Just what do we, as people who care deeply about personal finance, wish to see from the Financial Advice Market Review?
The FCA is talking ambitiously about empowering and equipping all UK consumers to make effective decisions about their finances.
It wants to establish a broad-based market for the provision of financial advice to all consumers.
And it wants to create a regulatory environment giving firms clarity to compete and innovate to fill the advice gap.
I wish them well but fear their goals may prove unattainable.
How can financial advice be provided to all consumers when most cannot afford it or are not willing to pay for it?
Many financial advisers, faced with regulatory costs, understandably concentrate on wealthier individuals.
But despite vacating the mass market they remain vehemently opposed to so-called robo-advice.
I am more ambivalent; a computer cannot deliver a slick pitch to wrap up the sale of a high-commission product – which was the problem with bank-based advice.
Pension freedoms have highlighted the mess enveloping the advice sector.
Advisers are reluctant to expose themselves to potential claims years down the line.
Many consumers resent being forced to pay for financial advice which will make a considerable dent in their savings when their minds are already made up.
“Many consumers resent being forced to pay for financial advice which will make a considerable dent in their savings”The freedoms have also highlighted the increasingly vague line between advice and guidance. How are consumers supposed to understand that the Money ‘Advice’ Service in fact gives guidance?
Advisers have an opportunity here to contribute to a review that could produce a clearer and better landscape for all.
We do not want an environment in which advisers live in fear of future claims when they have done their level best to secure healthy outcomes for their clients.
Neither do we want consumers to avoid seeking advice because they fear for its quality or its cost.
There may not be a perfect solution, but by engaging positively it should be possible to produce a landscape that is considerably better than the one we occupy today.
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3As are not A1
I recall a song from the late 1970s by Christian pop group After The Fire called One Rule for You, One Rule for Me.
IFAs might consider this due for a revival.
While advisers’ hands can often be tied with regard to pensions advice, the government appears to recognise no such constraints.
Take the temporary Class 3A National Insurance contributions launched this month.
They are being dressed up as a once-in-a-lifetime opportunity to top up the state pension. Words like “opportunity” and “attractive” have been used by ministers.
But independent experts have suggested Class 3A could be quite a pricey way to buy extra pension.
Alan Higham, the former Fidelity Worldwide Investment retirement director who now runs the website pensionschamp, has calculated that a 65-year-old who wanted to boost their £5,000 annual state pension to £6,300 would have to pay £22,250 to buy that extra £1,300 a year.
However, that £6,300 could also be achieved by deferring taking the pension for two and a half years.
Funding those 30 months would mean finding just £15,750 as a non-taxpayer or £12,600 to produce the equivalent income as a basic rate taxpayer.
And if someone does not have the savings to fund two and a half years without a pension, then presumably they will not be able to afford the Class 3A contributions either.
Deferring has two other benefits. Pensioners can change their minds and start drawing their state pension at any time during those 30 months, whereas once that extra pension is bought the decision is irrevocable.
Oh – and those 3A top-ups are only linked to the consumer prices index, so do not benefit from the triple lock which also links pensions to wages inflation with a 2.5 per cent minimum uplift.
Is the government pointing out that a better route is available? Of course it is not – but then they will not have to wait out the next 30 years wondering if a mis-selling case will be brought against them.
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Stash the cash
As the stock market continues to provide daily rollercoaster rides I have been pondering whether it is time to hold more money in unglamorous cash.
With no inflation, cash is providing a real return even with the puny interest rates being paid.
And with the new tax relief on savings from April I will need to put my money into an Isa for a tax-free return.
It is not a long-term solution, but there are times when it is better to anchor your boat in a safe port than to attempt to ride out the storm.
