Your Industry  

Advice for the nation

Advice for the nation

Financial advisers tend to understand extremely well the value they offer to individual clients. In the future, they will find themselves increasingly drawn to understand the value of their services in terms of national strategic importance.

The Treasury’s Financial Advice Market Review, announced in early August, is intended to go some way towards addressing this issue. It has big ambitions. Its scope includes investment, savings, pensions, retirement income, mortgages, consumer credit and general insurance. Its key objective is to look for ways to close the increasingly familiar advice gap, coming up with “a package of reforms to empower and equip all UK consumers to make effective decisions about their finances, including a set of principles to govern the operation of financial advice”.

The review is timely, even urgent. Just think of some of the changes that have taken place in the investment and savings environment in recent years.

Article continues after advert

Among the main regulatory reforms, the RDR is approaching its third birthday, eight months behind auto-enrolment. The tax advantages of saving for pensions have been massively reduced and may eventually be phased out. Mandatory annuitisation has been gone for scarcely six months, but already we are having to prepare for significant reform of state pension provision and introduction of the single-tier pension.

As significant as these changes appear, they are a mere reflection of what is happening on the ground. One of the greatest shifts in financial services in the past generation has been that from defined benefit to defined contribution pension schemes. As at the end of 2014, only about 13 per cent of active DB schemes remained open to new members .

These are large, historic changes, but they can be wrapped into a single, simple theme. Employers and government are withdrawing from the provision of later-life financial support, and pushing responsibility onto individuals and families.

One implication of this change is the prospect of a large swathe of the population working solidly through a full career, making reasonable contributions to a pension scheme, and ending up with a woefully inadequate income.

Despite the dire consequences of failure, there is little to no chance of this trend reversing. Instead, something needs to be found to fill in the gaps, and that something almost certainly needs to be financial advice. The government is painfully aware of this, and it is this awareness that has prompted the sweeping scope of the Treasury’s review into the market in financial advice.

The shift in the ground puts significant challenges in front of advisers, but I think most of us would agree that it also offers tremendous opportunity.

Consider this. An individual who has £15,000 free cash at the end of the year to invest in an Isa, is likely to be in the top decile income bracket in the UK. At least until recently, we could assume that such a person, probably in his 50s, would have a DB pension in the background, a self-invested personal pension and a mortgage-free, or near mortgage-free family home.