A consultation on the guidance guarantee promised alongside sweeping pension tax reforms closed to responses this week, so it is probably of little surprise that my inbox was awash with press releases setting out where firms stand on the issue.
There was a groundswell of predictable criticism stemming from concerns over how the guarantee is going to be funded and, more accurately, who is going to fund it.
The Association of Professional Financial Advisers had previously predicted a hit of up to 5 per cent of profit for advice firms, while both SimplyBiz and Zurich called for adviser levies to be capped. MGM has said the government should fund the first year of the scheme.
Elsewhere, questions are being raised about the ‘face-to-face’ pledge included in the original Budget speech. Prudential earlier this month showed support for ‘group’ sessions of up to 10 people, something Financial Adviser columnist Tony Hazell called unworkable this week.
Mr Hazell has a point. If chancellor George Osborne had bothered consulting experts before making his pledge, he might have been told it is impossible to deliver free face-to-face advice -sorry, guidance. Web and telephone solutions will probably prove more popular.
The truth is that people don’t need guidance, they need proper advice.
And, as the Retail Distribution Review was designed to emphasise, people need to understand the value of that advice.
Under RDR rules an advice firm cannot for example cross-subsidise between product and advice charges if they are vertically integrated, or even offset costs of technological development, lest they misrepresent the costs of providing their service.
Yet somehow it is deemed OK to offer a service which ministers variously refer to as ‘advice’, which may or may not provide sufficient clarity to help people navigate this most complex of areas, and to make it free (that is to say, paid for indirectly by all pension holders).
All of this is why I am fully supportive of a ‘voucher’ scheme proposed by financial advisers as an alternative to guidance, offering ‘free’ advice sessions with regulated financial advisers.
First, people will be far more likely to make wise at-retirement product decisions and second, it teaches people about the value of advice.
The only drawback is this has almost zero chance of being implemented, because of the costs involved and the fact much political capital has already been expended pushing the alternative.
Lawyers aren’t pension experts
As if to prove the point of the necessity of full advice in the complicated world of pensions, the story that garnered the most attention on FTAdviser this week was our sister paper Financial Adviser’s report on the detriment that can be caused if advisers are not engaged.
The case centres on a woman who risks losing 50 per cent of her defined benefit pension following a ‘poor’ calculation by a divorce lawyer.
As we all know, pensions is one of the most technical subjects in financial services. There is so much to consider. Another legal eagle, quoted in the story, said that lawyers normally need to work with a pensions adviser or actuary when dealing with pensions.
Surely there are opportunities here for advisers to develop closer relationships with lawyers and solicitors as they are pensions experts. Lawyers, as this case has proved, are not.
Another D2C proposition
Meanwhile, emphasising the point about consumers and the cost of advice, FTAdviser revealed that Ascentric is set to become the latest platform to launch a white label DIY service for advisers.
The service is similar to that Cofunds revealed it was launching in January of this year, when it confirmed to FTAdviser that it would increase investment into its direct offering to help advisers keep smaller pot clients on the books until their assets grow enough to make advice worthwhile.
Wrap platform Ascentric said it will roll out a direct-to-consumer service for IFA firms to embed their websites in order to build relationships with those customers not yet ready to pay for advice. The idea is to provide a revenue stream that may grow as the client’s needs become more complex and they come back for more full-service advice.
Testing is underway with adviser clients, but there was no set date yet for full rollout, Ascentric said.
FCA admits it made a mistake
After FTAdviser revealed earlier this year that issues had arisen with the ‘independent’ definition due to the FCA’s clumsy language, the regulator this week admitted that it made a mistake and sought to ‘correct’ its position.
Queries had arisen in the wake of a paper on independence rules in March, which in a section on referrals in the appendix, stated that all advisers at any firm which holds itself out as independent must be able to advise on all relevant products.
In an exclusive article for FTAdviser, David Geale, director of policy at the FCA, admitted that a “wider interpretation” was possible that would allow for referrals within a firm and confirmed that the regulator does not “have an issue with firms using their own specialists”.
While of course it is good that this is now clarified, it really opens up a wider issue on the FCA’s language in its papers, which is often confusing. This is something the regulator should address to ensure seamless adapting of its rules.
