James ConeyJun 17 2020

Access to advice limited by prohibitive costs

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
comment-speech

I can think of truckers that have caused mass pile-ups because they have been texting or watching movies on their phone while driving, or because they have been too tired.

There have been ones that have contributed to the deaths of dozens of migrants by transporting them in trucks, and there are those that are simply dangerous.

Imagine what would happen if, when one of these horrible events happened, every other lorry driver in the country was asked to foot the bill for the compensation.

Pretty quickly, lorry drivers’ insurance premiums would shoot up. It would be passed on to customers and companies would stop using lorries.

Fortunately, lorry driver insurance does not work in this way. The insurance cost is not based on the worst scenario, but on the average. And most lorry drivers are pretty good at their job.

Unfortunately, personal indemnity cover does not seem to work like this. Rather, it seems to be priced on the basis that every financial adviser has the same risk of mis-selling as the very worst ones.

And guess what? As a result, the cost of this extra insurance is passed onto the consumers. So advice gets more expensive and fewer people can afford it.

This in turn drives those who need help into the arms of the sharks and introducers who will unscrupulously move clients’ money anywhere, just for the fee.

What a crazy situation.

When the Financial Conduct Authority launched its crackdown on pension transfers, which led to the ban on contingent fees, its solution was to come up with a simplified advice model.

This seems practical on paper, but in reality the PI cover that companies are going to need to provide something simple means it will not be simple at all.

As a result, estimates I have seen from the industry suggest the very cheapest simplified advice for a defined benefit pension transfer will be around £4,000. My hunch is that the most consumers would be willing to pay is around £500.

One of the immediate reactions to the contingent charging crackdown was from advisers, who spoke about how it was going to stop some consumers from getting advice.

I suspect that is true. 

I also suspect the FCA knows it and does not care. It is working from the assumption that in most cases DB transfers should not happen.

On that basis, people put off because of the cost of advice could act as a very effective brake on transfers. If it means fewer people do it, then it is just market forces at work.

What it may miss though is the incredibly destructive force the cost of PI cover is having on the availability of advice.

The market for financial advice should not be dictated by the cost of insurance; too many people are being deprived of access to help because of the behaviour of a few underwriters and regulators need to find a more effective way of controlling the risks.

Not everyone is dangerous behind the wheel.

Help for all

The longer lockdown goes on, the greater the arguments go for a universal basic income, or at the very least a universal basic bailout.

The chancellor’s furlough and employment bailout schemes were extraordinarily generous, but in trying to find lots of money for people in different employment categories, it has failed to help all of those in need.

It means stark unfairnesses have opened up through the workforce. Some people who missed out on furlough have done so simply because the payroll at their new company started on the wrong day.

Would it have been better to give everyone in the country something? As we have seen with the winter fuel payment, wealthier people are happy to give up their entitlement to benefits if they feel they do not deserve them. 

A lovely picnic

I got an insight in to the perils of being an adviser in lockdown when I spoke to my mother-in-law the other day.

Her IFA had called for a catch-up chat and suggested they have a Zoom session.

“Do you have video on your computer?” he asked. Oh dear. There began a 30-minute call in which he tried to explain how to use the in-built camera on her laptop. She gave up: “The computer is obviously broken.”

In the end my wife talked her mum through what the call may entail and how to ‘fix’ the computer.

“It’s a PICNIC problem,” she explained to her. “Problem In Chair, Not In Computer.”

James Coney is money editor of The Times and The Sunday Times