The Government and the FCA have been labelled “frustrating” and accused of “navel gazing” for for failing to deliver a solution to the advice gap.
Speaking at the Institute of Financial Planning’s annual conference in Newport today, Partnership chief executive Steve Groves said it is time for the regulator to “step up to the plate” and make advice more affordable for consumers navigating the pension freedoms.
He said: “It is frustrating that 18 months after these changes were announced, we are still navel gazing for solutions to the fact that most clients don’t take advice, don’t take guidance and probably don’t understand the implications of the decisions they’re making.
“That’s more frustrating because this was a problem that was obviously apparent at the time of the RDR. Two to three years on we are still navel gazing, and it is time to act and to come up with solutions to make advice accessible to far more people.”
Groves said the Treasury’s Financial Advice Market Review “has to lead to rapid action”.
He said: “A clear message we want to send to the FCA is there is an advice gap, and regulation or perceived regulation is seriously inhibiting the ability of the industry to innovate, and that is happening to the detriment of customers.
“It is now time for the FCA, working with the industry, to step up to the plate and devise an advice system that will work better. The system works very well for those who can afford it, but we need to rapidly find something that works for everybody.”
He said he expects the review to lead to the further development of what he termed “robo-guidance” models.
He said: “I know people call it robo-advice, but I don’t think it’s advice, I think it’s a form of guidance.”
Groves said he expects the pension freedoms to be reduced, either through policy or regulation, once their impact has become clear to the Government.
He also warned of the dangers of planning towards the “moving target” of a client’s life expectancy.
He said: “You are chasing your tail with age plus life expectancy. Every year you live, your expected age of death gets greater.
“Somebody who is 65 is expected to live to 86.5. Once he’s lived to 85, he’s expected to live to 91.6. If he lives to 90, he’s expected to live to 94.5. So you get this effect where every year you go on, the target has moved out as well as the money gone down.
“What does that mean? It means frankly budgeting to 86.5 at 65 is high risk and will get people into trouble.
“This is a massive planning challenge. The only ways to deal with this are to insure longevity risk or to review this really, really frequently. You need to be reviewing these strategies much more frequently than say five yearly. If you’ve got someone on a five-year strategy, by the time you see them next they’ll have run out of money and have no way back.”