There has been nothing that has so harmed the image of pensions over the past thirty years as the deception of commission.
I don’t want to use phrases such as “lack of transparency” or words like “opacity” words like these are untransparent in themselves. “Deception” is the word I use, as it implies intent.
The intent to deceive arose from a recognition early in the 1970s that long term savings plans did not sell themselves and that people would not write cheques to be told how to behave.
“Financial advice” became a euphamism for persuading people to put money away for the future and people were rewarded, not for the quality of the solution but for getting people to do the tough thing – save.
When I was an adviser, this is how I saw it. All the variables were secondary to the essential number – how much was being saved. The bigger the number and the longer the saving period, the greater my reward.
The decision to unravel this equation was at the heart of the retail distribution review. The mood of the noughties was that advisers should be paid for the quality of the advice not for the impulsion to save.
For pension savings this made sense. Everyone would be impelled to save unless they took an active decision not to. It seems that there are about 10% of people the world over who don’t want to save and can be bothered to do opt-out, the other 90% will follow the line of least resistance. Instead of being paid to bludgeon the 90% into saving we have auto-enrolment.
Together, the RDR and Auto-enrolment made the payment of commission to encourage people to save both illegal and unnecessary. The idea was that advisers would move on and get paid to advise.
But the damage done by years of deception has been enormous. Employers used to getting the services of a financial adviser for free – or at least free to them – are now being asked to pay commensurate fees to cover the commissions that are no longer paid. Understandably, they are reluctant to do so.
Because the free advice is now being exposed as being neither free nor advice. The cost was borne by the member and the advice was to do something which is now an employer duty.
Rebuffed by the employer and unable to be paid by the employee’s funds, advisers are now looking for alternative ways to be remunerated. They have found two ways. The first is to act as the Pension Regulator’s agents in the enforcement of auto-enrolment compliance. The second is to act as Fiduciary Managers of people’s retirement savings. Neither of these roles has very much to do with financial planning.
Indeed the deception is continuing for the same reasons as it started. People will still not write cheques to be told how to behave, the caravan has moved on , but the direction of travel is still the same.
Whether through middleware or through vertically integrated mastertrusts, advisers are looking to disguise the costs of their services and this is a continuation of the deception. What is needed is a clear statement of how advisers are paid and why. Claims of improved member outcomes or reduced auto-enrolment costs are justified with reference to spurious surveys commissioned by the advisers themselves or on the grounds that the cost of the extra fund management still keeps the workplace pension compliant with the charge cap.
Meanwhile, the key issues of adequacy , governance and suitability that are the stuff of advice are put to one side, deemed unnecessary. The brazen cheek of advisers who but 3 years ago were preaching the value of these key issues is incredible.
We are about restoring confidence in workplace pensions. If this can be done, we can and will be paid a reasonable amount for our skill and knowledge. Our hard job is to make the 10 million new retirement savers, the 1.3m new sponsoring employers, behave in a way that helps us all retire.
We cannot go on finding new ways to perpetrate the same old lies. We must move on.
Today I am on my way to the DWP to discuss with them how we can reward advisers for advising and how we can prevent deception from plaguing the pension system. By the end of this year, commission should be no more, but I am far from convinced that that will be the case.