor has a duty of care and loyalty to the client which supersedes self-interest.
Although the UK advice market has largely professionalised over the past few years, British advisors are not bound by any such fiduciary rule. Instead, advisors follow the Financial Conduct Authority’s conduct of business rules.
Nevertheless, some advisors have adopted business policies akin to the fiduciary standard in an effort to set themselves apart from the competition. Investors and savers can identify these advisors based on their level of transparency. Straightforward disclosures about the structure of fees, performance reporting and volatility monitoring could be considered a bare minimum. Preferably, advisors should go the extra mile by disclosing potential conflicts of interest, partnership arrangements, and frameworks for unbiased asset allocation.
Savers have the right to ask if their money manager and professional advisor is acting in good faith. By reassuring clients that their interests come first, advisors can set themselves apart from their peers and cement the working relationship.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.