RegulationDec 11 2017

Robo-adviser tells providers to give retirement advice

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Robo-adviser tells providers to give retirement advice

eVestor chief executive Anthony Morrow said guidance currently provided free of charge to those at retirement was an “unnecessary distraction”, which did not help them make informed decisions.

He said retirement planning was too complex for people to make decisions on their own and the danger was it was those with the least experience in financial planning that were shut out from advice.

Mr Morrow said: “The idea of having to have guidance is an unnecessary one. That is there to bridge a gap to provide people who can’t afford advice with a second class level of that because insurers can’t be [bothered] taking on the risk but are quite happy to retain the assets.”

“People regardless of their wealth should have access to advice. Insurers are quite happy to have call centres to provide non advice why not just train people up. There is no excuse to them not doing it,” he said.

To prevent mis-selling insurers would have to abide by the same rules as other ‘restricted advisers’, including being clear they are not advising on the whole of market.

Mr Morrow said there were not enough advisers in the marketplace following the Retail Distribution Review (RDR) to provide for the entire market and help close the so-called advice gap, the term widely coined for the lack of consumer access to advice.

“To think the advice gap is going to be solved by the advisers is ambitious. There are not enough advisers and they are all busy providing advice to consumers who can pay fees,” he said.

His comments came after provider Prudential told MPs in recent weeks there should be a new form of guidance which would allow for a personal recommendation to be made.

The government’s pension reforms in 2015 opened up the retirement income market for many people for the first time.

In order to mitigate the impact of the rule change the government put in place free at-retirement guidance service Pension Wise, which is mainly carried out by The Pension Advisory Service (Tpas).

Consumers also have access to free impartial guidance from the Money Advice Service (Mas).

However, both organisations are not allowed to give customers clear directions on what to do, as giving a personal recommendation by definition steers towards the realm of advice, which 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.

The provider warned the set up meant people were falling through the cracks as “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).”

However, Mr Morrow said: “The only reason they are suggesting this is because they can’t trust themselves to give advice anymore, they have a terrible record of providing it.”

IFA Chris Boylan said: “[Prudential’s suggestion] alarms me a bit because there is already confusion between guidance and advice. It has to be clear whether you are giving guidance or advice.”

He added it was difficult to provide advice at a low cost: “Full advice is always going to be expensive, the problem is the high cost of regulation. I will need a management fee to make it worthwhile.”

Financial services director at Dobson and Hodge, Paul Stocks, said it was unlikely any insurer would sign up to giving advice, especially for ‘free’.

“If the implication is that they should provide advice at a loss for the ‘good of the people’ I fail to see that many boards of shareholders will be keen,” he said.

“Service levels at many providers are poor, we do more work for providers than ever before and yet costs don’t fall, I therefore don’t see them doing it unless it’s commercially viable for them, which re-opens the conflict of interest debate.”

Stocks also warned against Prudential’s idea of a new form of guidance: “I feel that muddying the waters further will exacerbate the public’s lack of clarity and their confusion,” he said.

Mr Stocks accused banks of having wrongly portrayed their advice as ‘free’ against that of ‘costly’ IFAs in the past.

“I therefore have no trust that providers can be given the responsibility to provide advice in any set of circumstances other than under the current premise of advised or non-advised,” he said.

carmen.reichman@ft.com