Prudential calls for new guidance ‘with recommendation’

Prudential calls for new guidance ‘with recommendation’

Prudential has called for a new category of guidance including a personal recommendation to ensure people who need help with their retirement planning are not missing out.

The provider told MPs too often savers who need support are caught in the perceived gap between guidance and advice and are not getting the help they need.

It called for a third type of client support, which would allow providers to recommend a course of action without straying into regulated advice.

However, it added it had not yet come up with plans on how this could work in terms of liability.

Currently only regulated advice carries full liability and offers the associated access to regulatory recourse, such as the Financial Services Compensation Scheme and the Financial Ombudsman Service.

Guidance leaves responsibility and liability largely with the consumer, though those providing the guidance must ensure it is fair and not misleading.

Earlier this year HM Treasury rolled out a new advice definition for regulated firms, which stipulates they will only be giving advice when providing a personal recommendation. The definition comes into force in January.

This month the director of the financial services group at HM Treasury, Gwyneth Nurse, said the new definition would help tackle the advice gap.

However, in its response to the work and pensions’ committee enquiry on pension freedoms Prudential stated the current boundaries between guidance and advice were too restrictive.

It wrote: “The current line between guidance and advice means there is a gap between the two. [People] cannot be given even general suggestions and assistance if it is based on their personal circumstances without it risking being classified as advice.

“This essentially means that those who most need the support are often the ones who do not get it (they do not need and cannot afford advice but pure guidance is not enough for them).

"We therefore believe that there should be something between the two existing points – a form of guidance with a ‘recommendation’ as to what would be a suitable course of action for customers of that type, including recommended investment categories.”

Prudential’s own research conducted among a small number of customers who took their entire fund as cash found four in 10 planned to spend the money, while a further four planned to place it in a savings account and the remaining two said they would invest it in other ways.

It was in these type of circumstances the provider felt the current framework prevented it to step in and guide consumers in the right direction.

Rival provider Fidelity however, said in its own response to the committee it did not think people were interested in being told what to do by their provider.

“We find many customers who contact Fidelity have already decided on the action they wish to take. They are then more interested in the process for achieving this rather than discussing the benefits and risks of this decision,” it stated.