This month's question - is the £500 pension advice allowance sufficient to remunerate advisers?
Richard Ross, chartered financial planner at Chadwicks
The Pension Advice Allowance, coupled with the increased tax-free employer-arranged advice allowance, is a positive development, giving employees up to £1,000 towards advice.
While arguably not enough to cover complex advice, advisers must be able to meet the challenge of giving good core advice for most people within this threshold.
The allowance creates a target that will drive the efficiencies required for profitable advice provision. These improvements will make wider advice delivery more effective, which is the best response to the rise of the robots.
When proposing the allowance, the Financial Advice Market Review set out three objectives: to help make advice more affordable, to remove the need to pay large fees from current income, and as a nudge to encourage advice take-up. Although discrete objectives, they are very much interconnected. The FAMR’s case for the allowance accepts there is not a single solution to the advice gap.
Our profession and insurers are inefficient. Simply improving access to plan information, as promised via the pensions dashboard, will result in valuable adviser efficiency gains.
Increasing workplace advice delivery with the expansion of workplace pensions offers efficiency gains and addresses concerns that the new allowance will become a target for scammers.
Success will depend on insurer engagement and, disappointingly, some seem unenthusiastic. The allowance and the dashboard cannot be voluntary measures.
Alistair Cunningham, director at Wingate Financial Planning
It may be possible to offer very limited advice for £500, but the issues dealt with are likely to be risk profiling and find recommendations rather than holistic financial advice.
Considering structuring new savings, cash flow planning and even a deep and meaningful fact-find cannot be delivered at the level set by the new rules.
Where advisers choose to offer a £500 service it will be done as a loss leader, with the intention of identifying more lucrative opportunities.
This may well lead to better outcomes for employees, but as these additional opportunities will come at an additional cost. It is not the same thing as giving the advice for the lower cost upfront.
An area where the low initial fee could be useful is in giving specific financial guidance around the retirement options available as an individual leaves employment.
Without providing a final recommendation, a more junior adviser could discuss the features and benefits, as well as potential downsides, of annuity, drawdown and hybrid options. The employee would be left more aware of their options and likely know which best suits their needs, but that’s a long way removed from an actionable recommendation that details providers, funds (if relevant) and longer-term strategy.
The fee is not necessarily wrong, but the process needs to be right. I imagine most firms will need to flex significantly to provide the necessary light-touch guidance here. But it’s not advice in the truest form.