The boss of Richmond House Wealth Management responds to Money Marketing columnist Paul Lewis’s latest article that questioned the effect of pension freedoms
I am in the majority of advisers in that I am still, just, in my 50s. I therefore grew up with the Man from the Pru calling monthly to collect premiums, got married with a mortgage at a young age and therefore had at least a basic understanding of finance in my 20s.
The world has moved on. We called out the Man from the Pru for what were expensive policies. Yet the example of my parents saving resonated with me and stood me in good stead. My buying a house gave me an understanding of mortgages and credit and, with it, the value of life assurance to protect the debt. Where are today’s financial role models and educators?
The die was cast in the early 1990’s following the Maxwell scandal, in which it was discovered £450m of investments were missing from the pensions funds of media tycoon Robert Maxwell’s companies. The scandal triggered the Pensions Act 1995 as well as other legislation.
Increased regulatory and actuarial burdens killed defined benefit schemes. At a stroke, millions of employees saw their gold-plated pensions closed and future generations left to fend for themselves via money purchase arrangements. Therefore, they need advice.
Then we had the RDR. Another principled attempt to improve client outcomes that had totally the opposite effect. Banning commissions removed access to advice from all but the mass-affluent and above. The result? The FCA is now worried about an advice gap. Those consumers who had access to commission-based advice now have to pay up front or from their pension pots. Those wanting advice on regular savings could forget it; advisers are not a charity.
So, the proposed solution to the advice gap created through the RDR is for providers to give even more information, investment pathways (what happened to risk profiling and capacity for loss?), and even drive consumers away from cash. What happens when the 10-year bull market comes to an end? Good timing!
Has the FCA forgotten it was overwhelmingly the banks and direct sales forces that were responsible for poor advice and mis-selling? Clearly it has because it believes providers’ guidance, investment pathways and forced investment creates “good” client outcomes.
More recently we have had Mifid II, the latest unworkable and pointless legislation from the EU, which, no doubt, only this country will take seriously. The regulatory burden has spawned a whole new industry in compliance. Even the smallest firms now have to spend tens of thousands of pounds on compliance consultants and professional indemnity insurance premiums have spiralled.
Yet another FCA initiative is to drive down fees. It even wants providers to offer individualistic and complex drawdown plans for the same price as mass market compulsory auto-enrolment plans.
If we want consumers to be more engaged and educated then we have to promote individual responsibility. Giving consumers easy options of investment pathway one, two or three is not the answer. They need to think about their risk tolerance, their drawdown rate and their desire to assist future generations.
Only when they understand the importance of what they are considering will we get them to make informed decisions. Individual responsibility also extends to their choice of adviser. They even have free guidance through the Money Advice Service. What more can we do?
This is the inevitable consequence of removing caveat emptor. We see it in the NHS with missed appointments costing hundreds of millions every year. When responsibility is removed from the individual they see no value it. The FCA has created a two-tier system by over-regulating: the haves in terms of wealth and financial education and the have-nots, for whom advice is perhaps more important but they have been priced out.
We also have a supply problem because barriers to entry are high and the consolidators continue to hoover up the small guys. Carry on like this and we will have just a handful of St James’ Place types left which, with no criticism of SJP, will not lead to good client outcomes.
It is lazy journalism to continue to criticise and campaign for ever-increased burdens to be placed upon our profession. It is rather like a leftist comedian who only has to say the word Trump or Thatcher to get an audience response. A good financial journalist would recognise the huge strides all sectors of financial services has made over the last 20 years, including the banks over the last 10 years.
Mr Lewis should be campaigning for the FCA to give us a break and to treat us with more respect, encouraging cooperation between regulator and regulated for the benefit of consumers, and start highlighting the fact that consumers who take advice end up saving more and achieve greater financial security in retirement.
So there is your challenge Mr Lewis, start writing some positive articles. Join us in campaigning for a freeze on any new regulations in favour of greater enforcement of current rules for the miscreants. We might then just start to see a renaissance in the advice sector and ensure you still have a profession to write about in five years’ time.
Paul Beasley is chief executive at Richmond House Wealth Management