RDR- GPPs and advice

I’m speaking here as an ex-IFA and ex head of Sales of Zurich Assurance and I’ve delivered workplace advice on group personal pensions for 20 years. 

I’m sorry to be rude about IFAs who behave like dinosaurs but I’m sure the dinosaurs who got wiped out would have appreciated some advice before their calamitous disappearance and I hope they take this in the right spirit! 

Not an IFA


I recently came across an article in This is Money which argued that  

 “A charges revamp will hit employee’s pension schemes with an upfront fee of potentially £350 – costing those who move jobs more.” 

This is scare-mongering from the vested interest groups – IFAs whose current business model is supported by insurers’ commissions and insurers who pay large amounts to IFAs to ensure distribution of their products. Neither practice is in the best interest of consumers and the FSA will scupper this abuse by 

  1. Introducing auto-enrolement which does away the need for workplace pensions to be sold to members
  2. Requiring employers and employees to choose whether they want to be pay advisory fees for what I consider to be “no advice”.

In this blog I argue that IFAs have a job to do in providing workplace advice but it’s not in selling people the idea of joining their company’s group personal pension. 

It is to give help to long-standing members of such schemes who have built up some money and are worried how to preserve capital and get a decent income from their pensions wealth once they stop or wind-down their work in later life. 

The rest of the stuff here is pretty specialised so if you’ve read this far – you might consider going and doing something more interesting! This stuff isn’t going to happen for a couple of years and it’s really only of relevance to employers offering workplace DC pensions, advisers and perhaps the FSA! 

So if you are off now- thanks for reading and see you again in 2012! 

Still with me?  

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This from Money Marketing 

Only 3 per cent of consumers would be prepared to pay over £100 per hour for independent advice and half would not pay any fee, according to Aviva research.
An ICM poll of 2,053 consumers conducted for Aviva shows that 50 per cent of people would refuse to pay anything for independent advice and would rather not receive advice at all
Whilst the article we are discussing is talking about is advice given to members and potential members of GPPs at the outset of their saving-when their pension pots are £0.
Even the 3% of people ready to pay for advice are going to think twice to a wealth based advisory service when there’s no wealth on which to advise!
The majority of people will choose not to pay for advice at the outset of their pension so I take issue with the scare-mongering of vested interest groups who claim that people will be mis-sold advisory fees.

To be clear, the advice given at outset at present is based on getting people to join GPPs not on the quality of participation financial advisers are paid nothing from a GPP provider for getting members to take sound investment decisions so IFAs target the only things that impact their income- take-up and in particular maximizing the contributions from members and employers. 

The IFAs argue that without them, the levels of participation and the extent of participation will fall- I think there is some validity in this ( I have monitored take up on schemes I have worked on and it definitely improves where an adviser is present in the workplace)   

but auto-enrolement is so going to change the picture that this argument is potentially dead. 

Basically this is a re-hash of the old back end load against front end load commission argument. The insurers tried front-end loaded pensions in the days leading up to RU64 in a vain attempt to improve transparency and the public put two fingers up to it- aggregated charges are aggregated charges and that’s what they didn’t want.
There may be a limited market for “bulk advice” to employees paid for or subsidised by the employer that provides employees with rudimentary financial education sufficient to allow them to take better decisions and protecting them from taking rubbish decisions. 

However this service will only appeal to paternalistic employers and even then it will be a tough choice between flexing the employee benefit spend away from tangible benefits such as pension contributions and into intangible benefits (financial education). 
“Front end” advice at point of sale will be further constrained by lack of capacity. Paternalistic employers are going to fly to quality and look for their professional advisers to offer this service their actuaries, investment consultants and professional trustee firms. These firms are not geared up to talking to each member. 
Even if IFAs want to get stuck into providing front end loaded advice- and I include Restricted Advisers here, they are unlikely to be appealing to employers who consider their track record in a pre RDR world as pretty shoddy.
So I think the front end “point of sale” advisory market cooked. 

Second point
When I started selling we were taught a simple pre-close when we started conversations with potential customers 

the people I talk to fall into two camps, those who haven’t got money but would like to and those who have got money and would like to hang on to it- which camp do you fall into? 

The RDR basically protects the vulnerable people in the first camp from outrageous exploitation by snake-oil salesmen. 
It also looks to improve standards for the second camp. 
As DC pots mature, more and more people are going to find they have what the consider substantial wealth in their pensions. People will a lifetime in employer funded GPPs are likely to have sufficient accumulated wealth to be seriously worried about capital protection and the protection of the income stream in retirement to support a decent post-work lifestyle. 
My pre-sale close worked intuitively on a behavioural finance principle that folk will take action out of fear or greed (or both). There is sufficient “fear and greed” surrounding a £100,000 DC pot to motivate many employees to pay over £100 per hour for quality advice as to how to protect capital and provide a secure income stream.
This is the argument for back-end loaded advice. 
Coming back to the article not only does it scare-monger on a non issue front-end loaded advice (that ain’t going to happen) but it ignores a real issue back end loaded advice. 
What IFAs, actuaries and other pension professionals should be thinking about now is how to deliver quality advice to individuals who have wealth and want to keep it, convert it and in extreme cases pass it on. 

IFAs know a lot about these things and have a really important part to play in helping people with the difficult choices surrounding annuitisation,income draw-down and the preparation of pensions wealth for their personal “end-game”. 
Which is what I’m thinking about right now.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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