When does guidance become advice?

It is a question I have been asking after reading about The Pensions Advisory Service defending itself against accusations that Pension Wise staff may recently have given advice rather than guidance.

I am a financial journalist, not a financial adviser, but I am often asked by friends and acquaintances a variety of financial questions such as: “Is it the right time to buy VW stock?” or “Should I cash in part of my pension?”

My stock answer is always the same: “Ask a financial adviser.” But inevitably I am pushed to ‘advise’ on matters on which I have limited knowledge. ‘Insistent’ friends, if you like.

I have always endorsed the saying “a little knowledge is a dangerous thing”, and I have not changed that view. That still does not stop people asking, and given the dearth of good advice in this country, that is probably not surprising.

I am sure many financial advisers are often faced with the same dilemma. You meet someone at a sports event, social gathering or whatever, and when the new acquaintance finds out what you do, the questions pour out. I am sure advisers have their own strategy for dealing with that.

I dare say other professionals, be they in law, medicine or accountancy, experience the same issues to varying degrees, and I suspect it is practically impossible to stop members of the public trying to get some advice for free.

Pension Wise, the government initiative to bring pension ‘guidance’ to the masses, at least does offer help for free, but are its staff being pushed to go too far? At a recent FTAdviser.com Retirement Freedom Forum, Melinda Riley, head of policy at The Pension Advisory Service, was asked if one of its advisers had gone too far in making recommendations related to questions about the tax efficiency of taking lump sums from a pension (see ‘Pension Wise not giving advice’, page 37). Ms Riley said the adviser had not crossed the line in explaining the options.

I am sure she is correct, and there will be strict guidelines in place to prevent TPAS or Pension Wise staff from straying too far from the script. There will also be close monitoring of what was said to prevent ‘guidance’ on the options available being perceived as ‘advice’ as to what to do next.

As advisers know, there is a world of difference between guidance and advice. Guidance on the options available might be given to a potential new client in an initial free half-hour consultation with an outline of the fees to be expected if full financial advice is needed. This is something many advisers and planners offer. It is just a taster of what is to come, whereas full-scale pensions advice, including analysis and recommendations, will cost hundreds if not thousands of pounds, and require dozens of hours of research and assessment.

This is quite right, but the questions at the forum have highlighted the dilemma faced by bodies such as Pension Wise, faced with ‘clients’ who really want advice but do not want to pay for it, or cannot afford it.

In the days of decision trees and booklets, there was probably a clear separation between giving consumers general guidance on the options available and information about investments or pensions, and comprehensive face-to-face advice.

With Pension Wise offering clients booked, lengthy telephone appointments it is easy to see how consumers could construe that they are being given advice, rather than guidance.

I was at another recent financial services conference (not the FTAdviser forum), and during one session on the pension freedoms an adviser commented that he had been told by a contact that many of the people contacting Pension Wise were consumers with substantial pension pots of £100,000 to £300,000 who already had a financial adviser but just wanted a ‘second opinion’.

Of course, all sorts of people will be contacting Pension Wise, and there is no reason why people with larger pots should not contact the body, but if this is the case it does suggest that there is a demand for all types of financial advice and guidance, and that perhaps there is a role for a ‘Pension Wise plus’ type of service which goes beyond guidance.

Those with more complicated needs contacting the service could be referred directly to a qualified adviser able to offer a telephone-based or internet-based service for a fixed and affordable fee. If this were to happen, Pension Wise would offer a more comprehensive service, the clients who would get what they were after in the first place – decent full advice – and advisers would get more business. A win-win-win, if you like.

In practice, the barriers between guidance and advice are becoming increasingly blurred, and may not be working to consumers’ benefit, or indeed in advisers’ long-term interests. It is time they were reviewed to prevent consumers receiving guidance which provides only half an answer.

Kevin O’Donnell is a financial writer and journalist.