Big Bang, RDR and pension freedoms ‘nightmare’: A 30-year advice evolution

Money Marketing has played a major role in catering to a readership which has evolved from the door-to-door direct salesforces of the life insurance industry to a professional body of advisers during the publication’s 30-year history.

PR agency Lansons chief executive Tony Langham described the title as a “critical friend” to the financial services industry during his opening address at a roundtable event to mark Money Marketing’s 30 anniversary.

Speaking at The Langham hotel in London last week, he was joined by current and former Money Marketing editors as well as advisers, long-standing columnists, contributors, political pundits and providers to reflect on the momentous financial changes that have occurred since the title launched and consider where the industry is headed in the future.

Langham said: “Thirty years is a long time and it really does deserve marking. What the industry has needed and what it needs is a critical friend. It doesn’t need cheerleaders. I think Money Marketing has been a critical friend.”

Panellists discussed the most significant events that had shaped the sector since the first copy of Money Marketing rolled off the presses in 1985.

The Financial Inclusion Centre director Mick McAteer said: “The single event that led to the North/South divide was when the housing market nearly crashed the economy in 2007/2008. It heralded the low interest rate environment and that has really wrecked the long-term sustainability of a lot of our mainstream financial sectors.

“But the biggest single event overall to hit financial services was the Big Bang in 1986. It led to a massive liberalisation of financial markets, and to a tremendous misallocation of resources away from the real economy into asset price bubbles.”

Others described the cultural shift in Money Marketing’s core readership over the years. Freelance journalist Nic Cicutti, who joined Money Marketing in 1992 and has written for the title ever since, remembered how he had first picked up a copy of the paper in an estate agency, when distribution sector looked very different to today.

He said regulation had driven out the worst firms and individuals. “Those who are left, albeit reduced in number, are much better in terms of the quality of service they provide their clients. Compared to what I remember of the industry when I joined, the difference is very striking.”

Founding editor Roger Anderson noted a similar transition: “When we launched Money Marketing in 1985 it was a hugely sales-oriented business.The cliche then was that life insurance is sold and not bought. That is still hugely relevant as far as I see. There were a lot of guys who went into families and really helped them to sort out their financial affairs. Yes, they were on commission and they were earning a lot of money, but a lot of them were actually not doing a bad job and their role was being subsidised by people with very large portfolios.”

Yellowtail Financial Planning managing director Dennis Hall said: “One day you could be selling double-glazing and the next day you could be selling a yellow, a green or a blue brochure product – that’s what it used to be like when I started.”

But he added: “There’s nothing wrong with sales. We’ve got to get out there and make sure people do buy the products that will give them the kind of security they want in future life. We ought to be allowing that to be a word we can use again in good company.”

Now: Pensions director of policy Adrian Boulding picked up on the need for life products to be sold. He said: “I started in the 1980s and it was certainly true then. My then employer, L&G, had a direct salesforce of 2,500 people who went up and down the country. They only had commission to live off, they had no salary at all.”

The advent of stakeholder pensions in the Blair years was a case in point, he said. “People didn’t flock to buy it because of its low charges.” Behavioural economics dictates that you need to remove barriers to action and a reason to start saving today, explained Boulding: “That’s what automatic enrolment did. Your salesman and IFA will recognise that.”

SimplyBiz chairman Ken Davy agreed. “People do not wake up in the morning and think, ‘Now, today I’m going to save some more money. They say, ‘After Christmas I’m going to start saving, after the holiday or after we’ve changed the car’. It’s never today. That’s going to be a real challenge for the new robo-advice models.”

But McAteer argued against a return to the sales culture of the past. He said: “I have no nostalgia for the so-called man from the Pru. The average household who could only afford to save £50 per month saved for 11 years to get back less than they had paid in. And that was when stockmarkets were growing at 9 per cent per annum.”

EY senior adviser Malcolm Kerr recounted that when he began his financial services career in 1968, it was effectively “a pyramid sales force”. However, he said: “The industry has become incredibly more professional as a result of the RDR.”

Several panel members named Cazalet Consulting chief executive Ned Cazalet as one of the people whose criticisms of the industry helped to bring about the RDR.

He said: “To me it was just a nonsense of baggage going around the carousel and being relabelled time and time again.” He described commission as being akin to a “sugar rush”. “It was about hiding charges, it was a dishonest racket. Pensions misselling, with-profits products that could never have worked, split capital investment trusts, magic beans. It was utterly ridiculous.”

Continuing with the misselling theme, McAteer said: “Not only has there been £40bn of redress, but it has left a legacy of mistrust which has to be overcome. What Ned exposed was that the business models of most of the financial sector were simply unsustainable.”

Former Money Marketing editor John Lappin said the RDR had brought an end to a 10-year battle to abolish commission.  “The regulators and the politicians were confronted with a wicked problem and they failed to solve half of it,” he said. “So they had an access to advice issue and the need to drive up standards and they decoupled them. They sacrificed access which is why we are where we are on the advice gap.”

Many other speakers echoed similar concerns, including Davy. But he warned: “The bigger tragedy is the fallout from the pension freedoms. We are entering a nightmare scenario for hundreds of thousands of people that will make all the previous other scandals look small potatoes.”

He continued: “What’s happening now is  people aged 55 can access this pot of money and IFAs are being forced into the position of having to play God – ‘My wife wants a hip operation and if I don’t get this money she won’t be able to have it.’ ‘My son might be evicted from his house and if I don’t get this money I won’t be able to help him out’.”

Technology and Technical managing director Kim North said: “I’ve met clients that have drawn out everything and bought seven buy-to-let properties with absolutely no idea there’s taxation on that money coming through.”

Lappin added: “We could have a medium-sized emergency because of freedom and choice. It might even be bigger than that.”

Hargreaves Lansdown head of research Mark Dampier said: “It’s going to be a hell of a mess. The next market fall is going to be hell for people in drawdown.”

The Ideas Lab director Robert Reid had a different warning for the industry about history repeating itself.

He said: “At the moment some of the prices being paid for firms are just lunacy. Consolidators are just steadily churning people from one platform to another in a repeat of what Ned used to write about, only this time it’s the platforms that are the centre of it. They haven’t learnt – they’ve just moved the game to a slightly different place.”

Former pensions minister Steve Webb responded to criticisms of overregulation in the industry. He said: “At every point it felt to me that large parts of the industry saw the chance to slice and dice and make a margin but to the long-term detriment of reputation. Trying to undo the damage you’ve done is pretty profound. No one ever gets sacked for regulating too much but they certainly get sacked for failing to regulate.”

And for every person who came through his door calling for deregulation, there would be another who said, “This is broken, you must fix it”, he recalled.

Webb admitted some people would “make a complete mess” of their newfound pension freedoms, but others with small pots would be able to take the holiday of a lifetime or pay off their debts instead of being forced to buy an annuity.

He added: “Just think what a triumph auto-enrolment is and everyone around this table has been a part of that. Ten million people give or take will have a pension in five years’ time that they didn’t have five years ago.”