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Do investors know when they haven’t had advice?

The more I think about what it means to be independent, the more I realise there is some kind of moral stance to be taken here.

I know enough ex-bank, execution-only and certain other tied advisers who tell me their previous life was completely restricted in every sense.

They all have ways of glossing over their own shortcomings to the point where there must have been some kind of regulatory dereliction of duty, not to mention a moral one.

Indeed, despite our profession’s written undertaking to act in a moral sense, this is a simple notion being openly avoided every day.

One could argue such advisers are shirking the moral duty of care simply by existing.

However, trying hard not to get too philosophical about this, there are more complex areas such as defined benefit transfers that really feel like they are on shaky ground. There are several observations that make me feel uncomfortable.

There is a complete – but not entirely clear – dereliction of responsibility regarding DB pension transfers by effectively passing the liability to the client.

Sure enough, this has been spotted by the FCA, which has dodged the bullet by insisting any transfer over £30,000 comes with advice.

But what an arbitrary and frustrating idea this is, especially for those clients who think they understand the subject and who simply want to transfer without the unnecessary involvement of a high-charging adviser.

Obviously that is a different story for another day.

I would argue most clients do not understand these things, with non-IFA purveyors of advice publishing “guidance” designed to placate them with their carefully-worded caveats and warnings.

It is a strong suspicion of mine that hardly anyone reads them, let alone understands the repercussions. Even worse, will the client know if they are giving up guarantees?

And will they ever find out, blissful in their ignorance? They will not know what they have lost until it is gone.

When is advice not advice

In any case, that is of no concern to the discount firms. What a great model. The literature makes it all sound lovely, shiny and fresh. It may well be, and it is certainly easier for clients to see and manage their holdings.

But are we sure that, with all the encouragement and confident sounding notes, that the client is not being fooled (and I do not mean maliciously) into believing they are receiving advice?

Even though it says they are not, will people read it or actually understand it?

I have learnt in all walks of life that even though you think you have made something staggeringly clear, people are still perfectly capable of missing the point.

“Are we sure that, with all the encouragement and confident sounding notes, that the client is not being fooled into believing they are receiving advice?”

It is up to all of us – but mostly the regulator, to make sure the investing public fully understands the difference between actual, regulated advice, and perceived advice.

The difference between quality information and actual advice is very subtle and I would wager we are building another problem for our sector by being too laid back about the difference.

The current diaspora of DB assets to defined contribution is a potential disaster in the making. Equally, though, it may be a once- in-a-lifetime chance to really boost pensions. The trouble is, none of us know.

Tom Kean is director at Thameside Financial Planning



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Tom your challenge is spot on. We have been measuring a client’s perception of a service they have been receiving from a self directed proposition. Over 3 years, around 25% of customers felt they had advice and or misunderstood an aspect of their purchase. We also know that consumers couldn’t distinguish from the different regulatory advice labels used in the FAMR report, when tested. My suggestion was to use 2 industry approved icons. One says you the customer are responsible for actions taken. The other say we the provider are fully responsible if you follow our advice.

  2. If people come to me, what they get is advice (in the areas on which I’m authorised). If they go elsewhere and do or don’t get it, why should I care?

  3. #Nick Baker – the icon idea sounds like a good start. That said (and I paraphrase) didn`t someone from the FOS once state: “if the customer comes away feeling that he/she has received advice, then he/she probably has”?

  4. Good piece on moral responsibility, but let down by this point:

    “[T]he FCA … has dodged the bullet by insisting any transfer over £30,000 comes with advice. But what an arbitrary and frustrating idea this is…”

    Well Tom, before that other day comes round when you pontificate about that, bear in mind it was the DWP that brought that piece of legislation in so your proper target is the minister for pensions – which was Ros at the time IIRC.

    @ Julian – you should care because you pick up the tab. As you are always reminding us.

  5. I think Tom has written a brilliant piece and I totally agree that people often sleep walk into making decisions without advice thinking there is some advice somewhere only to regret it later on.

    One of the things not mentioned is the unlevel playing field between regulated advice and non-advice. I have the scars on my back to show how hard it is to stick to both the letter of the law and the moral duty of care while others play by a completely different set of rules.

    The government should create a level playing field between all distributors and advisers of financial products to avoid further customer detriment.

  6. For me. The elephant in the room is Pensionwise, which only offers guidance.

    How many customers really understand the difference.

  7. An interesting article that brings up a strong moral debate, which in many cases comes down to customer understanding (or lack of it). Historically advice was paid for by commission and hence post RDR consumers still might think advice is free, leading to confusion and a general lack of understanding. This is why many people will go in with their eyes closed, often being faced with advisory businesses who have moved away from giving advice, in favour of providing something light touch to avoid having to take on advice liabilities and charging sizeable fees. This has left only a small number of people who are able to afford and receive advice through IFA’s, who in many cases still mask fees through AMCs. So where does this leave the consumer? Often further in the dark and being left to find their own way in among the disclaimers and small print. The only real way we can address this ever growing issue is by utilising technology, like the Wealth Wizards platform, to reduce the cost of providing regulated advice to the masses. This has to come with a bullet proof audit trail that can deliver advice at scale, in a responsible way.

  8. When is advice not advice?

    When it matters, i.e. something goes wrong. The distinction is only ‘live’ for clients when it comes down to who pays the redress. Perhaps that’s simple enough for all clients to understand. Two logos, one with “Advice Assured” and another with “Guidance Only” or similar. That would also make it easier for regulators and commentators (Paul Lewis?) to point clients in the right direction.

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