This divergence is happening as a growing number of industry participants are unwilling to engage in commercially flexible planning, namely the purchase and leaseback of property already owned by the respective client’s company. It could be fair to say this issue is true of both advisers and providers in the industry.

If we take into consideration a pension scheme currently held entirely in cash, with the associated members also directors of a company pension in possession of a commercial property valued at £500,000, we can effectively explore the perspective of both a provider and an independent financial adviser (IFA).Independent financial adviserIt is common that an IFA does not act as the provider for a pension scheme. Therefore, naturally their renumeration and/or profit is sourced from the advice they provide. Taking into consideration the situation above, we can assess the benefit to them.

A £500,000 pension fund invested in mainstream investments recommended by an IFA could attract up to a 5% initial fee (£25,000) as well as circa 1% per annum ongoing (£5,000). This could be £30,000 in the first year and £5,000 each year thereafter.

In comparison, the advice that could be charged in relation to the purchase of a commercial property is nominal, as it is technically a non-standard asset. One could provide advice and guidance on the strategy, conduct annual review meetings that cover the pension scheme and implement an investment strategy to invest rent but these figures are likely to pale in comparison to the alternative. Therefore, you can somewhat understand the apprehension to engage in such planning.

 Pension providers

Pension providers are also looking to shy away from direct commercial property investment.

From an efficiency point of view, what is harder to manage, a pension scheme with all its assets held on a common investment platform, where a report can be run automatically or a pension scheme that holds a commercial property that requires a red book valuation to support benefit applications and/or reviewsMoreover, from an administration point of view, imagine the difference in staff cost when one option requires the administrator to push a button to run a report and the other requires a working knowledge of leases, VAT, invoicing, property insurance and Energy Performance Certificates (EPCs). Once again, it’s not hard to imagine the difference in cost between the two provisions.

You could almost forgive AJ Bell’s decision to stop allowing their existing and future clients to engage in direct commercial property investment but the benefits of doing so are undeniable and as such should always be on the table for consideration.

Integrated solutions

An integrated solution removes the conflict between the adviser, the provider and the client outcome. That is, the provision of the advice, vehicle, administration, asset management and trusteeship under one roof can provide the synergy and efficiencies to ensure commercially flexible planning strategies are delivered not only effectively but profitably. 

Advisers can confidently recommend commercially driven strategies that allow the interlacing of the client’s retirement and commercial strategies because they know and understand the vehicles from which they will be delivered.

The provider can deliver commercially driven pension strategies because they have retained the knowledge and expertise to do so. A continued commitment to such strategies allows them to not only retain employees but also to recruit and develop them.

Finally, while standalone IFA’s and providers fight over their portion of the pie, an integrated provider can manage the whole pie ensuring there is no conflict of interest.

Client outcomes

While I don’t attempt to tarnish all non-integrated wealth management companies with the same brush, I speak from personal experience where clients have been convinced not to engage in commercially flexible planning with limited to no rationale.

The client and their objectives should be at the heart of everything we do! Therefore, all their options should be on the table for consideration, with the most appropriate one recommended.

Mattioli Woods is a fully integrated wealth management provider, which enables me to consider all the client’s options and explore how those options can add value to their situation.