I firmly believe in the value of advice. Professional regulated advice works and we need to find ways to encourage more people to access it.
However, the advised cohort will only ever be a small minority. Many others need help and education, so we also need to find ways to deliver this to the millions saving.
That’s why the Financial Conduct Authority and HM Treasury discussion paper on the advice guidance boundary is vital.
Targeted support could be a positive step forward, and I expect many firms to adopt this, should it be introduced. It will help consumers gain greater understanding of what actions people like them are taking. It’s an opportunity to improve consumers’ financial wellbeing, as firms will be able to proactively bring matters to the attention of consumers and suggest options that could improve their circumstances.
I don’t believe the model set out will be widely adopted, which may be a missed opportunity
However, it’s important consumers are clearly informed of the difference between targeted support and regulated advice, particularly around consumer protection. This may also be an opportunity for firms and the FCA to highlight the benefits of regulated advice, which we know is often a positively life-changing relationship.
There are some tweaks to the proposals I believe are important. Requiring a charge to be paid and asking people to make a clear positive choice to receive targeted support doesn’t seem necessary.
Lack of consumer engagement with financial planning is widespread and is the reason why auto-enrolment and other default propositions have been introduced. Firms should be able to offer communications and protections to all customers, and targeted support may help to meet some Consumer Duty obligations.
The simplified advice regime needs to be commercially viable for firms
Having said that, I don’t believe targeted support should go so far as to suggest a single new product for a customer, which is one of the options included in the discussion paper. This feels very close to advice and a step too far for guidance.
Another key area the discussion paper covers is simplified advice. I don’t believe the model set out will be widely adopted, which may be a missed opportunity.
The advice market is currently undergoing significant change. There is a large amount of consolidation taking place, there is a focus on customer outcomes given the implementation of Consumer Duty, and there is an increasing focus on ongoing adviser fees. This is leading many firms to review how they effectively service different customer segments.
The monetary threshold to access simplified advice has been set by looking at the FSCS compensation figure, which I don’t believe is the most relevant factor
Simplified advice could be an option that further accelerates some firms towards widening their service channels. However, there are some barriers in the current proposals that could prevent its widespread adoption.
The simplified advice regime needs to be commercially viable for firms. That may mean allowing a wider range to determine consumer suitability, not just fully qualified advisers. The Financial Ombudsman Service (FOS) needs to be fully involved with the development of these proposals and ideally issue guidance.
If firms believe FOS will measure them against the parameters for full advice even though they have undertaken a more focused or simplified service, at a lower cost, then widespread take up will not happen, as firms will potentially be taking on the same level of risk but charging clients less.
The FCA should work with interested firms to discuss whether and how simplified advice could be changed
The monetary threshold to access simplified advice has been set by looking at the Financial Services Compensation Scheme compensation figure, which I don’t believe is the most relevant factor. Instead, it should be set at a level where people are less likely to be able to afford full regulated advice, which is likely to be higher than the £85,000 proposed.
I understand the FCA’s reticence to extend simplified advice to decumulation decisions. However, there is a huge need for those approaching retirement to get help. The complexity of retirement and tax planning can’t be overstated and, without help, many people will make poor decisions.
Given the success of auto-enrolment, and the general increase in defined contribution pensions, there will be a mass of savers in the next 10 to 20 years who will need to make decisions as they approach and go through retirement. There are many persuasive reasons for people not to engage with their retirement, both practical and psychological. So we need to offer compelling options to help.
Any moves that result in the wider use of simplified advice would also serve as a ‘stepping stone’ to more people taking full advice
The FCA should work with interested firms to discuss whether and how simplified advice could be changed so it can deliver good outcomes for those approaching and in retirement.
And hopefully any moves that result in the wider use of simplified advice would also serve as a ‘stepping stone’ to more people taking full advice.
Andrew Tully is technical services director at Nucleus
The FCA and, by extention the FOS, have several times in the past promised that advice given will not be judged by future standards and they have broken this promise several times.
Why would anybody trust them when they say this time it’s different?
There is no way we will go near this recipe for future disaster.
The words advice and simple are an oxymoron. No advice is simple, whether it be in financial services or a restaurant menu.
As to the assertion that AE is a success, that is rather presumptuous. Firstly, employees have been dragooned into it so they had scant choice (yes opt-out was an option, but not widely advertised). Whether AE will be a success is something we will have to wait and see. Will the end result be significantly greater than the premiums paid? Will the pension holders be significantly better off? We will have to wait until sufficient numbers reach vesting date. And then what? Drawdown? Great idea for pots under £100k – I don’t think. Annuity rates, what will they be? How many realise that they will likely be taxed when they take their benefits. Will the 25% TFC sill be available? Just because premiums are being collected, doesn’t make it a success, unless you are a provider and fund manager making money out of the charges.