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Chris Davies: In support of Budget guidance

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Having spent the best part of 24 years in and around retail financial services I never thought the fact that I studied English Literature at degree level would be of any use apart from an initial door opener to job interviews.

But with the latest regulatory and Government policy directives we have a need to get to grips with terminology and transparency of intent. Never more so than the current shake-up of the retirement market.

Here we go again with pension simplification round two. But this time, retirees have two simple options, freedom of access to their pensions and impartial guidance to help them with this huge opportunity and responsibility.

Unlike Liberal Democrat Mike Thornton in his recent interview with Money Marketing, I believe guidance does exist and is a necessary component to the consumer decision-making process. Quite simply we need to keep in line with the regulatory direction of travel for a more holistic service based around clients’ needs.

By asking consumers to think about their current issues and desired future without offering initial solutions, we have a guidance process that can delve into their retirement needs without proposing any advice-led action.

If we focus on what clients need and want at retirement both in the short-term and long-term, we have a template to build a guidance process, which can be a natural predecessor to advice.

Industry commentator Ros Altmann’s definition is worthy of note: “Guidance helps people discover the questions they need to ask and advice gives them the answers”. This leads to implementing a coaching-based model that can involve questions and techniques to awaken consumers’ curiosity.

If anyone is familiar with coaching, if delivered correctly, it is based on helping individuals to work through their issues by themselves, in their own time. For instance, the below would act as a good framework for structuring impartial guidance questions:

  • What is the desired future for the retiree both in the short and longer term, what income do they need, what lifestyle do they desire?
  • Where do they stand currently against this on a scale of one to 10, how does this make them feel and what is needed for them to move forward?
  • Where are their assets now, what resources do they have and need to include, what are their values, how is their health and related family history, are there any dependents, and what do they know about state benefits and what their current pensions will deliver?
  • What would they like to do next, what resources do they now need, what trade-offs do they need to think about to ensure desired outcomes are realistic?
  • When do they want to actually sit down and take a good hard look at their options?

Place the regulatory need for consumer perspective, priorities, objectives and resources around this structure and you have a powerful guidance-driven structure that allows consumers to take the first step in retirement planning.

The problem has always been the industry’s transactional nature. The desire to sell a product before deep diving into consumer needs and wants has always led to poor outcomes. There is now a mass hysteria building around the £19bn in pension pots and the ‘art of drawdown’. Yet the RDR’s focus on fees, transparent charges and qualifications and services means guidance can now co-exist along with advice.

Bring simplified and automated advice into the conundrum then we have a potential solution for the underserviced mass market.

Providers and advisers now have a responsibility and opportunity to define impartial guidance. By incorporating technology in the guidance process, for example using app-based questionnaires or Skype-based guidance calls then costs can also be managed and efficiencies incorporated. (Think NHS Direct symptom checker).

It is also quite obvious the regulator needs to do its bit and take a good look at the COBs rules, and see what can be done in allowing guidance to develop as well as simplified advice solutions. Clear boundaries around when suitability applies will help.   

If it is advice or nothing, then we are taking a backwards step, which can alienate those who need help with potentially life changing decisions. By defining guidance as a ‘coaching’ based service and using regulatory-led structures, the industry can begin to place client needs at the centre of services. Advice should then be a natural outcome once the consumers have satisfied themselves they have enough information, confidence and trust to take the next step.

Chris Davies is managing director of Engage Insight 

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