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Can providers crack the low-cost advice problem?

Providers are developing low-cost advice solutions in collaboration with advisers to widen access to at-retirement advice in the run-up to the Government’s pension reforms next April.

Amid growing concerns the guidance guarantee will not be enough to prevent consumers from making poor decisions at retirement when the new freedoms come into effect, providers are looking to referrals and simplified advice to nudge consumers towards regulated advice.

But experts warn advisers should be cautious about entering into these arrangements as they could fall foul of the FCA’s inducement rules.

Provider proposals

At the Personal Finance Society annual conference in Birmingham last week, providers raised concerns that consumers entering into drawdown arrangements may make poor investment decisions without ongoing advice.

Just Retirement group distribution and marketing director David Cooper said: “My nervousness around investment strategies for drawdown is that mass-market customers cannot withstand much or any loss. The risk of somebody being sat in a global equity fund up until their 90th birthday is going up and up.”

Royal London chief executive Phil Loney added: “A drawdown arrangement requires a lot of ongoing advice, and we still do not have an environment for mass-market advice or a national strategy to make advice more affordable.”

Loney says Royal London is developing plans to reduce advice costs by sharing client data with advisers, and facilitating referrals for non-advised customers.

He says: “A lot of people don’t realise how much time and effort goes into recruiting clients, and pooling together data to give the advice.

“We can help with both of those things by introducing our non-advised clients to advisers, and passing on information.

“Advisers tell us if the client comes to them with all the factfind information in place, it takes about 50 per cent of the time out of the advice process. I do not know how much it costs advisers to recruit clients through lead generation sites and other means, but I know we can do it for free.

“We want to capture that benefit and pass it back to the consumer.”

Loney says it is “early days” for the project and Royal London is speaking to a number of different parties about how the referral process would work. One option would be to refer clients to a panel of advice firms.”

Loney adds: “We do not think other providers will do this because a lot of them are just going to want to shunt their customers into their own direct offerings.”

Just Retirement, meanwhile, is working on a simplified advice model which advisers can white-label.

Group external affairs and customer insight director Stephen Lowe says: “When the reforms kick in in April, the guidance process will help consumers understand how complex at-retirement decisions are. And for most people, simplified advice will be more suitable than full advice or non-advised.

“Rather than looking at D2C offerings, we are creating a simplified advice solution that can be white-labelled by advice firms.

“We are working with a number of advisory businesses to get their input, but we believe it will be most suitable for medium to large firms as it requires some kind of scale to make it work.”

Lowe says the model could be applied to both telephone and online services, but he expects most firms will want to use some form of telephone or face-to-face support.

He adds: “We will be able to start sharing it by April, although it is unlikely to be the finished product by then.”

Close relationships

Many advisers welcome the moves by providers and hope they will prevent a flood of customers into D2C offerings next April.

PFS chief executive Keith Richards says: “We welcome the news that providers are looking at ways to work more collaboratively with the advice profession to potentially increase access for the mass-market and deliver better outcomes for consumers.

“Access to advice has been a growing concern and while some advice firms understandably want to focus on wealthier clients, a significant number are willing to respond to the likelihood that more consumers will need their services.”

LV= head of distribution Steve Lewis says the Budget reforms call for a “much closer relationship” between advisers and providers.

He says: “In an income drawdown market, there is going to be much more information required every year compared to an annuity-based market. That will come at a cost to the adviser and is where providers can play a greater role, while remaining respectful of the adviser and client relationship.

“We are open-minded about having a method of referring non–advised clients to advisers. At the moment we use, but we would need to be mindful of the FCA’s inducement rules if we introduced a new strategy.”

Others have raised concerns that insurers’ plans evoke uncomfortable memories of the cosy relationship between providers and advisers that the RDR sought to eradicate.

Informed Choice managing director Martin Bamford says: “Acquiring new clients is always a challenge and marketing activity is expensive, so I don’t think many advisers would turn down the opportunity for new clients. Having said that, the idea of referrals from providers feels indicative of the unhealthy industry relationships the market is trying to move away from.

“It is welcome if providers are doing this for the right reasons – to give orphan clients a route to advice – but I suspect they are doing it for the wrong reasons: to create an obligation on the adviser and to sell more products.”

Independent regulatory consultant Richard Hobbs warns advisers looking to get involved in providers’ plans could be breaching either the FCA’s inducements rules or independence requirements.

He says: “What providers are talking about is an implicit subsidy that somehow does not fall foul of the inducement rules. Even so, advisers receiving this assistance are unlikely to be able to hold themselves out as independent. I am sure Just Retirement would argue that if the adviser is paying a fair price for its white-labelled service, it is not an inducement. But the regulator would look very hard for evidence of bias and the recommendations coming out of such a system.”

Pension passport

Others argue the industry should be focusing on different areas to help bring the cost of advice down.

Hargreaves Lansdown head of pensions research Tom McPhail says: “Hargreaves Lansdown has developed a telephone advice team that can do relatively straightforward transactional advisory services. That is the kind of development that we and others are already rolling out to allow people with more modest needs and budgets to access regulated advice.

“The sharing of data is fundamentally a good idea but clearly there are data protection issues.

“I would also sound a note of caution about the sharing of factfind information because the process of asking the questions and capturing the data is very important and using that data second-hand risks misunderstandings.”

Many argue data sharing will only have a significant impact on advisers’ workload if all providers are involved.

Last month, pensions minister Steve Webb backed calls for a pension passport to be introduced to improve the information savers receive from providers about their retirement options.

The idea, first floated by the Pensions Income Choice Association, would require savers to answer a set of questions about their health and marital status before buying a retirement income product.

Lowe says: “If all providers produced a pension passport in the same format, the adviser would have pretty much perfect information on that customer.

“The pension passport could be brought to market as early as next year and would save some of the data collection costs for the adviser.”

Partnership head of product development Mark Stopard says the provider continues to lobby hard to make the pension passport a reality.

He says: “Post-April, advisers will need really slick processes in order to give advice at the same cost as they did pre-Budget changes, but covering much more complex issues.

“There are two solutions to that. First, we need to have the pension passport in place so the adviser does not have to spend weeks chasing and checking information.

“Second, as providers, we need to do everything we can to provide information to advisers and access to our people, to help them better understand the different options and new products available through guides and online tools.”

Standard Life head of platform propositions David Tiller says the provider is “looking closely” at how it can best support advisers in managing their relationship with less profitable clients.

He says: “We want to create the right model and this is likely to include a level of adviser service to justify any fees they may wish to charge. An execution-only solution will not deliver this. 

“It’s also important that any model that firms and providers create complements, rather than devalues, a full advice service.”

Other providers are also looking at simplified advice offerings, with the Association of British Insurers last month raising concerns that providers’ efforts to develop “mass-market” simplified advice offerings in time for April were being thwarted by the FCA.

As providers continue to develop their plans over the coming months, advisers must keep a sharp eye on what this means for their own business – and staying within the regulator’s rules.

Expert view


The Government’s guidance guarantee service will deliver some kind of help to consumers, but for a lot of clients that help will be a recommendation to seek professional advice. And given the high number of consumers with lots of small pension pots, the market is going to be crying out for low cost at-retirement advice in the run-up to April and beyond.

Companies with large non-advised client banks are in a very good position to give a better service to their clients by referring them to advisers. Having worked with a number of those organisations, many advisers would be surprised at the quality of the client bank. In the large insurance companies there must be at least 10 million clients without an adviser, and some of them would be very attractive to advisers.

I am not sure how much provider referrals would save advisers in costs, however, as a lot of advisers get most of their clients from referrals and do not spend a lot on marketing.

From a regulatory perspective, providers will also need to be very careful in how they refer clients to advisers. On the one hand, you are trying to give clients a better service, but on the other the regulator might see it as an inducement. 

Using a directory such as would be one option while using a panel of advisers would also make sense as it would mean the provider cannot be accused of trying to influence the client. One provider will not have all the information on a client with multiple pots but gaining some information on a client prior to the meeting would still be very helpful for the adviser.

It is positive to see providers willing to work with advisers in this way. But this is not necessarily a sign of providers moving away from direct-to-consumer offerings – they can do both.

Malcolm Kerr is senior adviser at EY financial services

Providers’ plans for low-cost advice

Royal London: In discussions with advisers to make client referrals and share client data.

Just Retirement: Developing a simplified advice model which advice firms can white-label.

Standard Life: “Looking closely” at how it can support advisers in serving less profitable clients.

Partnership: Plans to support advisers through online tools and access to staff.

LV=: Looking at providing more regular information to advised clients, and is open-minded about referring non-advised clients to advisers.

Adviser views

Justin King

Chartered financial planner

MFP Wealth Management

We spend an awful lot of time gathering data, and if the customer already had all that information in their hands it would be much simpler for us and would allow us to reduce our costs.

Carl Lamb

Managing director

Almary Green

It is all very well providers wanting to make things simpler for advisers, but what people are missing is this is still a highly regulated area. Referrals from providers would have to come with caveats because, ultimately, providers are trying to mitigate their own risk. 


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There is one comment at the moment, we would love to hear your opinion too.

  1. Of course they can – they are working very hard to produce ever mote crap products and further degrading their already abysmal levels of customer service.

    For many life office you now have to beg for a decent contract note showing units bid & prices at date of purchase for any single premium contribution.

    All they have ever wanted are regular premium contracts which they hope will enhance their cash flows as a result of client inertia. AS they have always done they want the old system of sign ’em up and forget ’em. Only now the products charge a lot less and are (to use a furniture analogy) not even as good as flat pack. – Cardboard furniture in fact. Very cheap. Looks OK at purchase and then falls apart at the first sign of dampness.

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