Mind the advice gap says the FCA. That is if there is an advice gap, adds the FCA helpfully, as the debate moves precisely nowhere. So where do we really stand? Well it appears obvious to me that on the retail side, the RDR has definitely decreased the availability of advice. There has been a meltdown in bank advice. IFAs have moved upmarket.
The new model pretty much dictates that investment advisers cannot service too many clients, even if some advisers are endeavouring to continue to advise a broader population and range of incomes.
The odd thing is that there is a debate at all. On the retail side, access to financial advice has declined. If you don’t want to call it a gap, then call it a space, a vacuum, an absence of advice, but don’t say it doesn’t exist.
Then we have the workplace pension market still in the throes of a charges shake-up while in the throes of auto-enrolment. That means no more commission, possibly retrospectively and no consultancy charges, possibly retrospectively, and the prospect of a charges cap at approximately 0.75 per cent.
In this part of the population, there is some discussion about whether auto-enrolment represents an increase in saving and relieves society, regulators, politicians and financial services of the need to worry about the gap.
There are millions of people investing something in a pension for the first time. Yet surely it is early days when they are losing a mere 1 per cent of salary and seeing that matched by 1 per cent, rather than the 4/8 per cent it must reach by 2018. It is early days to declare a success, especially when we don’t know how many didn’t opt out initially, but stopped a few months later.
Certainly saying it relieves us of a reason not to worry about a decline in the number of advisers appears remarkably naive, when you set it against the huge decline in company pension coverage. Viewed this way, the workplace pension reform starts to sound like a partial solution, not one that can offset both a decline in traditional company pensions, an increasingly contract-based workforce and the increasing retail advice gap.
On that basis, it should be beholden on the industry to try and design something else. So here goes. A basic, simplified, restricted advice proposition should include a limited range of products in each area of need, including savings, protection, funds for accumulation and a pension presumed to be additional to the workplace plan, leaving retirement planning to stage two. These should be strictly kitemarked by the regulator to limit potential harm while accepting that markets can go down sometimes.
Here are the dangerous parts. The service should include a limited fact find to determine a level of qualified suitability, signed off by the person taking the advice to confirm they understand this is the case. It should allow a lower level of adviser qualification, because the recommended routes are also more limited. Therefore it should incorporate full FSCS coverage and limited FOS coverage, with much smaller penalties because of the other protections.