The vexed question of who should provide advice to stakeholder pension investors will not go away. And it is not just stakeholder.
Who will provide advice on the whole area of financial planning, savings, insurance and the like if the 1 per cent maximum charge becomes more or less universal for all products?
The FSA has enraged the IFA industry by admitting that it would, in an ideal world, like to extend its existing educational role and offer online financial advice to the public.
There are some obvious problems if the FSA were to acquire the powers – not to mention the money – to develop what would become, in effect, a national financial advice service.
Since the last Tory Government arguably precipitated one of the worst financial disasters of all time, the pension misselling scandal – by encouraging large numbers of employees to opt out of Serps and invest in a personal pension without realising that many would also opt out of good occupational pension schemes at the same time – the cock-up potential if the FSA were to take on the role of national financial adviser looks pretty high.
Moreover, since the FSA is the financial services regulator, who will regulate this advice and who would pay compensation if the advice proved to be wrong?
Unless the national financial advice service was independent of the FSA there would be a clear conflict of interest. This could, of course, quite easily be achieved – IFAs ignore this potential threat at their peril.
However, the problem of how to advise small investors is not going to go away. Nor is it something that the Government, or for that matter IFAs, can afford to ignore. If IFAs have any sense they will see which way the wind is blowing and head off the competition.
The Government has a vested interest in ensuring that individuals make adequate provision for their financial security, most import- antly in old age but also throughout their lives. If they do not they will become a burden on the social security system and the taxpayer – and eventually the taxpayer will refuse to pay.
Legend has it that consumers will not pay fees for advice. There is no doubt that there are large numbers of potential customers who are not only reluctant to pay but genuinely cannot afford to do so. But the situation will not improve so long as product providers and IFAs pretend that advice is currently “free” when we all know that the consumer is paying for it in the pricing.
Low-income families, if they can afford to save at all, certainly do not need to have large chunks of their investments eaten up by hefty commission payments hidden in the pricing. The 1 per cent maximum charge on stakeholders was an attempt to put a stop to that.
But this puts IFAs in a position where there is genuinely no fat to pay for advice at all. This is no bad thing if it turns them into proper fee-charging professionals. But it still does not solve the problem of those who cannot afford to pay for advice.
There are a number of possible solutions worth considering. IFAs would be well advised to take on board the obvious shortcomings of the service they offer.
The most obvious initiative would be for the FSA and/or IFA Promotion to promote a “voucher” system where anyone who needs impartial financial advice gets a voucher which can be cashed in for, say, two hours of genuinely free advice from an IFA.
No doubt lots of penny-pinching Scrooges who could well afford to pay for advice would take advantage of the system. But so would – hopefully – hundreds of thousands, if not millions, of less well off individuals. If they like what they hear from the IFA and it makes sense most IFAs would round up a substantial amount of valuable new business. It is worth considering.