Guidance with recommendations? It is little wonder that Prudential’s suggestion to the Work and Pensions committee inquiry on pension freedoms has had advisers scratching their heads or blowing their tops.
What can it mean? Is there a middle ground between guidance and advice – or does the attempt to recommend mean crossing the Rubicon?
Some have suggested this is a cloak for an in-house sales force. The return of the man from the Pru, offering a helpfully directed chat without the threat of a mis-selling charge looming in the future.
Perhaps those who have been swift to bash the Pru have been unfair. We are all still getting to grips with pension freedoms. This is why the committee is calling for comments.
I doubt anyone would argue that there are concerns over whether too many people are cashing in, whether they have properly considered the consequences and what they plan to do with the money.
Fidelity, in its comments, said most people have already made up their minds by the time they approach a pension provider – but its client-base is likely to be made up of more independently minded investors.
Pru makes fair observations on the cost of advice being prohibitive for many.
So, what are we to do: abandon people to their own devices because they cannot afford full advice and do not really understand the guidance?
It is a sticky area and I do not pretend to have the solution. Surely ideas such as Pru’s should be welcomed as part of the debate. If we are going to address how the industry can help investors come to sensible solutions then radical thinking is vital. Everything should be on the table.
There is no reason why Pru’s ideas should not be explored to see whether they could be improved upon and made to work. They might be unworkable. The idea might on deeper examination be deemed preposterous and consigned to the dustbin. But it should not be condemned for bringing a new idea to the debate.
To those who sniped and dismissed the idea, here is a challenge: see if you can come up with something better and more workable that will provide aid to those who cannot afford your full services yet would benefit from more than simple guidance.
Balancing performance fees
Performance fees have until now been a one-way bet for fund managers.
They take extra profits when their investments do well, but still grab a handsome basic fee when it underperforms.
Fidelity International’s fulcrum fee will change that. Not only will it mean a lower basic annual charge, but Fidelity will accept a financial spanking when it underperforms. Basic annual fees will be 0.1 percentage points lower than at present, but still higher than trackers. A 0.2 percentage point fulcrum around an annual charge of 0.65 per cent could put the lowest fee at 0.45 per cent.