PensionsNov 27 2017

Prudential calls for new guidance ‘with recommendation’

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Prudential calls for new guidance ‘with recommendation’

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.

Indeed, the regulator’s Financial Advice Market Review Baseline report, out in June, showed a dramatically low take-up of available guidance services by pre-retirees.

According to Financial Conduct Authority figures of those aged 55 plus and planning to retire in the next two years, fewer than half (44 per cent) had used at least one form of guidance or information.

FCA research also painted a grim picture of advice take-up. According to figures published in July the proportion of consumers going into drawdown without advice increased to 30 per cent, from 5 per cent before pension freedoms.

Fidelity said the issue was one of “positioning” rather than fundamentally altering the service provided. 

“A stronger message around the advisability of early access might encourage more people to think twice and seek guidance rather than it being seen as normal behaviour,” it wrote.

However Ricky Chan, director at IFS Wealth and Pensions, warned a blurring of the boundaries between guidance and advice could lead to "mis-selling on a systemic scale" if the same regulatory scrutiny was not applied.

He said: "Whilst Prudential’s intentions are good, we must remember that advice and non-advice must be clear and distinct. There cannot be a middle ground. 

"This is because advice carries the potential liability for complaints in future and is personalised to the client, whilst guidance is simply as the name suggests – generic information for the client to make their own decisions. 

"I think the government’s PensionWise service is doing a good job helping consumers already."

Mr Chan said the government and FCA should instead focus on helping qualified advisers, including making regulation more efficient, and introducing streamlined advice for pension freedom clients and a government funded credit system to offset the cost of advice.

carmen.reichman@ft.com