I like to think one of the skills that makes me a decent adviser is the ability to convert complex, illogical and sometimes-opaque notions into bite-sized snippets of information clients might understand. Thirty years in the job has led me to accept, although we live and breathe our subject, that is simply not the case for most clients.
Where you have confusion, you have the risk of market abuse in all its forms, which ultimately leads to a lack of consumer confidence in us.
Every time a new rule comes our way, I always picture myself as a hassled and largely uninterested investor who, in reality, is reaching out for help.
So when the latest guidance from the FCA on the different kinds of advice metaphorically hit our desks with a loud thump, my heart sank with the idea of having to read all 56 pages. If you need 56 pages to say something, surely there is a chance it is too complex? Indeed that proved to be the case.
Right from the off we have confusion and muddled guidance. The paper defines five different types of advice models: execution-only, execution-only for complex products, simplified advice, limited or focused advice and full advice. And last, but by no means least (and this is one of mine), we now have “guidance” for the new pension rules to be delivered by The Pensions Advisory Service and Citizens Advice – two organisations who have woken up to the reality of their thankless and quite possibly impossible task. The fact that we now have five, or perhaps even six, types of advice model is a reflection of how addled our landscape has become.
There is absolutely no chance your average client will understand the nuances and, as a result, all manner of malpractice is floating to the surface, as witnessed by the proliferation of scam websites offering to unlock pensions.
Most sensible adviser firms will naturally “revert to norm” and seek to protect their own best interests, and those of their clients. Most firms tend to have skin in their business and take their work extremely personally. It is my belief that the less this is the case, the more likely you will find poor advice. Banks are a good example of this: they will naturally want to tell their clients everything they feel they need to now without being accused of confusing or, perhaps worse, boring them.
In my experience, most advisers are a cautious lot so, given any doubt, would tend to stick to what they know best and default their proposition to “full advice”. What they are less likely to do is go out on a limb and develop new ways of transacting business in the fear they will get caught out by some unknown twist of fate they could not have envisaged, perhaps decades later.
It almost seems that engaging with clients in new and efficient ways such as simplified advice is too risky. Factor in development costs, compliance and the myriad of other systems changes needed, and it is easy to understand why the status quo is quickly chosen. Given the very apparent advice gap opening up in front of us, one could argue this is too big a problem to ignore.
Tom Kean is director of Thameside Financial Planning
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