Perhaps the government is beginning to understand the complexities of retirement guidance. A suggestion that it would attempt to provide people with information on how long they are likely to live has been met with a great deal of scepticism.
The problem can probably be summed up by the fact that bespoke advice is seen as too expensive, while generic advice as simply too generic. Most will feel that an estimate of life expectancy is really a mere ‘guesstimate’. But imagine the complaints from the unexpectedly long-lived as their money runs out.
However, most advisers I have spoken to believe that it is possible to devise guidance for accumulation. Indeed, in many ways, they feel it already exists in the execution-only world, whether it is formally recognised as such or not.
In spite of this, it has clearly been something of a problem for regulators. Various proposals for a lighter, tighter version of advice have failed to get off the regulatory starting blocks in the past decade. Primary advice, for example, was once at the heart of the RDR. But it foundered on a need for suitability and various associated regulatory protections. Moreover, the regulator needed to delink the initiative, if it was going to deliver the main part of the RDR on time.
Whether that was wise or not is a different matter. But yet again, we are faced with a tight timetable running up to when the full pension reforms come into force following the consultation in the next year or so.
My view is that advisers – both retail and indeed employee-benefits consultants – need to help the FCA crack this problem.The onus is on the Financial Conduct Authority (FCA), and it is certainly a little more ‘can-do’ than the FSA, which is a plus.
Unfortunately, without some element of annuitisation the challenge is greater too. One might imagine ministers attempting to chivvy the process along, and yet it surely isn’t in any policymaker’s interests to impose something that then undermines other aspects of conduct regulation.
Getting this right is of huge importance for investment advisers.
Advisers can, I am sure, make the reforms deliver for their existing client base. But chaos in the wider retirement market is in no one’s interests. There is a big risk of collateral damage.
Imagine, for example, a lot of self-managed, mini post-retirement Sipps hit by a huge fall in the stockmarket in the next few years.
That surely wouldn’t be anyone’s idea of a good outcome.
My view is that advisers – both retail and indeed employee-benefits consultants – need to help the FCA crack this problem.
It might make sense to try to establish some principles for accumulation guidance first, because it shouldn’t be too difficult to formalise before cracking the more difficult retirement guidance nut.
Finally, attempting to resolve this issue without advisers being part of the solution would be foolhardy – bank advice anyone? – but that doesn’t necessarily mean it won’t be tried.
Investment advisers’ leaders should do their best to make sure that doesn’t happen.
John Lappin blogs on industry issues at www.themoneydebate.co.uk
