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Kim North: The advice gap is becoming a vast chasm

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The nice people from LV= tell us that in order to be happy and enjoy our golden years for a 17-year retirement period, a pension pot of over £225,000 is needed to provide about £11,000 a year.

Any one reading this commentary will know that one of the most important financial planning issues is ensuring that an annuity purchase is the most suitable and pays the highest amount for the retiree.

The Financial Services Consumer Panel said last week that insurers are making profits 20 times greater on annuities than on other products. Well that’s not very goodwill to all men, is it?

This story broke within a few days of a TV exposé of one of my favourite shops.

As we finish our Christmas shopping thousands of us will pick up stocking fillers at TK Maxx. But lo and behold, the US department store has been accused of misleading shoppers by making consumers believe they are making bigger savings than they actually are.

The innate responsibilities of the retail world are important to financial planning. No one can financially plan for the future properly until debt with interest is cleared. The reason for debt is overspending. Full stop.

During my many years as an IFA I would help coach younger clients not to buy dozens of designer handbags or shoes every year. The saved shopping money that was deflected from the high street to an investment product gave dozens of people a foundation to build a portfolio or kick-start pension savings.

Being based in the City of London as an IFA meant clients tended to be well paid and their Christmases full of sparkle and magic with little financial worry. However, this is not the situation for everyone at this time of year.

Circle Housing says about 7 million people need to borrow money this month to cover the basic costs of Christmas, including heating and food. Does the regulator not concern itself with the short-term lenders offering APRs over 1,000 per cent for these people? I wish they would.

As the advice gap gets bigger, due mainly to the cost of adviser charging, those needing annuity or debt help require access to personal advice. 

In trying to close this advice gap for annuity purchase, the Financial Services Consumer Panel is recommending that a government-led National Default Annuity Service is set up. No thank you, Santa.

Look at the waste of money the Money Advice Service has turned out to be.

Nicola Mitchell, one of the brightest stars in PR, made me laugh in a recent client meeting when she pointed out that with the MAS’s £13.5m marketing budget it is safe to assume there are some expert marketers there safely guiding this huge budget. But weeks after the school term had started it was still advertising around a theme about buying school uniforms. I wish I had the MAS budget to help the unadvised public.  

Another New Year wish of mine is that the unintended consequences of the RDR are reviewed, particularly an increasing advice gap and the major banks deciding to stop offering regulated financial advice.

If the RDR is not reconsidered the gap in happiness in retirement for those who are advised and those that are not grows from a gap to a vast chasm.

Happy holidays everybody.                      

Kim North (kim@techandtech.co.uk) is managing director of Technology and Technical

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Kim

    Many of the points you make are perfectly valid. Stop spending, reduce debt – if only more people (especially those in Westminster) pushed this more there might be some progress. Pay day lenders are more a symptom of ‘spend it now’ and dare I say – a slight lack of sense, than trying to clamp down on business seeing an opportunity in the market.

    However where I do take issue is with: “As the advice gap gets bigger, due mainly to the cost of adviser charging, those needing annuity or debt help require access to personal advice.”

    This flies in the face of logic and commerce.

    1. The people to whom you refer hardly queue up to purchase financial products – even if they were ‘free’. They bought because they were buttonholed and flogged to. Commission was trousered and the punter thought he was getting something for nothing. Go a few years down the road. What was/is the sustainability rate of the products that were force fed to these people? No one shows these figures and I’m willing to bet that they are pretty illuminating. And as you say what is the point of saving £1,000 in an ISA when you have credit card debts of £3,000?

    2. We are not debt counsellors – nor ever have been. In commission days what percentage was there in advising someone to pay off their credit card? Charge them a fee for the advice? Would they have been more amenable to that then than they are now?

    Unappealing as it may be we have to accept that there is a disadvantaged sector in our society which in the end it is Government’s job to help. At this Christmas time I understand that there are thousands of children in London alone who are malnourished, won’t get any presents and may not get a hot meal tomorrow. So it is in our field. Pensions should be the task of the State. Just remember that the UK is the highest taxed in the EU yet pays the worst State Pension as a percentage of National Average Earnings. We are lied to in believing that the basic rate of tax is 20% (NI is ignored). Perhaps there needs to be a reassessment of priorities for those who seek to place the onus on private business.
    The myth of the advice gap is fostered and nurtured by the huge PR machine of the Life Companies. I hardly go to any social function where there are not heartfelt complaints about these firms. As an IFA I share the sentiment. Who in our business can honestly say that they are well run, fair dealing, client centric with quality products throughout? They conflate this with the myth of ‘lack of trust’. They are the ones who are not trusted. We the advisers are obviously trusted – otherwise we would have no customers and would be top of the complaints tree. Neither is the case.

    Let us hope that all may have a happier Christmas than before and that with the help of advisers and a sensible Government we all may look forward to a more financially secure 2014.

  2. Telling someone to ‘stop buying designer handbags’ should not be a regulated activity, this should be (as Harry states) led by the government, via MAS, CAB and other organisations. No-one is going to pay £250 an hour to be told how to save money.

    Secondly, I believe that the exit from the advice market by the banks is a move that could help many consumers as they can no longer force them to move thier cash savings into underperforming funds or illiquid structured products.

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