Paul Lewis: New guidance body targets do not meet even 5 per cent of advice gap

Millions of people are in desperate need of advice, but solutions look thin on the ground

Last week saw the news that the BBC will restrict the over-75s’ free TV licence only to those who receive pension credit from next June. Just a few days before, it was announced chief executive of the new Money and Pensions Service John Govett had resigned three months on from its official launch.

These apparently separate events are linked by the urgent need for advice – free advice – to be available to the vast majority of the population that cannot engage a financial adviser because their fees are too high or the assets they demand are too great.

The BBC estimates that 1.5 million over-75s could be eligible for the free TV licence under the new rules, but says only 900,000 of them already get pension credit, with around 600,000 more poor enough to qualify but not claiming it.

These pensioners are already giving up an average of around £50 a week each by not claiming, saving the government more than £1.5bn a year.

Pension credit is only payable to people over 75 with an income below £200 a week if single, or £293 for a couple.

See more of Paul’s columns here

Those who would get £50 will have an income of just £117, so under the new rules, they will have to use more than a week’s money to pay for their TV licence – currently £154.50 but likely to be £158 by then.

Although the average unclaimed is £50, some get very little and may not think it worth claiming. For example, a single person with an income of £190 would get just £4.62 a week in pension credit. Indeed, the Department for Work and Pensions’ take-up figures indicate that the lower the amount foregone, the less likely an individual is to claim.

The BBC hopes its plan “to help raise the visibility of pension credit as a way of claiming a free TV licence” will succeed. The evidence suggests it will be a struggle. Genuine efforts by successive governments have all failed, with take-up actually having fallen since pension credit began in October 2003.

Financial advisers do not generally deal with people on means-tested benefits, so the most important thing for them to absorb is the fact any client over the age of 75 who currently gets a free TV licence will have to pay for it from June.

But that leaves most of the 4.6 million pensioners affected still needing advice about the new system. Who will give it?

Perhaps the now-leaderless MAPS, which is slowly absorbing three agencies – the Money Advice Service, the Pensions Advisory Service and Pension Wise – and also taking over a major debt advice function?

Its planned budget for this year is £118m and its key performance indicators include delivering a total of nearly 500,000 pensions guidance sessions and pension freedoms transactions (so delivering advice regulated advisers could be giving but, for some reason, are not).

It will also help 170,000 people directly with “money guidance”, which should, of course, include advice about pension credit, the TV licence and how they interact.

At the moment, the MAS’s generally excellent website has very clear pages about pension credit but not about the new link with the TV licence.

The number helped by MAPS will top 1.2 million when the debt advice function is added. It sounds impressive, doesn’t it?

That is until you read the recent Advice Gap report by OpenMoney and YouGov, which identifies 5.8 million people who would pay for advice but cannot afford it, and a further 19.8 million who want free advice but have not found any in the past two years. MAPS’ business plan falls short of filling even 5 per cent of that demand.Regulated advisers seem unlikely to meet much more of it.

The key factor identified in the report which put people off using them was the actual or perceived cost of doing so. If advisers state their top fee is £300 an hour – as one did on a website I looked at recently – that puts off people who do not earn this much in a week.

Even a more modest £150 or £200 an hour sounds excessive to those who would barely earn that in two days. Perhaps that is why the Yardstick Agency found 83 per cent of advisers do not mention fees on their website and only one in 20 explains them in any detail.

Besides, many potential clients will be put off before they even get to the website by the minimum wealth requirement revealed on Unbiased or AdviserBook.

A common minimum is £50,000, with some asking for 10 or even 20 times as much.

No wonder people who want to put £50 a month into a pension conclude advice is not for them.

Like the Advice Gap report itself, I do not have an easy solution.

But with advisers charging as much as lawyers, is there a case to follow them in offering some a pro bono service? That phrase has come to mean “free” but in fact means “for [the public] good”. Now that would be a label worth adding to chartered financial planner and independent, wouldn’t it?

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s Money Box programme. You can follow him on Twitter @paullewismoney

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. re”Its planned budget for this year is £118m and its key performance indicators include delivering a total of nearly 500,000 pensions guidance sessions and pension freedoms transactions (so delivering advice regulated advisers could be giving but, for some reason, are not).”

    Partly because: a) advice is expensive – and value hard to quantify. b) advisers don’t serve the mas market. c) pension schemes don’t support/promote or allow PAA payments from the pension – or advice fee either and d) there aren’t enough advisers to serve the mass market hence money advice thru Citizens Advice and the like.

  2. So “free” meaning no charge whatsover. So the adviser provides “Free advice” whilst at the same time from a professional viewpoint takes on all the inherent risks in providing that advice but receives no recompense for his efforts but leaves him or herself open to the risk of being taken to task by the FOS at some point in the future for the quality or content of that advice.. Hmmm.. not sure about that one

  3. Julian Stevens 21st June 2019 at 3:13 pm

    Aren’t subjects such as whether or not somebody qualifies for a free TV licence and, if so, how to claim it, the domain of the CAB? Hardly within that of the MAPS, surely?

    That aside, I’d really like my car to be serviced free of charge but, for some reason, I just can’t seem to find a garage prepared to do it on that basis. I wonder why?

  4. I’m always keen that when people talk about an advice gap, they define what they mean. So I see that Paul Lewis accepts the Open Money definition “people who would pay for advice but cannot afford it”. How useful a definition is that? On that basis, I have an Aston Martin gap. Everyone reading this article will have something they are prepared to pay for but cannot actually afford.
    But how much would these people pay – and what exactly is the service they are looking for – advice on putting £50 into a pension? How much would they pay for that advice from a professionally qualified person?
    Even so, it is interesting that, if price were the only issue, how relatively few people beat a path to MAS or TPAS.

  5. And this Paul is what happens when saving money into anything except deposits becomes “regulated advice”, which has been pushed by the likes of yourselves for decades, coupled with things like RDR which banned commission, thereby preventing vast numbers of people from receiving advice and in many cases being sold the idea of savings.

    Yet I don’t see money journalists screaming that taking on debt should require advice and regulation, eyt here I sit, able to take out new debt in less than 30 mins, with ZERO advice involved.

    Which thing is more likely to lead me into financial problems? Saving or borrowing money?

    There is nothing wrong with simple charged contracts and “simple advice” that doesn’t require vast reams of compliance and may even require people being “sold” the idea that putting money aside is a good idea.

    But the likes of yourself Paul, as well the regulator and politicians have caused this problem, simply because you appear to believe that people should never be responsible for their own actions when you can blame an adviser.

    I know lots and lots of advisers, who would love to be able to sell lots of £50pm savings contracts, but it’s utterly uneconomical for them to do so, because of the state of regulation we have, brought about by the likes of yourselves.

    Now after 20 years you finally seem to get it, but still seem unable to realise what the cause of the problem is.

  6. There is no such thing as a free lunch.

  7. Christopher Lee 21st June 2019 at 4:12 pm

    Paul,
    I offer a low fixed cost for an initial 2 hour consultation (£120-£150 + VAT) plus a fixed cost planning & analysis service where required (variable fees, depending on the level of work involved, but often <£500 + VAT). I also hold a 'pro bono' surgery on the last Friday of every month at the local CAB under the PFS MoneyPlan project. Implementation, if required, (and I stress IF), is usually carried out on a percentage basis and may be used to offset the cost of any planning and analysis fees. Some of us are trying to do our bit but I am always amazed by those that decline the initial consultation on the basis of cost.

    It needs to be remembered that as regulated advisers we effectively get taxed twice, once for regulatory levies and again on income. Contrary to popular opinion I cannot work for nothing all of, or anything other than a small proportion of the time. I have spoken with my PA and my paraplanners but they also insist on getting paid. There are also the usual other overheads of running a business.

    If there is a government desire to overcome the advice gap then I suggest that a redeemable advice coupon is given to those eligible towards the provision of taking regulated advice.

  8. You state that the reformed pension advisory service will have a budget to deliver guidance of £118 million and then go on to question why advises are not covering this guidance and advice gap ….. maybe it’s because, rather than being given a budget to dole out charge-free guidance to the public, we are actually helping to fund the service that does so.

    I’m not sure if you are just consumed by your palpable dislike for advisers, or just a bit dim, but either way you have answered your own question without realising it!

  9. I agree in principal with the idea of advice coupons but I also anticipate all sorts of practical obstacles such as:-

    1. The government almost certainly wouldn’t be prepared to fund such a scheme, which would mean another tier of levies on the advice community.

    2. Of what value would each advice coupon be? Almost certainly sufficient only to cover the cost of an initial consultation (£100?), beyond which consumers would still have to be prepared to pay money from their own resources. Many are still wedded to the idea that they shouldn’t have to pay for advice, perhaps a hangover from the days of commission when advice was assumed to be free because its cost was paid by somebody else from some sort of nebulous benevolent fund.

    3. Even if the government was prepared to meet the cost of advice coupons, the system for redeeming them would have to be efficient enough for advisers to have confidence in it. If they have to wait months and months for reimbursement, most will just withdraw from participation.

    4. How many coupons will each consumer be allowed? One for advice on protection, another for advice on retirement planning, another for advice on investing a lump sum and yet another for advice on a mortgage? Would advice on IHT planning be excluded?

    5. The scope for collusive fraud is substantial, as could be the cost of tackling it.

    And these are just the first five issues that spring to mind as I sit here at my PC.

  10. Its simple really Paul, I’m surprised the guidance target is even that high…

    One the one hand you have a government who what the British public to spend…pension freedoms is a prime example, low interest rates, and tax grabs.

    On the other you have regulation aimed at slowing the whole industry down to a grinding halt…hence the focus on our charges being large and putting consumers off, and the willingness to keep letting scandals happen again putting the consumer off, then there is the micro management so we cant function properly.

    Both government and regulators are doing their jobs fantastically in this respect, after all its all about securing their own positions for the long term, the “advice gap” and the public are, as they have always been “cash cows”

  11. The advice gap is old hat for the reasons laid out in the comments above.

    It’s not complicated. Regulation has chosen a path that has made advice scarce, economics has done the rest. You simply can’t have top quality, regulated-to-the-hilt, guaranteed advice on the cheap. If you mandate that everyone who wants a car has to have a BMW, Mercedes or Lexus, with no allowance for anyone who wants to drive something cheaper then there are going to be a lot of people walking. If anything, the FCA is moving towards Aston Martin, Rolls Royce and Bentley territory, so the advice gap is only going to widen. On the other hand luxury advice providers have never had it so good, you’d think they would be more grateful!

    Perhaps surprising, and more than a little ironic, is that a journalist who has spent years berating and castigatng IFAs is now asking for their help…

  12. As I’ve said elsewhere, the trouble with all these rules, regulations, procedures and protocols that the FCA continues to impose on the advisory community is that, by and large, only the good guys take any notice of them.

    Meanwhile, the bad guys carry on doing pretty much whatever they like without proportionate and appropriately targeted regulation on the part of the FCA until the sherbert hits the fan. Then they fold, dump their liabilities onto the rest of us by way of the FSCS and phoenix into a new business. Halting this endless cycle is, so the FCA has said, is very difficult to do. Read it and weep.

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