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MPs call for FCA probe into face-to-face versus automated advice

The work and pensions select committee wants the FCA to compare consumer outcomes from face-to-face and automated advice.

In the final report of its inquiry into pension freedom and choice, published today, the committee makes a number of recommendations it believes will help boost engagement around retirement options.

The inquiry was launched in September last year.

The report says there is a clear role for automated services in providing cheaper advice.

However, it says there is public scepticism around robo-advice, which means issues with trustworthiness must be addressed with facts.

Hot Money: Assessing three years of pension freedoms

The committee recommends the FCA conducts and publishes a review comparing consumer outcomes from face-to-face and automated advice.

It says: “Informed and confident savers are more likely to take up financial advice. More generally, they are more likely to shop around and take sound financial decisions about their retirement.”

Other recommendations include taking forward FCA proposals to introduce default decumulation pathways.

Any provider offering drawdown would be required by FCA rules to offer a default solution by April 2019 to “protect customers who do not engage with their pension saving”.

The committee recommends the same 0.75 per cent charge cap that applies to automatic-enrolment schemes should apply to default drawdown products.

However, AJ Bell senior analyst Tom Selby has concerns about this proposal.

Selby says: “Default options work where people are building up a pension pot through automatic enrolment but there is a fundamental difference with drawdown.”

He adds: “If a customer is already invested and moves into drawdown but makes no changes to their investment choices, as is most often the case, does that count as not making an investment choice when entering drawdown and result in them being defaulted into a different fund?”

“There is a clear risk of consumer detriment here if someone is automatically moved into a fund that doesn’t match their own preferences.”

Royal London policy director Steve Webb says a charge cap on drawdown would “destroy innovation” at a time when there is a need for new products to fit with the changes pension freedoms have brought in.

Webb says: “What is needed is improved access to affordable advice and guidance to help people make good choices and take advantage of the new freedoms that they have.”

Malcolm McLean: Pension freedoms guidance is too little too late

The committee also suggests the remit of independent governance committees, which scrutinise value for money in the accumulation phase, should be extended to default decumulation products and these protections should be in place by April next year.

The committee also makes recommendations in relation to the pensions dashboard. It suggests a single, publicly hosted pensions dashboard covering state, defined contribution and defined benefit pensions, funded by a industry levy should be in place by April 2019.

It says government should mandate all pension providers to give information to the  dashboard, which would be hosted by the new single financial guidance body.

The committee argues the multiple dashboards currently planned, hosted by self-interested providers, would only “add complexity to a problem crying out for simplicity”.

However, Aegon pensions head Kate Smith says the committee’s recommendations are “completely unrealistic”.

Smith says: “The new single public guidance body is only scheduled to be in place ‘no earlier than 2019’ and the pension dashboard is hardly likely to be a priority.  Implemented and run, but paid for by the industry, a publicly run dashboard could quickly stagnate and become technologically obsolete, with consumers losing interest.”

She says: “Pension providers are investing millions in engagement strategies, including technology, which not only needs maintained, but constantly refreshed. Pension dashboards are a natural extension of this, and with the right standards, regulation and governance in place, will offer consumers’ choice.”

Ros Altmann: Why we must stop bashing pension freedoms

Committee chair Frank Field says: “Automatic-enrolment has been a runaway success, bringing millions of people on board in saving for their retirement. We want to expand that success story so that everyone, no matter how they are saving, has a simple, suitable, default pension option, with a low, capped fee.”

He says: “From that solid base, those who want to choose other options would retain complete freedom to do so. They would be armed with a new range of clear, transparent information in making their choices.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Geoffrey Hartnell 5th April 2018 at 10:11 am

    Automated advice tends be ignored.
    Very few employers are prepared to act in a responsible fashion by providing face to face advice.
    One only has to look at the outcomes from employers that provide face to face advice to see that regular intervention by trained professionals lead to better long term and realistic outcomes.
    With the abolition of commissions this was more than predictable.
    Prior to RDR there were two possible outcomes -reasonable pensions or a lifetime of labour.
    Now there is only one.

  2. Robert Milligan 5th April 2018 at 11:31 am

    This is a very basic subject, its about the “Relationship”, if your advice is about setting up a product, for which your employment requires sustainability of sales and you have no further interest in the clients, wellbeing, then you can include all banking, estate-agency, and Tied Agents, including SJP, along side Robo Advice, at the end of the day, they all need to be selling Products to remain contracted to the Product Providers remuneration source. Very often as an IFA, we meet clients and no additional income is created, if any of the above spent “Any” time just doing that they would be gone.

  3. It astounds mr that MP’s have any credence whatsoever in an arena of which they have absolutely no knowlwdge, experience or qualifications.
    Let’s do everything on the cheap as long as they can hang around free bars in Parliament on expenses and over inflated salaries.
    Continue to ‘cull’ the industry and extinction is inevitable!!

  4. Julian Penniston-Hill 5th April 2018 at 5:29 pm

    There are some very valid points raised in this consultation. It is a shame that none of them have been addressed.

  5. Robo advice is being offered for medical matters. I wonder how many are happy to use this type of service instead of a visit to their GP?

    Is financial advice any different?

    In their quest (rightly in my view) to ban commissions and the never ceasing quest for ever lower charges (wrong in my view) we have a situation where the less well off are disenfranchised. But this is mainly because successive governments have welched on their responsibility to provide decent state pensions. If they had stuck to their responsibilities none of the current nonsense (AE, the ‘advice gap’ and all this heart rending) wouldn’t be necessary.

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