As you might predict, Liberal Democrat MP Mike Thornton is a fan of the Government’s pension freedom agenda but he is scathing about the guidance guarantee announced alongside it.
In March’s Budget, Chancellor George Osborne announced that from April 2015, from age 55 savers will be able to take their whole pension pot as cash, with “free, impartial face-to-face” guidance to help people decide what to do with their savings.
As well as having almost 18 years of experience in financial services, Thornton is a member of the Work and Pensions select committee. He believes giving people freedom over their pension pots will mean they can invest it “properly” but says guidance will be of little help.
“Someone with a huge pot can look after themselves or will already have a good IFA. Those with a modest pot will just spend it or put it aside, it is not going to change their life. A £70,000 pot is enough to make a difference to someone’s life but they are likely not have had to think about investment or tax before. How is guidance going to talk about that?
“It is rubbish. There is no such thing as guidance.”
Thornton has previously floated the idea of using the industry levy that will fund guidance to beef-up The Pensions Advisory Service or to establish an industry-wide body to deliver “proper financial advice”, although he concedes his idea is unlikely to be taken up. Whatever the outcome of guidance, he does not think the Money Advice Service is up to the job. He says: “MAS isn’t anywhere close to being able to do that.”
While the Treasury looks for ways of dealing with a retirement guidance gap, the FCA has been pushing “automated advice” as a solution to the wider advice gap.
Drawing on his experience as a tied adviser and an IFA, Thornton’s verdict on the FCA’s idea is clear. It might work for basic savings accounts or finding the cheapest life insurance policy but it is a “horrendous” idea for clients looking for more complex products.
“As soon as people want to grow their money you need a human brain doing the advising. It might use algorithms and systems to give the advice. I mean, automated advice on investing a lump sum or a pension? That could be horrendous,” he says.
Thornton says this kind of idea betrays a wider problem among those running the Treasury, the FCA and the Bank of England. “They all know about money but they don’t understand that lots of people do not. Some people don’t even know what a percentage is.”
MPs and peers have frequently referred to guidance as advice. When pulled up on doing so by the Treasury select committee, Osborne said “he was communicating in English” so people knew what he was talking about.
“Politicians should use the right terms. They don’t really know what goes into a proper factfind so they don’t realise you can’t advise without it.”
Thornton is all in favour of a proper factfind and fee-based advice. When he started out at Allied Dunbar, he says a factfind was just two sides of A4. “It pretty much had a name, address and what the client wanted. Everything we were taught was about selling and not looking after the customer. It was better for advisers but it certainly wasn’t better for the client.
“Some of my colleagues hadn’t had to declare their commission and they hated it. I never saw a problem. But of course it was abused. If it was easier to be fee-based, then everyone would have been. I just give my adviser a fixed fee for advice and I like it that way.”
He reserves special criticism for his former employer, Barclays. He took a job there as a local business manager after being told the bank had a big range of tools and products that he could use to support local firms. But he says that focus quickly changed, leading ultimately to his resignation.
“Within a year I was being asked: ‘Why didn’t you sell them this? You could have. We’ll get you some techniques for dealing with objections.’ The targets were ridiculous. They were so high you couldn’t achieve them honestly.
You either had to fiddle the figures or do down the customer. I tried for a year or so to achieve the targets within what I thought were honest and ethical boundaries but I couldn’t.”
In December 2012, Barclays introduced an incentive scheme for frontline staff based on customer service. When Thornton left the bank, a colleague decided to stay on and continue to push for better ethics. She has since been promoted. Thornton says: “I genuinely believe it has changed and it is not just skin deep.”
Thornton says his most revealing interaction with the regulator was when he was at Northern Rock and FSA staff were asking the bank’s senior directors for advice in the years leading up to the run on the bank. He says: “These were people who weren’t really up to it and were taking advice from the people they were regulating. That is when I knew it would all go poof.”
What is the best bit of advice you’ve received in your career?
Be honest, straightforward and your business will grow.
What’s keeping you awake at night?
What is the most significant impact on financial advice in the past year?
The RDR and the Mortgage Market Review.
If I was put in charge of the FCA for a day I would…
Appoint the most successful IFAs as consultants.
Any advice for new advisers?
If you want to be successful in the long term, respect your client; it will take a long time to build a solid business. Taking short cuts will help in the short term but you’ll end up going broke.
May 2013-present: MP for Eastleigh
2011-2013: Self-employed mortgage adviser, Simply Finance
2008-2011: Local business manager, Barclays Bank
2007-2008: Regional sales executive, GMAC
2003-2007: Business development manager, Northern Rock
2002-2003: Self-employed financial/mortgage adviser
2001-2002: Financial services trainer, MGM Insurance
1996-2001: IFA with small independent firm Taylors Financial Partners in Portsmouth
1995-1996: Self-employed, direct sales, tied adviser, Allied Dunbar and Axa