OpinionJul 21 2014

Why pay today when ‘advice’ is free tomorrow?

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
comment-speech

I received an email from a financial adviser this morning regarding the new ‘guidance guarantee’.

The adviser was listening to Radio Five Live while driving to the office and heard the news state that from next April, retirees will be given “free independent financial advice”.

Incredibly, I also received a comment from a well-known Sipp provider, who I will not name to save them from embarrassment. The comment said: “Whether it is face-to-face or not matters little, the key thing is the advice will be free and impartial.”

I have also seen a consumer website have the following headline: “Free pension advice will be independent”.

It is not advice, it is guidance.

These are two completely separate things and should not be confused. I would expect far better language from a Sipp firm.

Not only is this not true - that people will receive “free impartial advice” - but it could have dire consequences for advisers.

The adviser who contacted me said to me: “My concern is that, if national radio stations are reporting that individuals will get free ‘advice’, this could mislead and result in people not seeking proper advice in the meantime?”

The adviser is absolutely right.

People will hear and read the media refer to ‘free advice’ from April 2015 and will wonder why their financial adviser is charging for advice when advice will soon be ‘free’. The FCA said in its consultation paper, published today, that: “Guidance does not replace financial advice given by regulated advisers.” Perhaps they should tell the public that.

Since the advent of the Retail Distribution Review, the industry and regulators have pushed hard to force the industry to be more professional, yet the media, and others who are using advice in place of guidance, are risking jeopardising it all by getting the terminology in the ‘guidance guarantee’ wrong.

Advisers may be forced to once again explain to consumers that actually ‘advice’ is not free, ‘guidance’ on retirement is free from April 2015 but if people want to know exactly what product they should get at retirement, they will need to part with their cash as this falls under ‘advice’.

Confused?

I doubt those outside of the industry realise there is such a difference in financial services between ‘advice’ and ‘guidance’. But, thanks to the regulator, there is.

The industry has complete praise for the ‘guidance guarantee’, with many speculating that advisers will benefit from trade bodies signposting those that need ‘advice’ to regulated financial advisers.

It is already likely that financial advisers will see a boom in business, thanks to the government’s announcement today that it will be mandatory for those seeking a DB transfer out to take regulated advice.

However, let us not spoil this expected pick-up in business by mixing up our terminology. Guidance is not advice.