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Nic Cicutti: It’d be mad to leave Budget guidance to insurers

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Are ABI members really “at war” with each other over the issue of how to deliver Chancellor George Osborne’s face-to-face “guidance guarantee”?

Money Marketing last week raised that intriguing possibility in an article by Tom Selby. Tom wrote that he had spoken to senior executives at two insurers who felt that providers should not be in control of this guidance.

According to Tom, more than 40 per cent of the ABI’s members believe the advice should be seen to be independent in some form. Some are even considering splitting off from the trade body if does not insist on the impartiality of this advice.

Is Tom’s story accurate? My instinct is that it smells right: my own far more minor dealings with insurers over the past year suggests there are significant differences between themselves over the industry’s future.

Last week, for example, I reflected on the disconnect between the alacrity with which ABI boss Otto Thoresen moved to defend the share price of some of his members and the glacial speed at which his trade body has responded to concerns that millions of policyholders are being overcharged on their old-style pension products.

 Among the many emails I received on this subject from IFAs, the overwhelming majority of them agreeing what I had written, there were also two supportive emails from fairly senior figures within the industry.

One was from someone working at a company that no longer applies such charges on legacy products. Another came from a person who claimed to have been involved in internal discussions over this exact issue while working for a life insurer that still applies these disgraceful charges on legacy products.

In January this year, I also went for a drink with someone in London who told me that very similar debates have been held not just within individual companies but externally, among insurers themselves.

The main split, according to him, was between life companies with a predominantly IFA-facing product distribution network and those who saw no need to “pander” to independent advisers.

So the idea of a disagreement within the ABI, as uncovered by Tom Selby, makes complete sense, for both annuity advice and charges on closed-book products.

The real question, however, is not whether there is a divergence of opinion between ABI members but what those with a greater ethical understanding how to reconnect the industry with the public at large actually do about it.

The bottom line, as I wrote a few weeks ago, is that the moment when George Osborne made his announcement about annuities in his Budget speech, he changed the retirement landscape for millions of people who are planning to stop work in the coming decades.

Advice on what to do with one’s accumulated funds will be vital. And by advice I’m not talking about anodyne guidance currently on offer in almost all areas of personal finance from the Money Advice Service on its website.

Frankly, letting MAS take the lead on in the co-ordination and provision of retirement advice, as the Treasury is proposing, is a huge mistake.

Simply talking vaguely about retirement “options” may suit some people. But most retirees will need a, yes, simplified but still-personal service which at the very least identifies their existing assets and stated long-term needs and offers a detailed route map towards achieving them.

It need not take as long or be as detailed as a current factfind, but it should be client-specific. My guess is that we are talking about the equivalent of at least two or three hours’ work per client. The MAS has no knowledge or experience of how to carry out this work, although areas of the debt advice service it funds do have some skills in those areas.

What is also the case is that there is a vast gap between the £20m so far on offer from the government for this face-to-face advice and the remaining hundreds of millions of pounds necessary for a genuine service.

More funds could come out of the MAS’s existing budget, as was suggested by FCA consumer panel chair Sue Lewis last week. At the end of the day, if the Government is now corralling 500,000 people a year towards your service, why do you need to spend almost £15m a year to attract more customers?

Clients themselves could also be charged a notional amount, say £50 or £100, for what should be a fairly detailed report. If they don’t wish to pay, perhaps they can make use of a far more simplified free online or telephone-based option.

But even then, while there is a strong argument that the government should multiply at least fivefold the meagre £20m it makes available for this at-retirement advice, ultimately the industry will have to come forward, not just to help define and scope out the service but also to fund it.

But if so, the idea that such a service could be left to each individual insurer with a large annuities business to do as it wishes is sheer madness.

If it is a centralised service, and it should be, it should also be impartial. Never mind those who retire, the future credibility of the industry is at stake here. Life offices disagreeing with the ABI majority have a duty to stand up and be counted.

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

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Good article again Nic!

    As an aside, the issue with legacy policies seems to hinge on the initial/accumulation unit charging system, which I understand seemed fairer at the time in many ways than the alternative of a hefty front-end charge; however, providers have more than had their money from these plans and the time is now right to force their hand.

    On the matter of advice for retirees, this is not a new thing, people have struggled to make head or tail of provider documentation for some years. However, they have been able to seek out an IFA or Adviser (or maybe even their bank). They have had little practical help from the companies who have managed their policies over the years (telephone advice is difficult and the level of discussion often requires level 4, FCA-approved, qualified people).

    With more people coming up to retirement and many with smaller pots, coupled to in many instances, the lack of a free ‘no obligation’ meeting/discussion option, people are perhaps more reluctant to engage with an adviser for fear of personal cost under RDR (many customers don’t like to have that discussion and so just don’t enquire). Maybe now is the for government to come up with some initiatives which utilise our qualified adviser community on a paid-for basis.

    I am sure that there are firms and individuals out there who would happily take on these enquiries, in the knowledge that they will be paid by government to do a good job and not have to wrestle with clients who can perhaps ill-afford the cost of their services.

  2. Good article Nic (even better photo). I dont understand why the industry just does not tell the Chancellor “I am sorry Georgie Boy we cannot make this commercially viable so we aint doing it. You may get this sorted via 100% public money”.
    If it is left up to the insurers you can be guaranteed they will make a balls of it somehow and then we will be on to the first “Miss-Guidance Scandal” – As sure as night follows day this will happen.

  3. brian weatherley 10th April 2014 at 2:02 pm

    Guidance i.e. generic ” Yes”

    Advice i.e. client specific “No”

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