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A bridge too far? How mass market advice models are evolving


Mark Sands and Tessa Norman

Providers and advisers are busy developing a raft of new advice models aimed at serving the mass market client.

But there is a growing sense of disquiet among some in the financial services industry that these emerging services risk confusing consumers even more about what it means to receive “advice”.

Controversially, one idea being touted to bridge the advice gap is to return to some form of commission in order to re-engage savers  unwilling or unable to pay for advice.

The models so far

Hargreaves Lansdown unveiled its flat-fee service last week. This offers an hour-long consultation with one of its advisers for a fee of £395.

Investors can move from the ret-irement planning service into full advice, with fees deducted from the additional cost.

The company describes the service as an “advisory service that stops short of providing specific, personal recommendations”.

Aegon has also announced plans to launch a new direct-to-consumer service for corporate scheme members and orphan customers by the end of the year.

The provider says it will provide a “digitally delivered” service with telephone back-up but will also not be providing advice involving personal recommendations.

But EY senior adviser Malcolm Kerr says these kind of models may only make the market more confusing for consumers, particularly those who have never accessed advice before.

“We are going to see many new models which attempt to help consumers without providing advice as determined by the RDR. And in the short term this will make it more difficult for consumers to understand what is being delivered to them.”

Royal London chief executive Phil Loney agrees. He says: “The question to ask with some of the early movers is whether they are really meeting people’s needs.

“The key thing we have to remember is what the vast majority are looking for is a recommendation. So if we are going to call it advice it needs to have a recommendation and that needs to be crystal clear.”

Hargreaves Lansdown head of financial planning Danny Cox has defended its model, saying its Retirement Planning Service is “very clearly generic advice”.

Going further

LV= has taken a different route, and is launching its own online advice service this week.

Clear Online Retirement Advice is offering fully regulated online advice, and is targeted at orphan clients or savers with pots deemed too small to be viable for traditional advice.

The Cora service costs £199 for online retirement income recommendations, which could include taking no action, buying an annuity or entering drawdown.

There is an additional £499 fee for carrying out the recommendations.

LV= plans to partner with advisers to enable them to serve less wealthy clients, as well as offering the service directly through its website.

LV= head of retirement distribution Steve Lewis says: “The industry needs to create ways of offering low-cost advice.

“If consumers can find a service which is low cost and worthwhile
we believe they will return to the advice process.

“We are giving full regulated advice. The client gets a suitability letter and recommendation at the end of the process and we take full liability for that. The system has been tested by financial advisers.”

Other firms are also looking to bridge the advice gap, again with a full advice model.

Just Retirement offers a phone-based advice model at 2 per cent of the net fund value after initial cash withdrawals, with more specialised advice available at 3 per cent. Both tiers are capped at £1,250.

Launched in April, the service is currently offered to customers of corporate partners such as Phoenix.

Intelligent Pensions has provided a regulated online advice service since October for members of defined contribution schemes for a flat fee of £150.

Marketing director Andrew Pennie says the firm views any advice provided without personal recommendations as guidance, and felt it was important to go further.

“We are very much of the opinion that drawdown requires a bit of expertise and if you don’t have that level of conversation with a tailored, personalised recommendation, then you are going to have people investing in the wrong things and getting poor results.”

Finance & Technology Research Centre director Ian McKenna bel-ieves firms that stop short of tailored recommendations are looking to play it safe.

“The challenge with personal recommendations is if you are asking people to build low-cost services that still provide recommendations, and all the risks that entails, at some point you have to factor in the risk premium.

“If you are taking on a liability, then the cost of providing for that risk is going to be greater.”

McKenna says a wider range of support services for customers is positive but wants to see a clearer framework emerge around when firms are liable for future claims against poor advice.

He says: “The direction of travel is certainly improving and it’s good that those services are evolving but do we have a really clear landscape at the moment? No.”

An alternative view

New trade body Libertatem director general Garry Heath says the industry may have to revive some form of commission if it is to engage consumers who were disenfranchised from advice by the RDR.

He says: “Some advisers will think the RDR has been a good thing but for those who are based in less affluent areas, their client base will not pay upfront fees.

“Where do all those people go for advice?

“The regulator’s argument against commission was not that it existed but that there were differential rates which determined which adviser got what business.

“We could come up with a single price system for a group of advisers, which would ensure providers couldn’t be seen to be buying business. The fee could be added to the cost of the product and paid off by the customer over the term of the product. It could be collected by the provider or by a trade association as a direct debit.”

But providers say the move would be a complicated “backward step”.

Partnership head of product dev-elopment Mark Stopard says: “We are naturally concerned about the advice gap and this is an interesting concept which could provide access to advice for those who need it.

“However, bringing commission back into the mix could be seen as a backward step and a great deal of thought needs to go into this idea in order for it to succeed.

“The use of commission to differentiate companies’ product offerings was not the regulator’s only concern.  Many consumers believed the advice was free and did not fully understand the impact of commission on the amount invested.”

Stopard says consumers may continue to baulk at the cost of advice, even if spread across several years.

He adds: “Paying fees over the term of the product would be a challenge for long-term products such as annuities which people could conceivably hold for over 30 years.”

Standard Life head of pensions strategy Jamie Jenkins says: “I don’t think there would be a regulatory app-etite for returning to any form of commission.

“Providers are also unlikely to be keen because they have adjusted their models and systems to a fee-paying structure. The real issue is the cost of the advice process to the adviser rather than how they are paid, and I would rather the focus be on making simplified advice work.”

Lewis says: “I have a lot of empathy with the issue but creating a common commission rate is going to be difficult. If everyone charges the same fee, what incentive is there for them to improve their service?”

Adviser views

Lee Waters, chief executive, Barwells

We do an “ask the expert” session priced at £99 plus VAT which comes without a recommendation, and we’ve found it quite popular. There is definitely a gap in advice, but it’s all about finding ways of bridging that. We’re thinking about expanding it into a longer session and providing a recommendation at the end of it for an increased fee.

Colin Rodger, managing director, Alexander Sloan Financial Planning
The Hargreaves model seems quite expensive when it is not actually giving specific advice. Rates may be different in different places, but up here in Scotland, I’m not sure it would get many takers.

Expert view

Phil Young, managing director, Threesixty

There has always been a question mark around the word advice. In our industry we understand it to equate effectively to a personal recommendation, whereas lots of people will read it as something else that would not qualify under the regulated definition.

Firms will need to be particularly careful around the terms that are being used to avoid slipping into the words of the customer.

And when advice is provided they will need to be absolutely crystal clear whether it was, or was not, advice at that point in time.

All these firms might provide perfectly good service – and all are big enough to make sure that from a regulatory point of view there is not too much of an issue around it.

But will these services represent value for money? And how helpful can they be if it is just generic advice?

If you look at models out there, there are plenty of protection providers over the years that have provided a non-advised service for more of the commoditised end of the market.

People have generally been quite happy with that but then that was done on the basis of commission.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Christine Brightwell 3rd July 2015 at 9:47 am

    The fact that providers are trying to bridge the gap is heartening .

    But- if an individual who is not used to dealing with retirement income decisions, so most of the rest of the world then, has a consultation face to face with a fully qualified adviser they are really not going to get the point that there is no recommendation for them personally. They just won’t get it. ” Went to see the adviser, very experienced, knows what he/she is talking about – told me this this and this and what would work for me and the savings I have”. That will be construed as full personal advice to them. The fact that the fee may, in pension industry terms, be diminutive, will not be any indicator to the individual – even £199 will seem like a lot of money to pay.

    I cannot help but feel that there is a role for a bit of “nanny state” here. If the Government funded a bit of proper advice (that’s ADVICE – and paid MONEY to the qualified ADVISER) for each retiree it may save many £ in State benefits in the future as people understand better how far their savings can be stretched.

  2. HL describe their service as “very clearly generic advice”. But “generic advice” is very clearly an oxymoron! This proves the point that the situation for consumers is more confusing that it has ever been. I don’t agree that “the vast majority of consumers are looking for a recommendation”. A large proportion are, but I think an equally large number of people want a detailed independent explanation of their options and a low cost whole-of-market service for arranging their desired transaction.

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