It is accepted that the timescales here are extremely challenging, and it has already been acknowledged that the financial services industry will only be delivering the absolute basic requirements to meet the deadline of April 2015. The demanding timescale comprises: HMT consultation, which closed 11 June; HMT response to consultation, which is due out the middle to end of July; the FCA’s consultation, which will follow hard on the heels of the HMT response and then the FCA will be looking for responses to the consultation by the end of September.
The Treasury’s consultation on the guidance guarantee says that people who make use of the new flexibility around pensions will need ‘continuing access to support’, and asks for responses on how guidance can be made available at ‘key decision points during retirement’.
Some legislation will be needed, the precise type and timing of which will need to be determined by consultation responses and decisions taken. Realistically, the basic framework is likely to be in place by October 2014, to be delivered in April 2015.
However, in the midst of this is a real dilemma for consumers, and this is around the use of the words ‘guidance’ and ‘advice’. When communicating with the public, these two words are interchangeable. The classic definition of advice is ‘guidance or recommendations offered with regard to prudent action’. Its regulatory meaning ‘is a personal recommendation from a qualified individual given after due consideration of your personal circumstances and objectives’. At Tisa, our Retirement New Guidance project team is wrestling with how we can deliver the guidance promise and avoid consumer confusion. To add to this confusion, The Conduct of Business Sourcebook defines advice as “a personal recommendation to a retail client in relation to a retail investment product, which is a term which in itself has a specific and detailed meaning”.
The point here is that the word ‘advice’ is being used in many contexts and has often been interpreted differently. Consumers do not always fully understand the meaning of financial advice in the regulated sense; in addition, they are not always aware that regulated advice is covered by the Financial Services Compensation Scheme. This is a form of protection they will not receive with any other form of advice or guidance.
In light of this confusion, it may be possible to structure the delivery of retirement guidance on three levels: for financial planning as it exists currently today, simplified advice and then guidance delivered by financial guides or simplistic websites. Financial advisers could facilitate mainstream advice for those consumers for whom simple financial guidance is insufficient. The financial guide would help consumers make choices without providing personal recommendation, using something similar to current decision trees which could be available online, by telephone or face-to-face. So far, the general consensus is that guidance should be provided by a combination of not-for-profit organisations such as The Pensions Advisory Service, the Money Advice Service and Citizen’s Advice.
What is really important in the outcome here is that consumers know and understand exactly what service they are getting, and all the costs and protections that are available within the different methods of seeking information. From this they have the best chance to understand to process and to make the correct decisions on their investments and financial planning. The FCA will shortly publish a thematic paper on simplified advice, which should help us to clarify the structure that we can build to meet these challenges.
Carol Knight is operations director of Tisa
