Your IndustryDec 16 2015

Funding models, insistent clients and pension reform

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Pension freedoms have dominated the last 12 months, with serious demand evident in the first three months following the April reforms

However, after the initial surge, business volumes have died down and queues have not been forming outside Lamborghini dealers as some pundits predicted.

Consumers have displayed a typically cautious British approach, applied common sense and in many instances have just taken their tax-free cash allowance – leaving the rest of their pot untouched for their future.

Rivaling pensions freedoms for the most impactive spot of the year is the uncertainty and confusion that surrounds the issue of insistent clients. I am an advocate of such transactions as long as they comply with the FCA’s rules and guidance. My belief is that this supports the pension freedoms and helps prevent clients turning to unscrupulous practitioners.

In reality, only a very small proportion of clients will come under an insistent banner and advisers still remain free to choose whether or not to facilitate such business.

Interestingly, as the year comes to a close, the insistent client debate and the perceived lack of support for pension freedoms has forced the government into reviewing the current regulatory regime through the Financial Advice Market Review.

The cost of compliance, the role of Fos and the FSCS funding model are all set to come under scrutiny. Although it will be 2016 before we see any analysis and actions, it still justifies its place in a review of the year. The on-going debate about the need for a long-stop and the increasing number of PII restrictions will also come under the microscope.

For the first time in more than 25 years, this government-led review will allow every stakeholder to contribute to any resultant reforms. It is a genuine opportunity for every adviser to influence the regulation that governs our profession.

The FAMR will hopefully highlight the barriers to the provision of financial advice under the existing regulatory regime and particularly the untouchable position enjoyed by Fos. Their current immunity from the need to follow rules of law remains the most significant contributor to the advice gap and must be addressed.

This year has also seen a number of robo-advice solutions come to market, with many more expected. Initially there was something of a knee-jerk reaction from some quarters, but recently has come a growing realisation that it is not an all-encompassing solution.

Neither is it a threat to traditional advice models. Even robo-advice exponents admit there is a need for human intervention.

I believe it is a useful tool for simple needs and low-value investments. But we need more regulatory certainty and the establishment of ‘safe harbours’ – because if anything goes wrong, it will do so spectacularly and could cost a fortune in reparations.

From some firms, average adviser productivity has been one of the highlights of the year. Not surprisingly, the pension reforms have been a major contributor to the rise in earnings.

And completing my six-strong look back at 2015 is auto-enrolment, where after something of a slow start in the SME sector, the pace is picking up as employers and accountants begin engaging in the process.

Somewhat late in the day, they have realised that doing nothing is not an option and take-up has begun to increase markedly. This will continue to accelerate in 2016.

With this has come an acceptance of the need to specialise, or form a partnership with a specialist company.

Mike O’Brien is group brands director of Tenet