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Nic Cicutti: Is there really an advice gap?

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Is there an advice gap? If so, is it widening as a result of the RDR? Or has it always been there? And what can be done about it?

I spent some time pondering these questions during an eight-hour journey home from Bridlington on Sunday, while trying to ignore the pitying stares of car occupants zooming past my ageing Lambretta in the gusting wind.

Riding at 55mph means that as long as you maintain your lane position and keep an eye out for changes in traffic ahead, you enter into a Zen-like trance state, still alert to immediate danger yet with plenty of time to think.

Which gave me the chance to mull over a quick chat in Brid with a friend who has recently divorced her husband after almost 25 years of being together.

He runs a successful business focusing on plumbing, heating and ventilation systems for small enterprises and housing projects. My friend was involved in the business from day one, working as an unpaid receptionist, handling all the paperwork and being a named director until childcare duties took her away about 12 years ago.

In recent weeks, she has agreed a financial settlement with her ex. Broadly, the deal involves the house for her and the kids, but staying in joint names until it is sold when they finally leave home; plus a regular income and a substantial chunk of money upfront paid to her.

The latter is a down-payment towards an agreed share in the business, to be finalised when it too is sold off a decade or two down the line, along with freehold property it operates in. This last, she feels, will be her “pension”. But the high five-figure cash lump sum also needs a home.

My friend has been looking for an adviser: the family’s former IFA was, she feels, more closely aligned to her ex-husband and his business interests, so she would prefer someone she can trust herself.

Her solicitor pointed her in the direction of a firm and, from what I can make out, its advice at the time of divorce in terms of protection for her and the kids in the event of her husband passing away was competent. Yet the long-term chemistry isn’t good, hence the continuing quest.

She will eventually find someone, although it may take time and the search will not necessarily be very thorough.

As I wound my way slowly and carefully across the M18 and down the M1, it occurred to me that every year there are many tens of thousands of similar stories involving divorce, bereavement, businesses being sold, pensions maturing, critical illness and life insurance payments made.

When these life events occur, the people they happen to don’t suddenly become paralysed by indecision. They actively want an adviser and will eventually find someone, generally by luck more than judgment.

The issue, therefore, is not so much that there is an advice gap. In situations where people identify a need that needs to be met, they will generally stumble across someone to help plug it. For that reasonably large group of people there is no advice gap as such.

Whether the person they find is the right one for them is another matter. The IFA community has for years been unable to differentiate its collective service offering sufficiently well to act as a beacon for casual would-be customers.

Part of the reason for this has been the failure to create an industry-wide promotional structure – perhaps a massively beefed-up IFA Promotion? – in place of the previous regulatory one, which at least had the merit of creating clear water between independent and tied advice.

If so, for those actively seeking financial advice today the issue remains the age-old one of finding the right adviser. In that sense, I find myself agreeing with director of supervision Clive Adamson, who was reported in Money Marketing as saying “it is not clear there is an advice gap”.

The picture changes where people are not yet aware they need help. In other words, where the gap is not one of advice but the one identified by ABI research more than a decade ago: a more general one of lack of long-term savings and/or protection needs being unmet.

Once upon a time, arguably, some of that savings and protection gap could be reduced by persistent commission-based door-knocking by a small army of salespeople, many of them IFAs.

The problem there, which the ABI never seemed to understand, was that selling a poor-value badly-performing product does not plug the gap. It makes it worse, especially when people surrender products or leave them paid up after a year or two of contributions. Abysmally poor persistency levels across almost all financial products tell their own story.

In that sense, what we now call an advice gap, with banks in particular pulling out of the market, is a fruition of underlying symptoms that have bedeviled the industry for well two decades a more.

Rather than moan about advice gaps, the industry would be better off improving the quality and marketing skills of existing advisers, and – crucially – of products themselves. All the RDR has done is shine a harsh spotlight on shortcomings that should have been resolved a long time ago.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 27 comments at the moment, we would love to hear your opinion too.

  1. A lot of waffle as usual Nic for two paragraphs

    ” I find myself agreeing” with director of supervision Clive Adamson, who was reported in Money Marketing as saying “it is not clear there is an advice gap”.

    I am sure you do; but you are not at the front I am sure General Haig said the same thing, when told he was losing to many soldiers ?

    “Rather than moan about advice gaps, the industry would be better off improving the quality and marketing skills of existing advisers, and – crucially – of products themselves. All the RDR has done is shine a harsh spotlight on shortcomings that should have been resolved a long time ago”

    Arr yes !!! the good old marketing ploy; if all else fails throw as much money as you can at marketing yourself your company and anything else you care to think off, don’t forget the good old strap line from the FSA “RDR is an opportunity” and any-one who knows as soon as the word “opportunity” is pushed forward you know its a pile of crap that’s not been thought through and its a “but we had to do something” excuse !!

  2. It is always interesting when somebody challenges a truth that is considered manifest and beyond dispute.

    A bit like the Flat Earth Society or the FSA.

    Are there millions of consumers under-insured, under-pensioned and over-borrowed? Surely there can be no dispute over this.

    Are these consumers in need of advice, guidance or persuasion? Again, I would suggest that this is incontrovertibly the case because many do not know where to turn and many are so apathetic, indifferent, frightened, nonplussed or whatever that they do not make the first move.

    From a political stance it is convenient for the FCA to suggest that there is not an advice gap as this makes the RDR depredations seem less stupid. Similarly, somebody with Nic’s stance and strange mindset might also suggest such a thing.

    Reality needs to force its way into the intertwined world of regulation and politics before it is too late.

  3. Nic is right in that there is no advice gap for individuals that fit into the financial profile of his friend (home, business, freehold premises, five figure lump sum). However, there remains a chasm for those who are not of the radar of advisers that have had to move up the wealth scale to survive. Nic mentions historic low persistency, yes that’s true, but not universally as suggested. I try to engage people in conversations about this all the time and it’s clear that, particularly those below the age of 40, there is no culture of seeking advice, because there is no one to provide it to them.

  4. Nic
    I agree with you wholeheartedly. As it happens I do a lot of work with divorcees so your article stuck a chord. In the vast majority of cases those getting divorced use a solicitor each. My work comes from these solicitors and accountants. (The bigger cases often use a forensic accountant to dig out the value of the assets).

    What your article brings out (and what I think others have missed or refuse to accept) is those people who recognise that they require advice are not in short supply. I feel that those who bleat on about an ‘advice gap’ are those who continue to live in the past. “Here’s a rate book – go out and flog something – anything – to the first person who will listen for more than 2 minutes. The commission is brilliant”. That the person wouldn’t have dreamt of buying the product in the first place is not something that bothers the salesman/woman. That the retention rates in these circumstances are (to be polite) less than optimal also doesn’t figure. Conscience is salved because they have done ‘a good thing’ whether the subject of their socially responsible endeavours wanted or not. Justification is when a claim is made.

    All this under the cloak of ‘what is good for the public’. Since when was it the task of an adviser to take on the social responsibility of the nation?

    Perhaps less life assurance would be necessary if these ‘clients’ were advised to reduce their debts – but there’s no profit in that. That they should build up a nest egg in cash – notwithstanding paltry rates of interest – also doesn’t earn the salesman money. It’s a lot about sales and a lot less about advice. Sure there are those who should have cover who don’t. But again is it our responsibility to right the wrongs of the world? Those that realise that they need cover are not in short supply.
    But there other ways to ‘skin a cat’ (an apposite simile?) Income protection is very good if you can afford it. Getting the wife to work (If possible) is even better. (No dissertations please – this is just a facile example).

    That’s not to say that life assurance (as an example) isn’t ‘a good thing’ or worthwhile. But appropriateness, retention and affordability are also elements. Sure you can argue that it always appropriate for the uninsured to take insurance – but that again is the circular argument.

  5. He is probably correct there is no advice gap for those who can afford an upfront fee but think about those who cannot write a cheque but who before RDR were quite happy for commission to be paid They paid for the advice over a number of years way of an extra amc (just like HP) This may not have been the ideal way of charging but at least those on modest incomes got advice which they do not get now

  6. I think Nic has picked the wrong example. It can’t come as a surprise to anyone that a divorcee with children and a 5 figure lump sum has managed to find an adviser. No advice gap there.

    The advice gap is there for those who have small pension pots that they need to maximise income from, for those with regular savings needs etc. The withdrawl of mass market advice means that a significant chunk of the public whose first port of call was a bank for financial advice can no longer get that advice. The quality of the advice being given by banks is a different conversation but i would argue that some low quality advice is better than none at all.

  7. There is a massive gap between the amount of protection, regular savings and pension savings that people need and the amount that they have on average. There is a debate as to whether advice alone can fill that gap, since human nature is to “buy now pay later” and financial products operate in reverse with benefits only accruing many years after premiums have been paid.

    However, what is surely beyond dispute is that human nature being what it is, people will not go out and “buy” a pension, income protection, critical illness or life insurance plan in the way they go to Tesco when they need food. This is where the provision of advice can help people understand how they can help themselves provide for their future and safeguard against misfortune.

    For those that already have accumulated assets or have sufficient income to pay for financial advice there is no doubt that there are plenty of firms and advisers offering all manner of financial planning/goal planning/life planning solutions, so there is no real gap at the top end of the market.

    However the paradox is that the people who most need to make provision for the future are those who do not necessarily have the means to pay up front fees for financial advice.

    So although I agree with the aims of RDR I fail to see how the methods employed to achieve them can work.

    Regulation is not bad in itself. But bad regulation, which is what we now have, works against the people it is designed to protect. When you think of the major widespread problems that have occurred, a significant amount of them have been caused by bad manufacturers i.e. life companies designing products which are front loaded; fund managers levying whatever charges they can get away with; life offices using incentive payments to brokers to encourage the “plugging” of products rather than meeting customers needs. And yet regulation has been far too light on product design, fund management charges, and organisational sales culture.

    Instead the regulators have come down like a ton of bricks on the person at the bottom of the food chain, the adviser.

    Now that regulation has largely succeeded in removing the worst advisers from the industry is it not now time for our regulators to develop adviser skills rather than create labyrinthine reporting procedures and biblical scale rules and regulations that simply increases the costs of advice for clients?

    On a separate point, imagine how much demand would plummet if people were not allowed to use a mortgage to buy their home? The equivalent of using a mortgage to pay for a house is to use commission to pay for the cost of buying financial advice. If you remove the facility for the client to spread the cost of house purchase across many years there would be a massive gap in the housing market. Removing the payment option of commission to pay for financial advice has led to a massive gap in the financial advice market.

    The misconception of the regulators is that it is advisers who want commission, whereas in my experience it is usually the clients who want to pay in instalments rather than be forced to pay up front. As an adviser I very much prefer a known fee to be paid which is certain and which is not subject to future premium payments. So for me personally, I am lucky to work at a practice where we have sufficient clients willing and able to pay a fee for professional, well considered, customer-focussed financial advice. But what of the poor customers who cannot afford to pay up front? This is where the advice gap exists.

  8. Christopher Petrie 31st October 2013 at 10:55 am

    Those people above who mention life cover and pension pots as an example of the advice gap – I’m a little confused. Can they explain that further?

    Life and CIC policies don’t come under RDR and commission terms appear to remain generous enough to incentivise sales …. or so I would have thought?

    As for pensions, 2013-2014 is seeing the largest number of new pension scheme members ever seen in the United Kingdom. Obviously this is down to AE, and we can argue details of funds/charges etc for ever but it’s surely indisputable that after years of falling pension scheme membership, pension savings are being massively boosted again and that’s great news for the future of the UK (and more biz for IFAs in 10-15 years time when these funds start to mature).

    I might be wrong – please explain where – but surely the major “advice gap” in terms of financial planning would be the regular savings (non-pension) market, and really this was non-viable for IFAs ever since MIPs went out when ISAs came in years ago anyway?

    Can one of the anti-RDR folk please tell me where my logic is breaking down?

  9. As has been rightly pointed out, the advice gap is present for a certain demographic, not those with high five figure lumps sum to invest. Note in the comments of your past articles Nic how many advisers have not written any regular savings business since RDR. The people able to invest regular monthly amounts are those who need the advise the most. By the time someone already has significant asset wealth they are nearing the end of the their financial journey in a lot of cases.

    And Harry, to suggest that it would be better to advise someone to look at repaying debts rather than take out insurance is frankly ridiculous! A £100/month would buy most people a comprehensive suite of life, critical illness and income protection cover. Making a regular mortgage overpayment of the same amount might reduce the payment term by a few years, but is absolutely no good to anyone when serious ill-health or death strikes the family unit in the early years. And whilst it may be “better” value to send a spouse out to work rather than pay for income protection this is only of use if the spouse has the same earning potential as their partner and are not already in employment. As someone who says they are a fan of life insurance you sure do a good job of hiding the fact with your comments

  10. Some of your churlish comments and hang-ups’ about our industry unfortunately mask what is an interesting and fair observation.

    People do need help and advice and not just products.

    However, as our industry has made itself so expensive to operate within (too many paymasters!), we have to make the remuneration balance with the overhead and herein lies the problem.

    I could give good advice, on the hoof if you like, at a fraction of the cost that I do, but as we know, culpability is the issue and anyway, it is suggested that we need to act more professionally, so throw away advice doesn’t fit that model.

    Therefore, the advice process has to be documented and in most cases is regulated and so needs the necessary covenants (PI, etc). Hence what could be a £40 discussion can end up at a few hundred pounds, due to the additional time required in documenting matters. This takes it to a level where the fear of eventual cost for a consumer is a deterrent to taking advice. We can’t change that Nic, it is what is has to be! Running a business costs a lot of money!

  11. Frankly, I couldn’t care less what Nic thinks – it matters not a jot ! Much less how the hell would he know anyway !

    Of course there is an advice/savings Gap as was warned of by most experienced advisers to not only the regulator but also the TSC and many others including trade associations like AIFA YEARS prior to RDR. I frankly cant be bothered to explain why or what caused it – it gets boring and has been stated so many times before. I and many others shall content themselves with saying ‘I told you so’. Although I suggest that none will take any pleasure in doing so !

    Only vested interests are arguing that there is not such a gap – Of course they would !

  12. Christopher Petrie, I am not one of the anti-RDR brigade but will respond in part to one of your points. You are not wrong that there is still a facility for customers to use commission within protection plans to help fund the cost of advice.

    And for some of those who take out a pension for the first time using AE that is also potentially great news.

    However, for those who simply pay the minimum contributions into their employer’s pension scheme when they could instead pay a lot more, Auto-enrolment is likely to lead to misplaced complacency. There will be several million “AE members” who with advice could have been in a much better position at retirement had they received good planning advice and had they been motivated to take the advice given. I fully understand that there are many pension investors have been oblivious to the charges they pay, and appreciate there have been many examples where advisers have collected the commission without supplying useful advice. But don’t throw the baby out with the bathwater.

    The advice gap that matters is for those people who can afford to save regularly, who want advice, but are unable to pay for the upfront costs of advice without making significant sacrifices. This is middle England, these are people who may earn good money but who do not yet have any significant accumulated wealth. Auto enrolment will address some of these issues for some of the people.

    But for those who want advice but cannot afford it via up front fees then that is rather a shame. For them not for me.

  13. Harry Katz,

    Yes it is our responsibility to help clients avoid falling prey to the wrongs of the world. Why else are you doing the job if it is not to put clients in a better position after advice compared to the position they were in before they took advice from you?

    Life insurance/critical illness/income protection/regular saving/pension plans are just a means of providing capital or regular income whilst people do not have enough assets to self-insure. I suspect you are operating with clients who already have this wealth or have maybe reached a stage in life where protection would be less important to them. In this instance protection would be a hard sell rather than good advice. But for those clients who aren’t yet in that position it is helpful for them to understand their needs and to provide cost-effective relevant solutions. Maybe that does make an adviser feel good about his or her self, but the key thing is that the client and his/her family will be able to deal with the financial consequences of dying too soon, getting ill or living too long.

  14. Christopher Petrie 31st October 2013 at 1:12 pm

    So, Brian, are you saying that in practice this “advice gap” is pretty much limited to members of AE pension schemes who, with advice. might have put higher contributions in?

    I’m sure you’re right that IFA involvement does drive up average contribution levels, but some schemes do have advisers, paid by employers. Furthermore millions of employees previously not in a pension scheme and who had never been persuaded by an IFA to start one, have now been put into a scheme for the first time in their lives.

    AE isn’t perfect, but it must be admitted that a near-compulsory scheme has got far more people saving for their pension that an army of 25,000 financial advisers could ever have achieved. So it seems to me that, overall, the “advice gap” has become smaller in the last 12 months, not larger.

    Again, I can still only really see regular premium (non-pension) savings plans as an area that advisers and potential clients miss out on discussing together…but hasn’t that been the case for many years? How did the commission-based pre-RDR system help regular premium (non-pension) business get written? I can’t think how it did.

    I’m still confused about this “advice gap” argument.

  15. There is an advice gap and a succession of governments and regulators have exacerbated it. it is not a single specific issue – although a few have been mentioned here – it is the drip, drip, drip of negative publicity. Most of it emanates from the regulator and govt and is stirred up by a rabid media and togther they have made many consumers suspicious of advisers. This is bizarre as ) IFAs write the highest volume of business and generate the lowest volume of complaints. (Clearly excepting a few bad apples which are the bane of every sector)

    Pension mes-selling on the Back of a GOVERNMENT TV advert campaign “be set free from the shackles of your employer’s pension.”
    PPI scandal the banks and bad regulation
    Keydata bad regulation
    LIBOR fixing the banks and bad regulation
    Arch Cru – bad regulation

    So instead of govt and regulator saying go and get some decent independent financial advice from highly qualified advisers. The regulator blurs independence with multi tie, changes its definition at RDR and makes it almost impossible for advisers to be remunerated for advising on regular savings which is how most people start out.

    What the IFA sector needs now more than ever is a year or two to get used to the new playing field with no further bombshells (don’t get me started on unbundling) coupled with a regulator that tells the public you can have real confidence in this sector – go see an an IFA.

  16. Hi Christopher,
    No I am not saying the advice gap is limited purely to those people at all. I think auto-enrolment is a substantial step in the right direction in terms of getting far more people to begin saving for the day they no longer work. However, there is a great danger that people could wrongly believe that their retirement income is “sorted” by virtue of being “in”. The government (and previous Labour regime) openly states that auto enrolment and “NEST” are aimed at lower earning individuals. The funds offered by NEST are very limited, and seem to be designed by someone who took Oscar Wilde’s comment about Englishmen literally (the one about understanding the cost of everything and the value of nothing). Therefore. although AE is going to help reduce the retirement savings gap, there is a danger that many people who could afford to do more will be lulled into a false sense of security. They therefore won’t realise that they have a problem and will not make the savings they need for a prosperous retirement.
    I do not think that the pre RDR world was satisfactory either. The problem is that the FSA went for a new regime that is far too extreme and has removed customer choice when attempting to improve things. Customers deserve not to be made fools of. However, they also deserve to have the option to make choices which might seem ill-advised but which suit their circumstances and budget far better than the optimal solution which they cannot afford at the time.
    If a man is about to head into the desert and needs ten canteens of water to make it to the next oasis but can only afford five is it not better to have five instead of none?
    Sometimes we have to stop being perfectionist and be pragmatic. In my life I do not have the budget to afford all the things I would like to have so I work out what I can afford and then work out how best to spend my money on things. Sometimes this will involve taking out a payment plan which charges interest (a mortgage in my case) so that I can afford to pay for things I have purchased now by spreading payments over the longer term.
    We should allow customers the option to make a choice about how they pay for financial advice and should be honest and open about the disadvantages of allowing commission to be paid in terms of the higher charges they then pay within a product solution. But now this option has been removed for all but protection there are many customers who will not take advice and who will not receive it and who will therefore not make better plans.
    So not everyone needs paid-for advice. The CAB do marvellous work helping people in precarious financial positions and there is probably even a place for MAS too.
    And of course paid-for advice is only worth taking if it adds value over the longer term. My concern is that the removal of factoring has led to a situation where access to advice has been all but removed for people at the start of their financial journey. This is a gap that has been created by parts of the RDR legislation.
    It may only be a small part of the advice gap, but it is something which need not have happened.

  17. @ Brian Gannon

    “Why else are you doing the job if it is not to put clients in a better position after advice compared to the position they were in before they took advice from you?”

    You are absolutely right in this. But it is advice – not force feeding. My clients pay for the advice – whether they take it or not. As someone else has so pithily pointed out Life Assurance and other protection products still pay commission under this bifurcated regulation. So the less well-off need not have to write out cheques. My issue is in the lassoing of these people and ramming the product down their throats. By all means point out the benefit and logic and if they don’t want to proceed that’s their prerogative. I would contend that for many this is not a route to make a living as without coercion I doubt if that many would buy.

    Someone mentioned in passing a figure of £100 per month. If someone can afford £1,200 a year on protection products without jeopardizing his/her standard of living in these difficult times (remember they are also being zapped with AE) then I would contend that they are not as badly off as many would have us believe and maybe could quite easily afford a modest fee.

    The question here is do you run a model that those who buy subsidise those who don’t? I know that’s a different argument, but it is a route I find distasteful in the extreme. As I have said before I consider the commission rates to be well over the top. But one might ask what is preferable a modest fee for advice covering everyone or just earning if there is a sale?

    It isn’t the products themselves I have an issue with; it is still what I have always considered to be the less than acceptable practices so prevalent in this industry which perhaps the RDR was designed to combat. (Both from provider and adviser). We still need to see if that will be successful, but judging from what I read I have reservations. Please don’t class me as an unalloyed fan of the RDR – there is plenty wrong with it – but the general improvement of practice standards is one of the better aims.

    Perhaps it’s me. I have to confess that in all my working life (and also as a private consumer) I loathe being ‘sold’ to.

  18. @Christopher Petrie

    The advice gap that i am referring to, maybe others are too, is for those with small pension pots looking to retire. It is these clients that require advice about how to maximise their incomes during retirement. Each client will have their own priorities so drawdown pensions, annuities etc could all be relevant options. Mostly clients will not know what their options are until someone explains them. As we’ve only just started with the AE process we don’t yet know what it’s going to look like when an employee wants to access the fund. Are they going to get a letter in a similar vain to current PP schemes? If so advice is more often than not needed. This is where the advice gap is.

    To sum it up i think potential advice gaps exists in many different places in many different formats at the same time. AE has gone some way to plugging a pension savings advice gap, which is good but nothing has been done about the ‘at retirement’ advice gap which in my opinion has gotten bigger as a result of RDR. Is there an advice gap for wealthy clients, probably not. As is always the case those with money will always pay to make more of it. Is there a protection advice gap, i don’t think so. There is arguably a protection engagement gap but if clients want cover it’s available through many different channels that RDR has had little to no effect on. Is there an advice gap for those with lower levels of savings looking for where best to put £10k – £50k, probably. It was there before RDR and has, in my opinion, been made larger by RDR.

    As always the above is my opinion only, feel free to disagree.

  19. @Harry Katz
    It interests me that you say the commission that is paid for certain products is too high in comparison to a modest fee for advice, that is really rather easy to solve. There is no requirement to take all of the commission on offer, any more than there is a need for you to take the same fee for advice not taken as for advice that is acted upon. And I did not say that customers would only pay if a sale were made, although I would certainly anticipate a much lower cost of advice if a sale were not made since there would be far less work to do.

    Because I do not know you or your background I have no idea why you use phrases such as force-feeding and lassoing nor do I know why you say products are rammed down people’s throats. Maybe you associate with clients who have been unfortunate to experience these methods or maybe you have come across product push sales people in your career? I certainly have come across such customers and such “salespeople”.

    However that would lead me to criticise those people rather than assume everyone who allows customers to pay by commission should be tarred with the same brush.

    I find that true selling is a better method than force-feeding. Questioning, listening, probing, explaining options, discussing pros and cons, providing a sounding board and helping customers make informed decisions. I think you are right, perhaps it is you.

    I do not class you as an unalloyed fan of RDR because I do not know you or your views well enough to make such a comment.

    But in parting, a spade can be used to landscape a beautiful garden or to bludgeon someone to death. The spade is not the problem, it is the person at the end of it.

  20. I think without clearly defining the ‘advice gap’ this discussion will never gain traction. I agree that the concept of an advice gap may exist, but only in the eyes of those providing advice. A similar parallel could be drawn with any service provider – people drive cars therefore they should pay us to clean their cars – the truth (in my mind) is that quite often, mass market advice has been detrimental to many consumers. Too often people that have not wanted or needed ‘advice’ have ended up with products that are unsuitable for their needs. Primarily I blame the banks and ‘sales-forces’ for this. My view is that the IFA has always been a service for people with money and planning needs, not for anyone with £100 a month to put away.

    Everyone may need a car, but not everyone should be forced to buy a Porsche.

  21. @Martin
    It is unlikely that this debate would go anywhere even if the advice gap were clearly defined. We all have differing opinions as to who is to blame for mis-selling and we all have different views about the best way to protect consumers from poor advice in future. Our industry is particularly difficult to regulate because bad advice can turn out well and good advice can work out badly.

    People who blame banks and direct sales forces for the ills are usually IFAs or resentful former bancassurance advisers.

    People are to blame for things going wrong not institutions. People who lack courage and conviction and a moral compass will do what they are told, whether they work for themselves, for an IFA practice, for a life office or a provider. Some banks certainly have created environments where sales targets have led to poor practice, but there are also a number of well-intentioned back street Joe IFAs with no idea what they are doing. I think a lot of poor advice has resulted from ignorance and weakness on the part of advisers rather than malice.
    And of course not everyone should have advice. We are debating how the changes in regulation may or may have not created a gap which did not previously exist.

  22. @ Brian

    I can’t disagree with anything you say in your 5:14 post. Succinctly put.

    I just don’t believe there is anymore of a gap now than there was before. Nor do I think that the gap can be significantly reduced. Nor do I believe it is our direct concern. I believe we should just concentrate on our clients and do the best we can for them. Putting the world to rights is for Governments – and they do a pretty poor job at that!

  23. I agree with Brian Gannon and Alan Laney. Nic’s article was interesting and I can see Harry’s point.mOur responsibility is to OUR clients and not potential clients. BUT there must be a gap as I never end up in competition with other local advisers. If there was no gap, we’d be competing.
    Nearly all my work now is with clients 5 ears before retirement and onwards not by choice, just because I am too busy doing that (and blogging) to take on young new clients who are actually the ones most in need of advice who just don’t know it!

  24. Here’s what I consider to be a classic example of an advice gap. We have on our books a number (I don’t know exactly how many but, at a guess, it’s a couple of dozen) of old-ish Standard Life PP’s sold in the 90’s. Back in 2001, without even giving us any advance warning, let alone asking for our consent, Standard Life unilaterally stakeholdered them all, so that now the whole lot of them together generate less than £1,000 of recurring revenue. Any top-ups generate next to nothing. It’s been so long since anyone bothered topping them up that I don’t even know if top-ups generate anything at all.

    Apart from the fact that the recurring revenues this group of policies generate are completely inadequate to cover the costs of us trying to provide any sort on ongoing service, their two major limitations are that Standard Life’s system prevents more than 12 funds being used at any one time and a limit of 20 funds being used over the entire life of the contract ~ which, for a contract that could run for 40 years, is ridiculous.

    To do the right thing by those policyholders, we’d need to renegotiate our service and remuneration proposition, probably by switching (aaagh! Danger, Will Robinson, danger!) to a modern, platform-based contract which will facilitate adviser charging, access to thousands of funds, free switchability between them all, etc.

    Problems. A platform-based product will probably be more expensive than these old stakeholdered contracts. The deductions from it to cover our costs will be greater (they’d have to be). Most of them include contributions insurance (WoP) which is no longer available within new contracts. The amount of work involved in researching and documenting justification for the transition (including an RU64 comparison, which is perverse, as the limitations of stakeholder are exactly what we’d be trying to get away from) would be immense and totally out of all proportion to what any of the clients in question would be prepared to pay. And I’m not prepared to do the work at a loss.

    So, whilst I could probably justify such a recommendation to my satisfaction and to that of the client, it’d be almost impossible to do so to the satisfaction of our network’s compliance department. The regulator has a adopted a very antipathetic stance towards pension contract switching and compliance departments have to fall in line with that. Every conceivable aspect of any such recommendations must be researched and documented to the nth degree and beyond. It would be a hugely time and cost consuming exercise.

    So what happens? Nothing. The clients in question will be left in old, restrictive and inferior contracts with little or no ongoing service and their files are barely looked at, let alone reviewed, from one year to the next. That is my idea of 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.

  25. @Julian
    I think that you have highlighted a gap caused by the costs of over-regulation rather than RDR. Whilst the loss of WoP on paid-up plans would appear trivial (and could be covered by a simple warning notice) you are right that the costs of satisfying the plethora of compliance requirements relating to RU64 make it impossible to break even when trying to”do the right thing” by clients with paid up contracts. As you say, focussing on cost rather than value can lead to unfortunate consequences.

  26. I would say a better description would be a knowledge (or information) gap. If somebody isn’t saving enough, is it because they lack advice or just somebody to tell them they need to save more. Does telling somebody they need to save more constitute advice? No, telling them what they should invest their money in is the advice part. Moreover, if more people put money into savings would this increase or decrease their need for advice? If they were making their own decisions and doing all the right things then clearly there would be no real need for advice.

    So to say there is an advice gap is to assume that people are incapable of making their own correct decisions. And just because they have a shortfall in a particular area still does not mean they are in need of advice unless you can somehow predict how they would transact of their own accord.

  27. @The Realist
    If advice is not needed then it won’t be offered or given. But as a general observation people are not making decisions, and are not doing all the right things. Some people can self-manage and will get things right. That is good. But most have not even thought about their futures in a realistic way if at all.
    Giving someone knowledge without advice and guidance may work for some. But usually people value professional advice when looking to buy something they know little about. People need reassurance that they are making the right decision, whether that is buying a computer, a car, a home entertainment system or a pension. So obviously I am saying that many people need help to make better decisions, but many also need help to make any decision at all. So I disagree that the only part involving advice is which fund to invest in.

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