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So the most controversial budget announcement by far has turned out to be free impartial advice. Which of course actually means guidance!!
Most independent commentators say providers cant be involved in this. At the point of purchase that seems sensible, as we are worried about product bias and mis selling scandals and poor choice. I get it, I’m actually supportive of that argument and have written about it on here before. But it’s not that simple is it?
500,000 or so retiring every year for next 10 years or so. The vast majority of them will not have pots that appeal to financial advisers.
I get we are saying MAS or TPR or a new body (would seem odd) could do it. But who pays? Will the members of the ABI stump up for this? What about those not in ABI. What about IMA members or Fund managers, who i think if they get their act together will be big beneficiaries. Would you split the charge equal across providers? The cost will be between £100m and £250m experts tell me, thats not insignificant. In the long run I think it’s great and will create demand for advice. But right now what will happen to the 350,000 or so a year retiring with pots too small?
What is it they really need? What is it they want? Who really wants to pay for a face to face meeting with someone with £25k in their pot?
The problem is for too many people £25k in their pot is a lot of money. You could argue the banks should pay as that is where the money will end up, or the holiday companies, or the car companies but pension providers or advisers? They get no benefit. The debate will run on this, and a simple, what must have seemed almost throw away line at the time, has turned out to be the biggest game changer for the industry.
But heres what Ithink. Providers needs to provide guidance and education well before customers reach retirement. There are millions of customers at 45+ with no adviser, no real help or support and they need to be communicating with those customers. Helping them understand the options. AE gets them started, but will employers keep them informed and keep helping them? Big ones will, but what about smaller ones, and self employed people?
I think there is a serious risk that we disregard providers role in educating customers to save more, and provide general information about decisions people have to make.
I also think we need to remember they also have obligations. Wake up packs are regulation, as are 6 weeks letters. There are voluntary codes around 5 and 2 years. these concepts are good. For sure they haven’t always been executed well, and I agree that some providers have profited (maybe even profiteered) from the confusion they create and the apathy of customers. But seems to me we should focus on making this process better, not discounting it.
Providers have access and scale and money to help raise the savings ratio. They can also help provide and deliver general messages about options and risks. They also have as it stands a regulatory requirement on communicating pre retirement messages. We should make this stuff clearer and simpler. With clear routes for further impartial guidance and advice.
I think the message to providers is clear, stop making money by confusion. The direction is set, and I don’t think providers will be able to get away with the dark arts of the past – thats a great thing. But closing the door on their ability to educate and make money by delivering good outcomes seems wrong.
I get there is scepticism about providers, but we need everyone to work together to solve this problem. It feels we run the risk of throwing baby out with bath water.
Providers can atone for the sins of the past, and help save for a better retirement, make it easy for the millions who can’t or won’t seek financial advice. Help people grow their retirement pots, so fewer people in my generation are faced with retirement pots of less than £30k.
And the more people we have with larger pensions the more they will be inclined to take advice.