The Financial Advice Market Review must help advisers with regulatory burdens if they are to offer their services to retirees with smaller pension pots, according to an array of views received by FTAdviser.
A survey of 125 advisers by AJ Bell showed 50 per cent of firms are finding it difficult to advise clients on the new pension freedoms if they have less than £50,000 in their pension.
Almost one in five will not advise those with less than £100,000 and for 5 per cent of respondents that figure increased to £150,000.
More than three quarters of those questioned said they have had to turn clients away because it is uneconomical to give them financial advice.
The firm’s marketing director Billy Mackay said the findings clearly illustrate the advice gap in the UK, with client asset lower limits being pushed up by the increasing costs associated with giving advice, pointing out the Treasury and Financial Conduct Authority are now looking to tackle these problems via the Financial Advice Market Review.
Speaking to FTAdviser, tax planning and wealth management director Douglas Baillie, of Perth-based intermediary Douglas Baillie Limited, said he has met with senior government and regulator staff recently as part of the FAMR’s roundtable discussions, stating “it is now perfectly clear that the pension freedoms will never become a reality, due to the ‘advice gap’, until new rules are created that are fit for purpose”.
He argued the problems came from various sources, listing rulebook size and complexity, the threat of expensive Financial Ombudsman Service defence with no recourse to appeal, and the proliferation of claims management companies increasing the numbers of time-consuming spurious complaints.
“This is forcing advisers to take a ‘belt and braces’ approach to writing advice reports that now have to run to tens of pages for fear of committing a ‘sin of omission’. The cost of writing these reports is the same, irrespective of the funds invested.
“What does vary however is the fee that the adviser can charge, and if this is fixed and expressed as a percentage of the investment, then that percentage rises very steeply the lower the investment, until it becomes too expensive and unaffordable.”
Kevin Croker, financial planner at Crokers Financial Planning, said that while they do deal with smaller pension pots, clients are charged a flat fee of £600 for the overall price of advice.
“We do provide good value for money, and hope that the FAMR will make it possible for other people to have more access to IFAs. The main costs for the advice fee being so high is 50 per cent regulatory costs, for us as a small IFA practice,” he stated.
Alpha Investments and Financial Planning director Alan Solomons said that ideally clients should have at least £100,000 although that figure is not realistic for younger clients, who have to be part of a long-term portfolio for any firm.
He too complained that regulation is the biggest drag on his firm’s time and money, directing his ire at the price of the Financial Services Compensation Scheme levy.
“The fault lies with the FCA. If they banned products that were unsuitable or likely to run into future troubles, I suspect the claims that FSCS face would reduce substantially.
“The product providers would have to pay for the FCA to do the due diligence to approve their product and possibly give it a risk rating, as well spelling out the type of client the product is suitable for and what maximum percentage of a client’s funds should be held in this type of product,” Mr Solomons suggested.
Malcolm Coury, managing director of Money Wise, argued that with no long stop and “wishy washy” guidance about insistent clients, advisers are unlikely to want to get involved with pension freedom for the masses without charging at least £1,500 for advice.
“Therefore, it is more a case of clients with small funds, say less than £50,000, not wanting to pay that much in fees as it represents a fairly significant percentage of their fund, especially after any tax due.”
Meanwhile, LEBC Group’s chief executive Jack McVitie said the question is one of appetite, questioning whether advisers really want to give advice?
“If so, this must mean innovation in the way we work and the adoption of appropriate technology to support the advice process.
“We, as a business, are committed to this path but believe that advisory conversations pre and post advice are essential in understanding and explaining the soft facts,” he added.
peter.walker@ft.com
