Good financial advice is one of the few wonders of the financial services world. Maybe the only one.
As a journalist, it is thrilling when evidence of this "wonder" bubbles to the surface like a welcoming hot spring high up in the Himalayas (do watch Mountain: Life at the Extreme on BBC Two).
For example, one couple I spoke to, through skilful financial advice can now live out the rest of their days and years confident in the knowledge that they will not run out of money – and be able do all the wonderful things they want to do, such as go on cruises and spend their winters in Spain. Such conversations make the hairs on the back of my personal finance neck stand up like ram rod straight telegraph poles.
It is also fantastic that recent quantitative research has attempted to put some numbers on the value of financial advice. Conducted by the International Longevity Centre (ILC), and backed by Royal London, the research showed that those who received financial advice between 2001 and 2007 had accumulated more cash and pension wealth than their unadvised peers by 2012 to 2014. I wrote about this research in greater detail in my last opinion article.
Although independent financial advice is currently a rich person’s preserve, there are those who believe it need not beYet, as the ILC report highlights, the value of financial advice remains little known. It is also enjoyed by a minority of people, primarily as a result of the fact that adviser fees now make independent financial advice a service only affordable by the wealthy. Thank you Retail Distribution Review.
To quote the ILC: "The advice market is not working for everyone. A high proportion of people who take out investments and pensions do not use financial advice, while only a minority of the population has seen a financial adviser. Since financial advice has clear benefits for its customers, it is a shame that more people do not use it."
Although independent financial advice is currently a rich person’s preserve, there are those who believe it need not be.
Ben Franklin, one of the authors of the ILC's Value of Financial Advice Report, said the clear challenge facing the industry, regulator and government is to "get more people through the front door" of advisers.
Sir Steve Webb, former pensions minister in the coalition government, acknowledged pensions guru and director of policy at Royal London, believes more needs to be done to overcome the barriers to advice.
Refreshingly, the report goes on to look at potential triggers that might widen and broaden the demand for independent financial advice.
These include encouraging employers, maybe on the back of auto-enrolment, to do more to guide employees towards financial advice. It also suggests that more people should be persuaded to take advantage of the financial guidance available to those looking what to do with their pension pot ahead of retirement or part-retirement.
This could be done by requiring people to opt out of guidance – in a similar way that younger people have to opt out of auto-enrolment. You get it unless you specifically say no. Armed with this guidance, some people will go in search of financial advice.
Other triggers include the pensions dashboard – still in test stage – which might push more people to seek advice on what to do with their various pension pots. The wider use of so-called robo-advice might also make financial advice cheaper and therefore more accessible.
Of course, the ongoing Financial Advice Market Review chugs along. Early last year it came up with a string of recommendations (28 of them) to make financial advice more accessible – across all age groups and at all stages of life.
Some dovetail with those outlined by the ILC – greater use of the workplace to promote advice, the development of the pensions dashboard and greater use of robo-advice, mass-marketed automated advice models. Their overall goal is to make advice more accessible and affordable.
Yet there are some organisations that believe this review is not as effective as it should be. Aviva sits in this camp. It says it is "disappointed" by the review’s progress and does not believe it will go far enough "to help empower and equip consumers to make effective decisions about their finances". Indeed, it says that if the recommendations are enacted as they stand, "negative consumer outcomes" will result.
Aviva’s beef centres on the regulator’s definition of "personal recommendation". It believes it is too prescriptive, resulting in it as a company not being able to help customers make the right choices – for example, whether to annuitise a small pension or take it as a lump sum or whether to switch to more appropriate funds. In most cases, Aviva cannot say anything of use because in the eyes of the regulator it would constitute a personal recommendation. As a consequence, customers either end up doing nothing or making the wrong decision.
Of course, it would be in Aviva’s commercial interests for the regulator to cut it a little bit of slack in what it can say to customers. But I think the insurer has a point.
Surely, at the end of the day, we want all consumers to make better financial decisions whether it is a result of speaking to an insurer or, best of all, using an independent financial adviser.
Jeff Prestridge is personal finance editor of the Mail on Sunday
