OpinionJun 13 2014

Why ‘guidance’ remains a complete conundrum

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It is the biggest package of reforms to pensions since at least the last one, and probably for quite some time beyond that, so it is no surprise that responses to the Treasury consultation on the retirement reforms and the ‘guidance guarantee’ in particular dominated news this week.

We’ve followed it unapologetically voraciously too: if the reforms open up choice they also open up opportunity for advisers, and how the guidance works, who delivers it and how users are signposted to more advanced advice options are critical issues.

In truth, the whole promise remains a real conundrum. On issues such as who will provide it, how will it be delivered, will it be free to consumers and who will use it, we still seem some way from consensus.

On the question of who delivers it, Apfa, among a number of others including providers such as Nest, Just Retirement and MGM Advantage, suggested this week that Mas and the Pensions Advisory Service are the best placed, noting in particular the impartiality principle that surely precludes providers.

Others, including larger life offices such as Aegon and Prudential, have claimed providers could operate guidance in a fair way. That was George Osborne’s original vision, too.

On the how, Aegon was also one of many that said a “digital delivery” model that offered savers “standardised” outcomes based on certain financial attributes and risk assessment responses is a better way to deliver the pledged ‘guidance guarantee’.

Here there is more consensus, mainly because of the impact on the third point; costs.

The ABI estimated that the cost of providing the guidance will be £36 per person, marking a total annual bill of £7.2m (on average), if there is only a “gradual shift” to online delivery. All of its figures were based on an eventual predominantly online delivery, with the worst case scenario seeing annual costs hit £13m.

According to the ABI figures, on this basis if there is a “high” uptake of 375,000 people taking up the guidance guarantee, as promised in the Budget, this would cost a total of £12.8m, working out at £34 per person based on delivery via the Money Advice Service.

For comparison, the existing Mas service costs £70 per consumer for face-to-face guidance, according to the ABI. So if Mas delivered the ‘guidance’, face-to-face as promised, to a ‘high’ uptake of 375,000 people the cost would be £26.3m.

How will any of these costs be met? Nest proposed that an industry levy could be implemented, which MGM also supports. Hopefully for advisers, this would be limited to providers.

Giving improved choice in a confusing and complex market such as pensions requires this guidance service to work properly to avoid calamity - and for answers to be forthcoming sooner rather than later if the April 2015 deadline is to be met.

We still seem some way off.

FCA splits...

... It’s annuity paper. Earlier this week, the FCA announced that, following the Budget, it will be conducting a self-contained thematic review on annuities as well as a broader market study of the general at-retirement space.

It will be looking at competition, new business models, ‘value for money’ and behaviour of various stakeholders.

One thing that is really missing from here is advice in the decumulation market. A couple of weeks ago, Phil Mowbray, the head of retail services at Moody’s Analytics, warned that the FCA must issue guidelines to advisers to give them a sense of direction on suitability and risk in ‘decumulation’.

Surely advisers would appreciate any guidance that would stop them from being hauled over the coals thanks to hindsight.

Network numbers

We are all well aware that since the RDR was implemented, adviser numbers have fallen. There have been various estimates which caused various debates/arguments, but one interesting facet is network numbers.

According to FTAdviser sister publication Financial Adviser, at the peak of network membership in September 2009 there were 15,604 appointed representatives, and this dropped to 12,194 in January 2013. They’ve barely recovered since.

The article blamed RDR for the drop-off, though some questioned this as the biggest drop occurred prior to the RDR. Others took umbrage and commented on the article praising their network - most notably Sense.

There’s a story under the main story here. Some networks are doing better than others and it is probably the larger firms that have dragged the overall numbers down.

Either way, though, the numbers still don’t look great for networks; and whether that means just a particular sub-set or not, that the business model is not as strong as it once was is surely irrefutable.

Advisers are to blame

Advisers often feel like they get the thin end of the wedge. This week, you were blamed (in part) for the protection gap.

Keith Richards, chief executive of the Personal Finance Society, went out on a limb this week, telling FTAdviser sister publication Financial Adviser that the protection gap indicates serious failings on the part of the advice sector.

Unsurprisingly, this caused not just a stir but a tornado with advisers furious that a senior figure would blame them.

I think the protection gap is only going to go one way - and for my money that is through no fault of advisers.

It’s sad to say but protection is simply not a priority for people - and with less people seeking advice, it is unlikely this will change. Something needs to be done, but blaming advisers is not going to help.