Middle ground between guidance and advice

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.

I doubt anyone would argue that there are concerns over whether too many people are cashing in

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. 

But such comparisons are perhaps unfair. Active funds offer the hope of out-performance while trackers can make solid low-cost core investments. They are – or should be – different beasts.

Does this make the fees too complex as some advisers have argued? Again I would take issue with this.

Most investors do not have a clue how their fees are calculated nor do they understand what they are being charged. The real issue here is not complexity, but fairness.

Investors have fought shy of funds with performance fees, rightly catching a whiff of manager greed. But if the manager is prepared to accept some financial responsibility for under-performance then the idea could be more palatable.

The structure of the fee means that even with modest outperformance the fee would only match the current one.

However, if there is one thing that could work against Fidelity it is this: opting for the new share class is almost like saying you are expecting the fund to produce most returns – otherwise, why not take a flat fee that will work out cheaper if the fund substantially outperforms its peers?

St James’s Place at the top

I was not surprised to see St James’s Place claim top spotin  Financial Adviser Top 100 list for the fourth consecutive year.

I live in a prosperous south-east city. My neighbours are mainly retired accountants, solicitors and surveyors.

Three of these educated, well-pensioned individuals have told me that they have a financial adviser who takes care of their money and then named St James’s Place. I choose not to comment.

Tony Hazell writes for the Daily Mail’s Money Mail section