New Labour, new ideas, new pension – or maybe not. You can almost picture the scene can't you, Labour gets into power and sits around saying “Blimey, what do we do now? Oh yeah let's start a private pension scheme to encourage the less well off to provide for their old age and take some of the burden away from the state.” Good idea. It's just a decade too late – the Tories did that in 1988.
But wait, New Labour are going to call it stakeholder and make it really good value by ensuring people cannot get advice on their pension choices and by capping chargesat 1 per cent a year.
Add decision trees so that no one will want or need any advice anyway and then all these people, especially the lower-paid, who have a higher propensity to consume and cannot afford to save in the first place, will rush out and buy stakeholder pensions.
But by all means avoid the issue of the minimum income guarantee or people may realise they will be better off spending their hard earned cash – or worse – get confused and ask for advice.
However, the chancesare that this Government will not be in power when the stakeholder pension review hits the headlines, so why should they worry?
Not exactly the dream client every IFA wishes for.
But there are ways of dealing with these issues, two of which I heard recently. The first is that IFAs do not have to advise anyone about anything if they do not want to. And the second is that we are not only professional advisers, we are also professional persuaders.
But if you became an IFA to encourage people to save for the future and provide for their dependants while earning a reasonable living, telling a client to go away does not sit well. So why should you be put in a position where you have to consider turning your backs on people who need you? It is because the lower-paid simply cannot afford to pay professional fees and the Government's war on commission, which it could be argued was the only practical solution to the problem of how to remunerate the adviser, has taken it out of the realm of those who need it most.
People do not just go out and buy a pension. There is an element of selling or persuasion involved. This is a necessary and quite natural part of the advisory process, showing people that a financial need does exist and persuading them to take action.
This is a part of what IFAs do and as a result a part of what we get paid for. If the pay is removed, the consumer is the loser. The IFA has many other markets to service which are much more lucrative, such as income withdrawal and small self-administered schemes. In addition, there is the whole range of personal and business financial planning to occupy our time.
So if the powers that be want to avoid ending up with a stakeholder marketplace serviced by half a dozen product providers and only a handful of IFAs with big affinity groups, they should be promoting and encouraging the provision of independent advice.
Take decision trees for example. They should have a big misbuying warning on page one along the lines of “You are strongly advised to seek independent financial advice before committing yourself to buying a stakeholder pension.”
Another warning could say: “You will normally have topay for the cost of this yourself, so do ask your adviser for an estimate first.”
But what if the consumer decides he cannot afford it?A line offering state help to pay for financial advice to the less well off would be nice but not very realistic.
In the meantime, IFAs will have to seek out affinity groups and develop their contactswith employers to avoid any planning blight.
In an age where more information becomes available, people will become more confused not less – Isas being a classic example. Greater choice is a good thing but it means greater complexity and a greater tendency to seek out advice – good news for the IFA – but someone has to pay.
There is clearly a need for advice and we cannot, as an industry, throw away theprofessionalism that IFAs have fought for at the first big hurdle.
What we need is abalance between good value for money for the consumers, a reasonable level of profitability for the provider and fair remuneration for the IFA.
Destroy any one part of this happy triangle and you risk ending up with justa couple of directionless straight lines, heading nowhere in particular.
Richard Eager, Technical director, M&E Network
