Aviva’s John Lawson has vented his frustration over rules governing financial advice in a world where people have near total freedom to access their pension money, saying the company is forced to watch and do nothing as customers make bad decisions.
Mr Lawson, Aviva’s head of financial research, said providers were forced to sit by as their clients made bad decisions for fear of straying into offering financial advice.
He said: “Currently we are watching people make decisions at retirement which we know are the wrong decisions, such as taking all their money and putting it into their bank account or taking all their money out in one lump sum.
“We could suggest they spread it over a few years and reduce their tax burden but we cannot say it to them because it is a personal recommendation.
“That has got to give. We have to find a new boundary.”
Aviva is not the first to complain about being hampered by the definition of advice.
Earlier this month the Association of British Insurers said it is working on a proposal for an income drawdown comparison tool but said it was proving difficult because it was trying to avoid straying into advice.
Last month the Financial Conduct Authority was told to clarify its definition of what is known as streamlined advice, as a third of those not currently offering it want to do so in the future.
As part of the Financial Advice Market Review’s aim to close the ‘advice gap’, the FCA is consulting on updating its guidance on an advisory service that meets a simpler or focussed consumer need, so called streamlined advice.
Steven Cameron, pensions director at Aegon, said there is a huge swell of opinion predicting the growth of this area of advice, with 80 per cent of advisers polled by the provider expecting an increase in demand for streamlined advice services.
However, this optimism relies on removing certain barriers to the future success of streamlined advice.
By far the greatest barrier is regulatory risk, with 62 per cent of advisers citing this as a concern.
Advisers frequently bemoan the regulatory burden on them for even relatively simple advice.
Nick Bamford, executive director of Informed Choice, said the issue facing advisers was the complexity of doing their job.
He said: “There is far too much paperwork. If I was to advise a married couple investing in an Isa, leaving aside my own reporting, they would probably be faced with 130 pages of documents. Frankly they are never read.
“I need somebody to explain to me how, after three decades of regulation, it is easier for a person to borrow £10,000 and it is easier for a person to gamble £10,000 than it is for a person to invest £10,000 in an Isa.”
HM Treasury announced in February a new definition of advice, which is narrower in scope and originates from European regulation.
Due to come into effect in February 2018, it effectively means regulated advisers will only be giving financial advice when they provide a personal recommendation.
But unregulated firms will still be giving advice without proper authorisation if they “advise on investments” as set out in the Regulated Activities Order.
Firms offering non-advised services have been warned about implicit personal recommendations.
Following the upcoming change to the definition of financial advice, the majority of regulated firms will only require advice permissions when they provide a personal recommendation.
This means a lot of firms have been wondering what constitutes such a recommendation.
The FCA has been clear to warn firms which refer to the actions of similar clients when discussing another client’s options are offering a personal recommendation.
This is because the firm is placing a “special emphasis” on one product over others.
The FCA has said the same is probably true of firms which discuss the implications of a particular transaction with a client.
damian.fantato@ft.com
