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Lack of guidance backstop ‘massive threat’ to Budget pension reforms

The FCA has come under fire for saying it has no plans to provide a “backstop” for consumers who spurn the offer of free guidance and make poor decisions at retirement.

FCA interim head of department for savings, investments and distribution Maggie Craig last week told Money Marketing those who choose not to take up the guidance service will be left to their own devices.

Craig (pictured) said: “We hope people take the guidance, we will have the usual supervisory work going on keeping a very close eye on products as they develop. If people choose to not take the guidance, they choose not to take the guidance.”

She added that existing rules already protected customers. “We already have rules around treating customers fairly, rules around suitability, around recommendations and, as things develop, if we feel the rules need to change to reflect the changes that come through in the market, then we will look at that.”

Earlier this month, Money Marketing revealed that Legal & General’s pilot offer of the guidance service was taken up by just 2.5 per cent of retirees.

Industry experts have warned that higher standards must be imposed on providers offering information to consumers to act as a ‘second line of defence’ to those who only interact with their provider.

Just Retirement group external affairs and customer insight director Stephen Lowe says: “This is a massive threat to the pensions freedom reforms. 

“The problem is that people who do not take up the guidance will be left in the same position as they were before the reforms.

“The FCA had concluded there was market failure in the retirement market and poor consumer outcomes. Therefore, the treating customers fairly regime was not working and that will continue without a second line of defence.”

Alan Nedas Associates principal Alan Nedas adds: “I still see evidence of consumers rolling over into an annuity from their existing provider since the Budget announcement. There is a risk the default option will continue and providers will not give customers adequate information.”

Craig said one of the problems with the guidance was that its impact was hard to measure but hinted the Government was working on making the service a success.

She said: “It will not always be possible to prove the guidance guarantee caused xyz to happen. I’m sure the Treasury are looking very closely at developing some key performance indicators for the guidance guarantee even as we speak.”

Adviser view

Keyte

Robin Keyte, director, Keyte Financial Planners director

It would be very disappointing if only a small number take up the guidance. Perhaps existing providers should refuse to deal with customers unless they have used the guidance service. 

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Comments

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

  1. You can lead a horse to water but…….

    Then again, if there absolutely has to be a backstop, the FCA could simply mandate OM as the default option. Is there any good reason why APFA is (apparently) not pressing for this?

  2. I know nothing – But I what I do know is that there is a large group of people who want something between no-advice and full advice but it is simply not available.

    When I asked a question at a conference yesterday about the need for “simplified advice” I was shot down in flames.

    As someone who is passionate about people making the right decisions, I think it is time the whole industry wakes up smells the coffee.

    We need a way of filling the advice gap – this does not mean compromising on the quality of advice and important issues such as suitability, but we need a more straight forward way of delivering advice.
    If the choice is between the local Citizens Advice Bureau or what is perceived as complex and expensive advice where can people go?

    The answer must be to work to persuade people that advice is not complex and expensive but before we do that, advice must actually be delivered in a simple and inexpensive way.

    This is the challenge but I see little appetite to digest this.

  3. If this guidance regime is all about preventing annuity purchase in-house by default, it would have sufficed to prohibit providers from quoting their own annuity rates unless they simultaneously provide live open market rates. So in wake-up letters, they would either provide terms for whole of market or no terms at all (in latter case the customer would have no choice but to go to market). Simple, but instead we got the guidance guarantee.

  4. “…………. We already have rules around treating customers fairly, rules around suitability, around recommendations and, as things develop, if we feel the rules need to change to reflect the changes that come through in the market, then we will look at that.”

    I don’t want to appear stupid but this sounds like what already happens around advice, not guidance. There are no FCA rules to govern or regulate guidance, nor will there be as guidance is not a regulated “product/service”

    If any advisers out there are thinking of offering some free initial guidance in the hope of generating some additional regulated business on the back of it please beware. You are opening the floodgates to future complaints. Those who use your “guidance service” WILL come after you if, having taken your points on board and subsequently make their own decisions which turn out wrong. It is a sad but true fact but that is the society we live in, and guess what?????? They will win when it goes to FOS because you are so unlikely to prove you, as a financial adviser only gave guidance. Remember the FCA and FOS have said if it looks like and feels like advice, then our view is it probably was advice. This WILL come back to bite you in the ass. If you think for one moment that the powers that be will accept that a financial adviser will have given guidance only, you need to think again. It will be another opportunity for them to throw the kitchen sink at the advice community.

  5. Billy, I think there are thousands of advisers who would like not to have to deliver advice in its current over documented, overly complicated, cumbersome way. I was not part of the industry in the 1970s and 1980s when there were undoubtedly a very sizeable number of unqualified, ill-informed people selling policies out there. But it must been pretty bad to justify the regulatory regime that we now have, where the costs of advice in terms of time, systems and money remain burdensome and unwieldy some twenty five years after the problems started to be cleared up. There will never be any industry that is totally purged of all wrongs, but until the regulators and politicians insist on over-protecting all consumers then we will have to keep advising within the current regulatory rules.

  6. If this guidance regime is all about preventing annuity purchase in-house by default, it would have sufficed to prohibit providers from quoting their own annuity rates unless they simultaneously provide live open market rates. So in wake-up letters, they would either provide terms for whole of market or no terms at all (in latter case the customer would have no choice but to go to market). Simple, but instead we got the guidance guarantee.

  7. “But I what I do know is that there is a large group of people who want something between no-advice and full advice but it is simply not available”

    I honestly think if you solve that puzzle, you go a long way to addressing many of the key issues in the at-retirement market.

    Unfortunately, as Billy points out there seems to be little appetite for this. I’d disagree though that it is the industry who primarily needs to address this.

    The current regulatory environment is disproportionately biased towards non-advised sales. “Simplified Advice” currently offers the worst of both worlds, rather than the best. The full liability of advice, but with reduced KYC and documentation to protect against this liability. There is little incentive for firms to push simplified advice, particularly at the expense of commission remunerated non-advised services with less liability.

    Politicans and the media on their part are far more interested in scapegoating, and then promising panaceas which turn out to be fool’s gold.

  8. There has been a contradiction created by the introduction of the guidance guarantee. That contradiction is that the ‘business model’ used by the guidance guarantee does not exist in the recent FCA thematic review and guidance consultation papers. The FCA defined non-advised execution only (and appropriateness tests, but we will ignore that) through to the three versions of a personal recommendation, namely Simplified, focused and full advice. All the advice models require QCF/L4 advisers, advice charging and demonstrating suitability through a personal recommendation and the risks and costs associated with those.

    However, the guidance guarantee is not execution only (taking an order) or any version of advice, as no recommendation is made. It is basically a structured journey, with information that leads a customer to make a more informed decision. In plain English…guidance!

    A business could build a guidance model like this (without it being a scam), for those who don’t want the Government’s version or want an alternative after going through the TPAS / CAB version. However, the significant risk is that this is currently not a recognised business model and could be considered advice.

    Having said all that, client apathy and the ceding provider’s ‘offer’ will still present the biggest risk to the client, the take up of guidance and any business who wants to offer a service to this market.

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