Morningstar - Q2 2023 - 21

by complex and technical rules, and people
approaching retirement have viewed the
allowance as a cliff edge to avoid if possible.
The lifetime allowance didn't affect only comfortable
private-sector employees: Doctors, senior civil
servants, head teachers, and police officers
routinely hit the limit. The change is intended to
bring taxpayers back on the books and to address
the shortage of public-sector workers, particularly
within the National Health Service.
There are key details to be worked out, according
to Les Cameron, head of technical at M&G
Wealth. " The lifetime allowance limit is referenced
in many different areas of pension legislation
affecting, among other things, the amount
of pension commencement lump sum that can
be paid, " he says.
" Thinking more widely, this should see a reduction
in attractiveness of other tax-incentivized
vehicles, " Cameron adds, " such as venture capital
schemes, which were the natural go-to places
for those who'd had their pension funding limited
by the LTA. "
The second key move was an increase in the
annual allowance-how much people
can save into their pension pots tax-free every
year-from GBP 40,000 to GBP 60,000
(including employer contributions). Cameron notes
that this means a tax saving of GBP 8,000 for
higher-rate taxpayers.
Gary Smith, financial planner at Evelyn
Partners, warns that there could be unintended
consequences to the policy overhaul.
" There are some potential snags that could make
the benefits of these higher allowances ambiguous
for some savers, " Smith says. " One is that a
sudden scrapping of the LTA will produce a range
of outcomes affecting savers who are in slightly
different positions pre- and post-retirement. It
remains to be seen whether likely cliff-edges will
be smoothed out in some way. "
Smith also notes that a general election is
approaching. " There is therefore some risk that a
change of government could result in the
reimposition of an LTA, " he says, " so Labour's
reaction to these moves will be keenly watched. "
In a column for Morningstar, Ian Cook, a chartered
financial planner at Quilter, wrote that he is
contacting his clients to help them reassess their
pension options.
" While much of the talk was how the changes
would be encouraging over-50s back into
the workplace, and keeping our needed senior
NHS staff employed, motivated, and not
facing significant additional tax charges for just
turning up at work, " Cook says, " this now
provides a huge opportunity to middle Britain. "
Cook notes that many of his clients delayed
pension planning in earnest until their careers
were established and the costs of mortgages
and child-rearing were in check-a point
at which they are often in higher tax brackets.
" This is where pensions come to the rescue.
They allow you to pay money into your pot and
reclaim some or all of your taxes. "
James Gard is senior editor for Morningstar.co.uk.
morningstar.com/products/magazine
21
TRENDS
Why Clients Fire Advisors
Morningstar's behavioral research team set
out to understand the motivations behind
firing a financial advisor. We began our analysis
with a survey that asked, " Who has ever
fired their advisor? " Six percent of our sample
had. The issues these respondents raised are
instructive for advisors who want to build
and maintain strong relationships with clients.
$800M
600
We asked those who had terminated services
with an advisor a follow-up question:
400
" Why did you choose to stop working with
[an] advisor? " The question was open-ended,
allowing us to collect people's thoughts
in their own words. We then categorized the
responses into common groupings, as seen
in the exhibit.
200
148.1
2018
85.5
2019
The results show that clients fired their advisors
for a number of reasons that weren't
necessarily related to investment performance.
Many of these issues can be traced back
to three underlying drivers: insufficient focus
on the person side of personal finance; advisors'
inability to communicate their value; and a
mismatch of expectations early in the relationship.
These are issues that advisors should pay
heed to and can remedy.
699.1
476.5
Danielle Labotka is a behavioral scientist at Morningstar.
Samantha Lamas is a senior behavioral researcher
at Morningstar.
116.2
2020
The Six Most Common Reasons for Firing an Advisor
Quality of Financial Advice and Services
Quality of Relationship With Advisor
Cost of Services
Return-Driven Factors
Comfort/Discomfort Handling Financial Issues
Quality of Communication
Source: Morningstar Behavioral Research.
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https://www.morningstar.com/authors/2653/danielle-labotka https://www.morningstar.com/authors/2237/samantha-lamas https://www.morningstar.co.uk/uk/news/233016/comment-let-the-pension-planning-begin!.aspx http://Morningstar.co.uk http://www.morningstar.com/products/magazine
Morningstar - Q2 2023

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