“With freedom comes responsibility.” I don’t think Eleanor Roosevelt had the 21st century UK retirement landscape in mind when she uttered that now famous phrase, but it seems apposite given the reaction so far – or lack thereof – to the new pensions flexibility.
The all-new retirement regime is here, seemingly just days after George Osborne announced it, but it is clear that responsibility among savers has not been rushed in as hurriedly as the pension freedoms.
The fact that most people are not saving enough for their retirement is not news. I have written before about how, when people hit retirement at 65, all the whistles and bells in the world won’t ultimately mean anything because we won’t have done anything during the preceding 40-odd years to prompt them into action. Instead, the masses will arrive at their retirement like eunuchs at an orgy.
They will be left enviously eying up the playground of flexible retirement funding, unable to join in because they haven’t collected any toys.
This week’s research detailing the problem comes from Now:Pensions and outlines – forgive the generalisation – young people’s attitudes to retirement. According to the survey, the average 18 to 35-year-old expects to retire with a £100,000 pension pot. Set aside for a moment the fact that £100,000 would barely cover the average pensioner’s Werther’s bill, they won’t even get that based on the respondents’ actual average monthly saving of just £22.
These people are unlikely to be encouraged to save any more without advice and, predictably, that is not happening either. Research from MetLife and Unbiased as part of MoneyFit Week (no, me neither) found that 58 per cent have never visited a financial adviser.
It is a vicious circle. Those for whom financial advice could have – relatively – the biggest impact continue to be excluded because received wisdom says it is not worth advisers’ time catering to them.
Obviously, at those levels of saving there is little or no point in offering advice.
There is no reason why financial advice has to be built exclusively around ongoing relationships with clientsOr is there? The MetLife research claimed those with just £32,000 of investable assets do the best out of advice. That is more than the average man in the street, but far less than most advisers will look at.
Beyond that though – and here’s the important part – the research also claimed advice could benefit those with £10,000 or less.
Of course it can. It’s never been doubted. And the twin drivers of auto-enrolment and the pension freedoms mean a swathe of potential clients who meet those criteria will now emerge at retirement.
The only problem is how advisers can get paid for giving them advice.
There seems one obvious solution: ad hoc advice, delivered on a one-off basis for a fee. I’m not really clear why this is considered such a revolutionary idea, but when Neil McGillivray of James Hay mooted it in a recent FTAdviser video interview, you’d think he was proposing a Ukip/SNP coalition.
There is no reason why financial advice has to be built exclusively around ongoing relationships with clients. Now trail commission has gone, there is not even a remuneration argument for ongoing contact with clients; you don’t need to remind them of your existence to justify that commission any more.
In the generation-long battle to drag financial advice from career to profession that culminated with the RDR, accountants and lawyers were often held up as equivalent professions with the sort of cachet to which advisers should aspire. Neither relies on ongoing relationships. The only people who want or need regular contact with either are tax-dodgers and gangsters. I would hope that financial planners have higher hopes for their client base.
An ongoing relationship can remain the ideal, but there are masses who can’t or won’t pay for it, so why not try to cater to them too?
The lack of a long stop is often touted as a major stumbling block, but that is just as much of an issue now. The long-term relationships advisers currently favour can still go on to haunt them with perpetual liabilities.
The regulator needs to enable advisers to work without fear of reprisals into infinity, whether the advice was delivered during their only meeting with a client, or as part of a 50-year relationship.
Who knows, if one-off visits seemed more normal to punters, it may even start a relationship and that 58 per cent who have never visited an adviser at all might start. It goes without saying that one visit to an adviser is preferable to no advice at all.
If they come once and see value, you never know, they may come again. And then again, especially since the new freedoms allow so much more in the way of ad hoc access to cash.
Before they know it, advisers will have built the long-term, ongoing relationship they wanted in the first place. And even if they don’t, they will still get paid.