Here’s where we are in relation to the Chancellor’s proposal for guidance made alongside the stunning proposed removal of constraints on drawdown from defined contribution pension schemes. The Treasury documents refers (largely) to guidance and not advice.
The guidance must be:
- impartial, free and face-to-face
- The guidance a customer receives must be focused on their best interests and not those of the providers
- Pension providers and trust-based schemes must offer each of their DC members a “guidance guarantee” at the point of retirement
- The FCA is to be involved in developing and monitoring the adherence to the necessary standards for this guidance
- The guidance could be delivered by providers themselves (without compromising impartiality)
- The guidance could be delivered by third parties
There is a recognition that guidance may only represent the first part of the overall process for a consumer. This is recognised in sections 4.17 and 4.18 of the consultative document (also suggesting some development of on-line advice) that state:
“Many consumers will want to seek further assistance or advice following their guidance session, in particular to help them purchase a product: this may be regulated investment advice (if the individual is considering a drawdown product) or an annuity brokerage service. Some may want to purchase a product without seeking advice (known as “execution only”) and may want to use a comparison site to find the best deal. The Government will consider ways to ensure that individuals are equipped with the skills and information to choose the adviser, broker or comparison site that suits their needs and that they understand the nature of the advice or service they will be getting.
“Greater flexibility will mean that more consumers may opt for investment products and therefore will want to access regulated investment advice to help them gauge their risk appetite and consider their wider financial circumstances. The government will work with the FCA to explore the extent to which regulated advice can be made more affordable through more cost effective delivery, such as through the development of online delivery channels.”
First, all of the above is from a consultative document which means that:
- All attempt at precise interpretation is futile
- All of what is proposed will be consulted on
- Representations (pretty strong representations) will be made (there have already been a number of clear statements from providers expressing the view that providers should not be the organisations responsible for the delivery or funding of the cost of guidance)
The detail is far from set in stone. As well as questions over who is responsible andwho pays, the definition of (or even requirement for) face-to-face advice may change.
The guidance could be delivered through a range of sources, for example, through a “voucher” presented to an adviser, through the advisers of a vertically integrated business which also provides the pension but, of course, it must be focused on the best interests of the consumer and it would seem that the guidance is not going to be the same as regulated advice.
It will be essential, in relation to the free guidance, that it is made clear to the consumer what the guidance covers and what it will not.
The guidance may well include a recommendation to seek such advice though and guidance on how to go about getting it.
OK, this has been a bit of a stream of consciousness but it does indicate just some (but by no means all) of the issues that the consultation will need to cover to come up with a coherent proposition. The sentiment is laudable, the execution will require quite a bit of work to arrive at a workable solution.
Tony Wickenden is joint managing director of Technical Connection
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