Last month I explained what the Financial Advice Market Review was and how much I welcomed this review as there is without doubt a growing advice gap. Too many individuals today are under insured, under saved and still under pensioned.
Auto-enrolment is also not the panacea of all ills for pensions. Even when it is fully implemented, a banded contribution rate of 8 per cent is far too low and it will still not provide universal coverage with the self-employed being a notable omission.
I believe that the FAMR will find that there is no ‘silver bullet’ to the problem. Instead there will be a collection of solutions including more reliance on technology (including robo-advice), social networking techniques and worksite marketing. But there also needs to be a financially viable, simpler level of face-to-face advice as many, many individuals lack the confidence to do it themselves.
This problem has been tackled before, just think of CAT standards, Sandler and the subsequent Stakeholder suite of products, or the ill-fated Basic Advice. The last (and current) ‘simplified advice’ regime is hardly worth mentioning as it is neither simple nor effective.
So, what solution do I see working?
First, we need to be clear about the target market. We are looking at the financial needs of a broad range of individuals who have basic financial planning requirements that do not require complex or sophisticated products or solutions.
To satisfy this need we require a clear and distinct regime to be created that will offer a limited range of simple products, delivered on a standard basis by advisers who are qualified at a lower level.
The limited range of simple, low cost, industry designed products would be designed to give “the man on the Clapham omnibus” a ‘good outcome’ with no nasty surprises but equally not attempting to compete with sophisticated products and full financial planning.
Sraightforward products already largely exist. For me the range will need to cover basic protection (term insurance, possible IP and CI too), a cash and an equity-based saving vehicle (that is, a modified Isa) and a stakeholder-style pension for those not covered by auto-enrolment.
The products would have to meet stringent regulatory tests to ensure that they would meet the ‘Ronseal test’, that is, “they do what they say on the wrapper”.
Sales of these products would be through a lower tier of advisers. They would be less qualified (probably still at QCF level four but assessed on a much narrower syllabus) than full financial advisers and planners and they would be remunerated less well. They would, however, still require a SPS.
Remuneration could be through adviser charging (but at a lower level), a procurement charge or in the case of protection products – commission. However, commission levels would also be at a reduced rate to reflect the lower level of complexity. For larger institutions (banks etc), I would expect that they would have a salaried salesforce.
These advisers would follow a standard factfind with automated outcomes (technology would play a part here). For some this would be a career of choice but for many it could be a training ground for fledgling advisers and planners.