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Paul Lewis: The end of advice as most know it

In giving the financial services industry a monopoly over the word advice, the Government’s new guidance body spells trouble for consumers

Parliament is back from its summer break, meaning the new single financial guidance body starts again on its long and winding road to approval.

We know it will not be called the single financial guidance body. The Financial Guidance and Claims Bill gives ministers the power to decide the name and change it by regulation. The Government will not announce that name until the body is established in case thieves steal it while they can.

The single financial guidance body will replace three existing organisations:

  • The Pensions Advisory Service: Founded in 1983 in response to an interview on Money Box. It gives advice on pensions over the phone and, now, online
  • The Money Advice Service: Founded in 2010 to improve the way people managed their money. It gives free and impartial money advice to people online
  • Pension Wise: Set up after pension freedom in 2015 to provide advice on pensions, as promised by then-chancellor George Osborne, through Citizen’s Advice and the Pensions Advisory Service.

This was not in reaction to massive public demonstrations chanting “What do we want? A single financial guidance body! When do we want it? In due course!”

Its stated purpose is to “improve efficiency, reduce duplication and deliver better value for money”. It makes your heart sink, doesn’t it? But in fact, there is another purpose.

Look at what we are losing. The Pensions Advisory Service, the Money Advice Service and Pension Wise: “advice”, “advice” and “wisdom” – much of that wisdom given by two “advice” bodies. All will be replaced with “guidance”.

FCA sets out plans to help firms with advice vs guidance

The plan is part of giving the financial services industry a monopoly over the word “advice”. It wants any help with money that is not regulated advice by a regulated adviser to be called “guidance”.

The industry has now defied the dictionary and decided that guidance tells people what they can do, while advice tells them what they should do. I hope the single financial guidance body will come to see advice versus guidance as a ridiculous distinction. The Government already does. Part of the new body will deal with people in serious debt. And they will be given advice. Indeed, the new body will give “debt advice, money guidance and pension guidance”.

The financial services industry does not want to have anything to do with people in debt, so it is quite happy for them to be given advice. But when it comes to those with positive bank balances, it is happy for them to driven towards independent or restricted advisers.

Once the single financial guidance body starts giving people money or pensions guidance it will soon realise that it needs to go further.

Suppose its pension guidance included something on trackers versus active management? It would have to say trackers are cheaper. It would have to say many active funds are, in fact, closet trackers but more expensive. It would have to say no active fund beats the market in the long term. Because all those things are true.

It might add that the profit margins on actively managed funds average 36 per cent. All factual stuff. Straight from the damning report on how asset managers look after £1trn of individual investors’ money published by the FCA last November.

Taking whole pot option most viewed Pension Wise webpage

Although the regulator says it is not positively in favour of passive funds over active ones, it is in favour of low cost. It does promote honest information about closet trackers. And it is clear that past good performance is not a guide to future performance – though bad performance does persist.

Its predecessor, the FSA, established that in the early part of this century, but it is still routinely denied by the active management industry and many advisers.

The other problem with a purely guidance service is that it will not just be a poor relation of advice but the place all those poor relations go if they have less than £30,000 to invest or who want to save less than £1,200 a year. It is difficult to find a good regulated adviser to take them on and, if they do, it would probably be too expensive to be worthwhile.

So “advice” or “guidance” is not just a matter of semantics. The majority of the population who have to use it will not want the single financial guidance body to give them information on the many complex choices about what they can do. They will want it to cut through years of complexification by the financial services industry and politicians, and tell them what they should do. Because no regulated adviser will be willing to do that
for them.

I will, of course, continue to give people advice. I will not make recommendations on particular regulated products, as that requires authorisation. But I will advise about the difference between trackers and managed funds; about the importance of keeping charges as low as possible; about tax, benefits, how to find a good independent adviser; about how to avoid being scammed. It is my job.

I do that because, in 40 years of doing my job in one form or another, I have never been asked for guidance. I am frequently asked for advice. And I give it.

I hope a courageous single financial guidance body will also give advice. That it will present the crucial facts and show a clear route to what people should do, not just what they can do. Even if it has to call it “guidance”.

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programmeYou can follow him on Twitter @paullewismoney

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Comments

There are 25 comments at the moment, we would love to hear your opinion too.

  1. Paul Lewis ‘continue to give advice’ whilst not authorised! The FCA should make sure all journalists who have an influence on the public with finance to insist on being ‘authorised’. What if a journalist gets it wrong, what recourse has the client got?

    • As long as Paul doesn’t purport to be a regulated financial adviser then there cant be recourse (except via a civil suit). To my knowledge describing yourself as a financial journalist should cover this.

      However I think what Paul really means – and its something we can all do – is provide an opinion or truth (facts), not actually advice.

  2. Bit of a sweeping generalization “monopoly on the word advice”

    Personally I could give two hoots what they call themselves, I/my clients don’t want to pay for them…

  3. TPAS have done a great deal for ordinary people – as has Paul Lewis. Pensions Wise has been a vanity project and I fear that much good will be swept away by integrating everything into a single body. The £11m spent on TPAS since 2015 has been Vfm in my opinion. The £75m spent on Pension Wise has not. Financial planning is a minority sport catering for those engaged enough to pay for it. Most people do not engage that much and need something that TPAS and Paul offer. Don’t diss it!

  4. 40 years and still not authorised!!!

  5. “no active fund beats the market in the long term”
    Where is your evidence for this comment Paul?

  6. “So “advice” or “guidance” is not just a matter of semantics.”

    If I have read this article right then your main concern is that people want ‘advice’ as defined by you but don’t want, or won’t seek, ‘guidance’ as defined by the industry (and FCA). If that’s the case then that is just semantics, i.e. the meaning imbued in the word. It might not be the meaning you want but it’s still just semantics.

  7. Paul prefers to distinguish between advice and regulated advice which is helping no-one. To distinguish between advice (recommendation) and guidance (information) should be an objective for everyone connected to the industry.

    Paul – legislation defined advice over 30 years ago. Let it go.

  8. Yawn … more angels dancing on the head of a pin

    Meanwhile other sectors – building for one – gives consumers a far worse deal

  9. Im afraid this article is rather disingenuous. The Financial Advise profession aren’t asking for this at all, it is being driven by the regulator, and is merely the culmination of George Osborne’s ill-fated budget speech during which he promised everyone free, impartial, face-to-face advice on their pensions. As a result of the backtracking that ensued, it became imperative that there was a clear definition for both ‘guidance’ and ‘advice’. Broadly, any Tom, Dick or Harriet can give guidance, with no liability or repercussions, but only an authorised financial adviser can give advice on Retail Investment Products and other regulated financial products – and for which they remain personally responsible and LIABLE. It then also became clear that there were too many organisations offering similar guidance, and that it would be more sensible for this function to be combined. Shame they cant combine FSCS, FOS and FCA, so that those three functions can all operate to the same book of rules. In a nutshell Paul, I think you are trying to blame the wrong people for this.

  10. Paul misses the point. The existing bodies didn’t give advice, only guidance. Just because 2 of them had “advice” in their title doesn’t mean anything, apart from confusion to the general public.

  11. Oh dear this does rather have the flavour of a rant by Paul.
    Why not also complain about the monopolies in law and accountancy? Surely he has not forgotten about the cowboys and scams in financial services which regulation (with all its accompanying definitions)has done so much to improve.
    Also it is a pity that he hasn’t made better use of research. While I would never claim that the majority of active funds do better than trackers, thre are however a select coterie that indeed do.(And is precisely the job of a good adviser to identify them). And that is not to forget those investment trusts (some of whose dividends have been rising continuously for 40 years) that have also managed to knock spots off the indices. Not all trackers and ETFs are wonderful.
    As to those with little money wouldn’t they be better advised to reduce their debts? Small amounts saved will probably have a delterious effect on that which Paul holds dear -benefits. So perhaps in this regard it my be appropriate for Paul to take a rather less critical view of IFAs.

  12. When is a Financial Advisor not a Financial Advisor – oh Yes – When he’s a Financial Journalist !!

  13. Good old Paul Lewis, once again sharing his “never let the facts get in the way of a good story” wisdom with us all.

    Other comments have already put so much of his weak, semi- informed article to rights, I won’t waste further words on it.

    Though I just can’t resist:

    Profits on mutual funds – are those gross or net Paul? Big difference. Trouble is ‘profit’ of any sort is a dirty word at the BBC.

    “No active fund beats the market in the long run” – where is a shred of evidence for this??

    All I can comment is: when will the BBC get someone who actually has something sensible and constructive to add to financial guidance and advice in the UK?

  14. Advice=liability and financial accountability, this is what the government like and this is why it is what it is.

    We accept it, why can’t Paul. Pay and qualify to get on board or accept it for what it is.

    The comment about active funds not outperforming markets shows a material
    knowledge shortfall and one for which a regulated adviser could be held to account (and I don’t mean just a slap on the wrist!).

  15. Two or three of the comments on Paul’s article demand evidence to support his contention that “no active fund beats the market in the long run.”

    Five minutes on Google confirms that Paul is in fact wrong about this – but not very. An FT article from October 2016 headed “99% of actively-managed US equity funds underperform” tells us that over 15 years, 98% of actively-managed global equity funds, 97% of emerging markets funds and, indeed 99% of US equity funds have underperformed their indices. Several other pieces of research deliver more or less the same results.

    I don’t know if the advisers objecting to Paul’s claim are seriously arguing that the 1%, 2% and 3% of outperformers provide a justification for the active fund management industry, or if they’re simply unaware of the facts (and presumably unfamiliar with Google). Either way, they don’t fill me with confidence in their investment advisory skills.

  16. What a waste of ink!!

  17. Advice / Guidance very similar definition depending where you look. Of course we know the difference with regard to financial services but Joe Public does not.

    There needs to be some provision of Advice / Guidance for those that can’t / won’t pay. I have absolutely no problem with that.

    My clients pay me for my services and value those services enough to pay.

  18. So if an investor takes advice from this body and loses out, does HMG take the hit.

    Also seemed daft to me using the word Advice in the title ofganisations which did not give advice.

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