How young is too young?

by Richard Allum on 19 August 2009

cathi.jpgThis is a guest post from Cathi Harrison of Para-Sols Outsourced Paraplanning which was originally published in Citywire New Model Adviser, Issue no: 176, 17/08/2009.  Cathi started her freelance paraplanning business in the North fairly recently and we are pleased to welcome her as a contributor to The Paraplanner.

Put Younger People in the Target Zone

A friend came to me recently in a bit of a muddle. For the first time, he had been inspired to consider how he was going to support himself in retirement (he’s 28) and had approached an advisory firm belonging to one of the large networks for advice. What they told him, and presented him with, left him a) in utter panic that he would be unable to survive in retirement and b) completely confused about what they were actually recommending.

It appears, despite so many positive moves to the contrary by many firms, that some are still hoping to maximise their income by bamboozling those who they are ‘advising’.

A jazzed up spreadsheet was used to show just how apparently desperate his situation was and he was advised to put all of his spare cash each month into a pension (no details on what type) – with no consideration for savings/emergencies. He was then presented with some overly complex information on the recommended funds and their past performance. And that was it! No report, or even letter to explain exactly what they were recommending or how a pensions works or what they would charge.

I broke down some of the information for him and told him what other questions he should be asking. I also explained in layman’s terms what a pension was and gave him some factors for consideration. And then I got thinking… is it simply a case of an ‘independent, new model adviser’ seeing a potentially easy target and trying to get as much as possible out of them for as little effort as possible? Or is it that they are so used to dealing with an older generation who are already comfortable with the mechanics of a pension and so do not automatically elucidate these basic features?

We’re all aware of the problems with the ageing population and the struggle the younger generation are facing in retirement without adequate funding. It seems to me that people need to be addressing their pension provisions much earlier than they historically have done – and it may be down to advisers to highlight this. The vast majority of 20-somethings still perceive financial planning as something ‘older’ people do and, of course, by the time they are ‘older people’ it may be too late to build up adequate provision. Or, at the very least, it will be more of a challenge.

So – there’s a problem with retirement planning being left until too late. And this could be improved by the under 30’s market looking at financial planning earlier. So why don’t they? In part, many advisers are still typically targeting older, wealthier clients who can be more profitable to advise. Also, to younger people, the concept of drawing a pension is an intangible, unquantifiable action which will need to be taken in the very distant future. They often do not realise what an issue it may be for them. Which is partly because advisers aren’t telling them as they’re focus is elsewhere. Catch 22!

Having identified this, I researched where young people could go for advice, and what was being done to encourage them to consider their financial planning needs. The answer is very little! The majority of articles and websites aimed at the under 30’s focus on helping them to reduce their debt or buy their first car/home. This is probably with good reason – these are the types of financial problems many under 30’s would be facing. Many under 30’s – but not all.

When I started up Para-Sols I attended various workshops and seminars aimed at entrepreneurs. The majority of people on these courses were in the 20 something group. Of course, they’re not all going to become successful to Bill Gates proportions overnight! But these are all people who are aiming to be more financially successful than they could have achieved on a standard salary (most of them were concurrently holding down a full time job). In addition, I met successful accountants, legal and other professionals – all of whom were under 30 and earning comfortable salaries.

Retirement planning, in particular, is such an important issue, and does not require high levels of capital. So why is this market not being targeted?

But things are changing. Another barrier is the perception of financial services being an ‘old’ industry – with the average age of an adviser being 55, to the under 30’s it can seem like another world. However, advisers are now qualifying at a younger age and the average is beginning to shift. This in turn should impact on the target client base. I am also developing a website aimed at under 30’s, highlighting the need for planning and aiming to answer some of their questions and break down some of the barriers. It may be time to make the intangible, tangible.

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