In the past few years, one of the most significant developments of the “new media” all of us now use has been the explosion in the use of comments sections below news articles and columns published on the internet.
What is mind-blowing is how quickly all of us have adjusted to this new phenomenon. Just go online and look up any archived story or a column written, say, six or seven years ago, when posting comments was very rare.
Don’t they feel empty and slightly naked without passionately expressed views below them?
Apart from anything else, readers’ comment sections help carry the argument further, with practitioners – themselves experts in the field – contributing to a better-informed public debate.
One example is in the online responses to my column last week, where contributors discussed whether there really is an advice gap. The views stated all made interesting points.
One of those comments came from Julian Stevens, who has long offered thought-provoking opinions on the Money Marketing site.
Last week, in answer to the question of whether there is an advice gap, Julian gave the example of a small group of his clients with Standard Life pensions, which the company unilaterally “stakeholdered” in 2001.
The policies are mostly paid up and generate almost no commission. A further consequence of stakeholdering is Standard Life’s rules prevent more than 12 funds being used at any one time, with a limit of 20 funds being used over the entire life of the contract.
They are mostly paid up and generate almost no commission since Standard Life imposed stakeholder charges.
Julian says: “To do the right thing by those policyholders, we would need to renegotiate our service and remuneration proposition, probably by switching to a modern, platform-based contract which will facilitate adviser charging, access to thousands of funds [and] free switchability between them all.”
But the costs involved – arising from the need to meet regulatory requirements – relative to the sums involved in the pensions in the contract itself, make this work uneconomical for Julian. So the funds will effectively languish, unloved yet untouched, for many years to come.
Julian’s conclusion is that this constitutes “an advice gap, partially arising from the RDR but with its roots in the curse of stakeholder, borne of the government’s obsession with the price of everything and the value of nothing.”
Sorry, but I disagree. My first problem with Julian’s analysis is that while I agree that it is important to offer “choice” in the context of fund selection, in reality finding the right asset vehicle is never that of researching between thousands of managers or their funds but usually a few score only.
To give my own example, when creating an equity income portfolio recently, with an emphasis on reinvested income and a good spread of assets, the selection rapidly narrowed down to a couple of dozen funds, if that.
When I compared my own research to that of other advisers, I was “out” by with more than one or two managers. It is not just that up to half of all managers run closet tracking funds, it is also the fact that many advisers have historically placed their clients’ money in middle-of-the road balanced managed funds.
But if Julian is really upset at the lack of effective choice between good managers and funds offered by Standard Life, that is an issue that needs to be addressed with the company initially or ultimately by the regulator and politicians.
I also want to pick up Julian’s point about the low commission-paying contracts which collectively only contribute £1,000 or so to his bottom line.
As a result, he says, there is little incentive for him to switch them to a new, potentially more expensive platform.
The truth is that this problem is not confined to stakeholder accounts. There are almost certainly millions of dormant personal pensions, mostly non-stakeholder ones and they
too will languish untransferred for years to come.
The reason for this is not the cost of the policy but its size and the potential income it offers the IFA receiving commission from it. So to blame stakeholder pensions specifically for the problem is inaccurate.
Ironically, it strikes me that – assuming these policyholders are still in need of an ongoing retirement strategy – attempting to contact them by means of a global mailshot would be one interesting marketing gambit.
Julian could point out that they have a stakeholder plan withering on the vine, offer a loss-leading fixed-price review and shift them to a new platform. This might not only bump up his income but kick-start a resumption of contributions, again good for his long-term business.
My key concern, however, is over Julian’s implicit argument that it is product regulation which is at fault over this issue.
Effective product regulation is difficult to achieve but, handled correctly, it would have helped prevent the huge FSCS bill facing IFAs as a result of Catalyst Investment Group’s recent default, a subject on which I know Julian has also commented on.
Rather than blame outside rules and regulations for the failure of prospective clients to seek financial help, advisers should focus on their own processes and what they can change instead.
Sometimes, the gap is not out there but in your head.
Nic Cicutti can be contacted at firstname.lastname@example.org