My definition of a simple product is one which is clear, concise and easy to understand. Something which fits nicely into existing arrangements and takes little time to explain. A product proposition to which the consumer can honestly say: “I understand exactly what this is and what it means to me.”
You may recall that some years ago the current Government decided the Pep and Tessa regime needed to besimplified to encourage more people to save for the future. You may not agree this objective was achieved.
Indeed, there has been great demand from many quarters that the current rules for Isas should be “simplified” to encourage more to save. This, of course, ignores the point that the reason why many people do not save for their future is that they simply do not have any money.
Perhaps naively, we thought the much heralded stakeholder regime would provide a simple pension plan. The reality is that stakeholder pensions are quite complex and there is a very real danger they will become the pension equivalent of the Isa.
We should not fall into the trap of confusing cheap with simple. Stakeholder pensions are going to be cheap, cost-effective products, introduced as they are with the 1 per cent Catmark, but you only need to take a look at the latest draft of the Inland Revenue Guidance Notes,Personal Pension Schemes (including stakeholder pension schemes) IR76 (2000) to realise just how complex a vehicle they are.
Do you, for example, know what a “basis year” is? Have you yet worked out what a “qualifying post-cessation year” is? Have you been able to come to terms yet with a “reference year”? All this terminology needs to be understood and potentially communicated to the consumer and this is the simple product that we were promised!
In their desire to make pensions simple, the rule-mak-ers have added yet another layer of complexity. This is because, rather than starting from a blank piece of paper, they have once again tinkered at the edges. The tinkering continues with the introduction of Individual Pension Accounts. What on earth are they all about?
The really good news is that the IFA is needed more today than ever before. Despite what you may read about decision trees, information on the internet and workplace marketing, for the vast majority of consumers, a face-to-face meeting with a trusted adviser is still the only way they are going to make sound financial decisions. But the IFA will only be trusted if they can prove tothe potential customer that they can add value.
Unless advisers keep upto date with the changesand understand the ramifications of these changes, they will quickly lose that trus-ted status – we are trustedby the way.
When you read of surveys carried out on the public perception of IFAs, remember there is the world of difference when comparing survey results between those people who have used an IFA and those who have not.
There is a price to pay for keeping abreast of these changes. It makes no sense for the IFA to rely upon providers for their educational needs because the pace of change is so rapid that, by the time your friendly provider reaches you, further developments will have already happened.
It is up to each IFA to keep themselves up to date. If you have not already read the practice notes mentioned earlier, then you are already falling behind and how can you honestly put yourself forward to clients as a stakeholder expert?
All the information you need about stakeholder is freely available on the internet. In addition to the guidance notes mentioned above, there are draft model rules and draft statutory instruments setting out exactly how these plans will work.
This is indicative of the power of the internet as a source of information but not a source of advice. People provide advice, not machines. There is only one source of advice on stakeholder pensions and that is you, the IFA.
Nick Bamford is managing director of Informed Choice.