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Alan Mellor: Beware the annuity wolves in sheep’s clothing

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Pica’s new website launched to enable consumers to find at-retirement help has been promoted as a balanced guide to identify companies that can help them access the best solution to their retirement problems.

Governments, marketing men and even our regulator use the ‘nudge’ principle to move people in the direction they want, and to subtly change behaviour. Sadly, the approach Pick-A looks to be using is to nudge consumers towards its preferred outcome.

Pica sounds like an industry body. You would hope and expect it to be representative of the industry, but is it?

Ros Altmann, in her blog, has highlighted the disparity of the original language used on the site. Opting for a guided service was described positively with words such as:

  • ‘helpful’, ‘comfortable’, ‘explain everything’, ‘all the information you need’, ‘highly qualified’, ‘put you in the driving seat’, ‘less expensive’.

But when it comes to advice, the words used were negative:

  • ‘complex’, ‘time-consuming’, ‘ask you questions about your finances’, ‘appropriate qualifications’, ‘have to charge you a fee’, ‘more expensive’.

The nudge on price is less subtle. The claims that advice “may be more expensive than choosing a guided solution”, while accurate, nudges clients to what Pica wants them to think, i.e. advice = cost. Balanced? Or is this the spin of those wishing to push execution-only sales and earn sales commission?

Sadly PR for the advice business is more dissipated, less organised and less effective.  

So what of qualifications? Everyone working in an advised business knows that to offer advice, qualifications are needed. Here’s what the directory says about a non-advised ‘guidance’ approach:

  • Firms offering ‘guidance’ don’t have to comply with the same standards, but some do. That means it’s often the case that you’ll be dealing with someone as highly qualified as an adviser.

This is incredible. Is the spin used to make this comment backed by research? Is this balanced? Perhaps each firm represented should have to disclose how qualified each of their ‘guiders’ or advisers are.

And finally when you get a range of companies who can offer guidance or advice, how have the indicative costs been validated? Many seem fanciful. My research produced a company offering a nil charge. Really?

Some seem to want to give Pica the benefit of the doubt, suggesting this is a valiant attempt to provide an impartial directory, but I don’t. This is a cynical attempt to appear balanced whilst manipulating consumers towards commission-based execution-only sales.

After initial feedback from advisers some of the most biased lines have been toned down. Perhaps if Pica had a willingness to interact with the advice market a more balanced approach would be achieved. Advisers need to be vigilant about wolves in sheep’s clothing, as Pica appears to be running with the wolves.

Alan Mellor is managing director at Phillip Bates & Co Financial Services

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Well said Alan. As you may recall You & I tried to have a local ‘trawler’ of pension leads be open and honest in their advertising but without success and there is no regulatory power to intervene.

  2. When will a regulator ever learn as they bleat on about making sure that consumers are protected and given high quality advice in the area of annuities but in the same breath failed to regulate marketing firms.

    How many of us independent financial advisers have made complaints to both the FSA and FCA about marketing firms and journalist websites like MSE only to be told that they are exempt from regulation.

    Now that we see newspapers picking up this story is it about time that politicians and regulators make amendments to the law make a legal this practice. After all how can you give guided information (ADVICE) through an information only service without holding any authorisation and still profit from financial services.

    All of these firms are doing is pushing up the cost of financial advice to the consumer!!

  3. Alan, great point “Sadly PR for the advice business is more dissipated, less organised and less effective”

    This is so true unfortunately. The point seems to have been missed that consumers should shop around but also take advice at retirement. Interestingly of all the retirees that come to us as a company over half don’t end up with a traditional annuity as other options are more appropriate to their circumstances i.e. Fixed Term Annuities, Invested Annuities, Capped and Uncapped Drawdown.

    How many consumers who go to brokers will get the right investment for their circumstances?

    The problem that you have highlighted is so clear when you see the big names like Tom McPhail who is a big part of Pick A also being a big part of the biggest Non Advised annuity distributor Hargreaves Lansdown. It is no surprise to me that the agenda of Pick A and the wording on their site is deemed to be favorable to the brokers and Non Advised operations at the expense of Full Financial Advisers and that the misconception about the cost of IFA’s fees is propagated throughout their wording.

    I’m just glad that they don’t seem to be getting away with it!

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