Last month we looked at some of the pension changes introduced in the Budget and I promised to share with you a golden opportunity that the industry missed. But before doing this, it is worth reflecting on lessons from the football World Cup.
Despite England’s early exit it was a good competition, full of passion and commitment. I was particularly impressed with the USA and their desire to win and also with Germany for their ability to work as a team. Yet for me the competition was also tainted by poor refereeing and an attitude that fouling and cheating was all right providing you did not get caught. Where is the virtue of fair play that is supposed to be part of sport?
Indeed, while the World Cup was taking place, I went to watch one of my grandsons take part in a football tournament. He is only eight and yet the event demonstrated a clear teaching for respect for all. What example did the World Cup’s players give to the next generation of footballers and what parallels do we have in our profession?
Just like financial services, football is a game with set rules. In the same way that dangerous tackles, fouls and diving should not be tolerated in professional football, we in our profession should not condone unethical or illegal practices.
Unless we, the practitioners, encourage and enforce standards our reputation will remain poor with both consumers and the government.
In my opinion, many in the industry have become too accustomed to chasing short-term profits and personal gain. We need to remember that long-term profit is only generated when we place the client first.
An example of the short-term, self-serving approach sometimes adopted by our sector was demonstrated to me a few years ago when I was asked to project manage a pension review.
In essence this involved me speaking to most of the industry – both individual companies and their respective trade bodies. What became apparent was that some organisations were keener on maintaining the status quo (and high margins) rather than recognising that politicians (of all political persuasions) were demanding that the industry cut costs and improved practices.
I am quite proud of the report that was produced, although I cannot take total credit for this as the language, tone and some conclusions were set by others.
The report examined all the main issues including international comparisons (specifically the Dutch and Australian models), auto enrolment (and the need to increase the contribution rate in the future), governance, regulation, scheme design (including Super Trusts and Defined Ambition schemes that are now being introduced) and charges. The report suggested that the market should commit to greater transparency of charges and a 1 per cent overall charge for auto enrolment schemes, also for the auto enrolment contribution rate to be raised from 8 per cent to 12 per cent.
Unfortunately the call for a voluntary 1 per cent charge cap was ignored. No doubt some individuals and companies at the time thought that they were doing the right thing by preserving a market where charges in excess of 1 per cent would remain – but as we have seen this ‘win’ was only to be short-lived as Steve Webb has now introduced a 0.75 per cent cap.
I believe that 1 per cent was a fair charge that would have allowed many more businesses to remain in the AE market – crucially providing support and guidance for employers and their employees – and that can only have been good for the consumer. Had the industry supported the voluntary cap it is also likely that the government would have not felt the need to impose a cap. Surely there is a lesson to learn from this too?
Finally I want to ‘flag’ the FCA’s latest work on Simplified Advice. Following a thematic review on Simplified Advice, the FCA has now published Guidance Consultation titled “Retail Investment Advice: clarifying the boundaries and exploring the barriers to market development”
In all, there are 56 pages of the guidance consultation plus the additional papers on consumer research and the thematic review (TR14/1 0). As readers know I have been heavily involved in SA discussions since 2011 and obviously I am therefore pleased to see the FCA issuing some guidance. On an initial read, however, I am disappointed that the guidance does not go further and quite frankly I doubt that the guidance will give firms all the answers they need to feel confident entering this market.
In addition, some firms will feel unable to provide SA as FCA rules will treat such a service as restricted advice, denying independent firms who wish to maintain their status the opportunity to advise lower value consumers. This does not seem a good outcome for the consumer.
Dr Peter Williams is an independent business consultant and chartered financial planner
