Financial advice, master or menace?


Master Menace

Which came first, the need or the greed?

Old Mutual Wealth (a company that owns one of Britain’s largest financial advice networks and is build a tied network) has commissioned a survey that tells us 90% of those between 30 and 45 have not made financial plans for their retirement.

This is not the same as saying that they are not saving for their retirement (auto-enrolment is seeing to that), the statement is that these people are not planning what to do to have a financially secure later life.

A lot of the answer is in the framing of the question. I know a lot of people in this age bracket who think about the future with alarm and have little trust that their meagre pension planning will see them through. I know a lot of people who have parked pensions having joined a workplace pension , in the hope that having a pension is the same as being sorted in retirement.

If I am to agree with Paul Feeney, CEO of Old Mutual who made the early morning start for us to Wake up to Money – and here his views , then Generation X are heading for the same financial difficulties as are befalling defined benefit schemes and those buying annuities today.

The need for financial advice

For most people, the need for financial advice about saving for retirement is pretty well zero. People need a few rules of thumb (which I will not rehearse) and should save what they can afford when they can afford it into high quality low-cost workplace pensions.

They do not need investment advice, they need a good default.

They do not need tax advice – though they should be encouraged by the tax advantages they get from saving.

They do not need a dashboard making spurious projections around which they make spurious plans.

Most people do not need financial advice and should not be paying for it. The fact that there are only 22,000 financial advisers against 220,000 lawyers ( a number presented by Paul Feeney this morning, tells me we need ten times more lawyers.

For most people, work is where they get their savings and their protection and increasingly it will be the internet from which most people will buy the extra financial products they use to help them and their family achieve financial goals.

I was fortunate enough to hear Holly Mackay of Boring Money talk about the tribes of savers , her firm has segmented, those in this age group regarded Money Saving Expert as authoritative, they do not want to pay someone for something they can source from their phone.

The greed of financial advisers

The idea of financial planning is all but dead in the UK. The concept of a regular annual health check from a financial adviser is simply not something that most people in Generation X are considering.

Since the Retail Distribution Review made the sale of personal pensions and incremental contributions non-remunerative to advisers, advisers have stopped selling savings and moved on to managing the accumulated wealth.

The concept of pensions “wealth”, as defined by managers is ludicrous. Someone is considered pensions “wealthy” for having £100,000 in their pension pot. This would buy a proper annuity of around £3,000pa  and might generate a non-guaranteed drawdown of £4,000 but these income levels could not be said to make someone “wealthy”.

In practice people of a certain age (typically those in their fifties and sixties) are being told that we need wealth management when our retirement wealth is so pitiful as to make us pension paupers.

The “wealth” in our savings is the 2.5% pa  + that is being skimmed off these people’s savings by fund managers (and their cronies, platform managers, discretionary fund managers and by financial advisers to fund the lifestyles of the few.

The Menace

We learned two things from the 2013 OFT review of pensions. The first is that pensions are complicated and the second is that people are bad purchasers both of pension and of pension advice.

The recommendations of the OFT were for simpler products , that did not need advice and for better fiduciaries (IGCs and Trustees) to make sure those products met the needs of people unable to afford advice.

The menace of Old Mutual’s survey and its conclusion is that ordinary people will be poor in retirement unless they pay for financial advice. Every bit of evidence from the RDR, the OFT and from the success of Auto-Enrolment suggests that financial advisers are a menace to the 90% of people who are just getting on with it.

The Master

There are many in Government and in the Government regulator- the FCA – who believe that we all need access to financial advice throughout our lives. The Financial Advice Market Review seems to be predicated on this belief.

But His Master’s Voice went bust – and this received idea is bust as well.

Most people in their thirties and fourties are too busy bringing up families, finding a way to pay their household bills, find mortgage finance or struggle with renting – to find discretionary money to spend on pensions.

Instead they are being nudged into pension contributions in a way that avoids them having to make complicated financial advisory decisions. Payroll dictates their tax, their NI and their pension contribution (under auto-enrolment).

The masterful way in which enrolment is being introduced has meant that less than one person in ten has opted out. The very same 90% who are not thinking about retirement are the 90% who are busy saving for it!

Why we only have 22,000 advisers.

While most of us need a lawyer or a doctor from time to time, most of us could do without ever meeting a financial adviser. That assumes of course that when we are “wealthy” enough to reduce or stop our working, we have a financial escape route.

For most people , that will be when the state pension kicks in. For most people that will require at least £4,000 pa of additional income (assuming that the basic floor of income in retirement is somewhere near the nil-rate tax threshold).

But for those relying on pension savings of £100-200k, the prospect of losing around 2.5% growth to the managers itemised above is not a happy one. In the current financial environment , the cost of drawdown from a wealth platform is between 40 and 60% of the prospective growth on the fund. This is way beyond the means of those relying on this “wealth” and the consequences of this seepage of value will be financial ruin.

This blog has said this many times, but- in the light of Paul Feeney’s comments this morning – I will say it again. What we need is not just the non-advised good value low-cost products for workplace saving but the equivalent to spend our savings.

We only have 22,000 advisers because there are only a very small number of us with financial situations complicated enough to merit financial advice. The concept of mass-market financial advice is dead – if it ever lived.

Collaboration not competition

I hosted a lunchtime session at the LGIM DC Conference yesterday and heard people outside the pensions industry talk of collaboration and the value it brought the consumer.

The view was that competition in financial services led to the proliferation of choice and the need for advice, but this was not seen to benefit ordinary people. Ordinary people were benefiting from the collective workplace pensions and from the state pension.

The truth of the Old Mutual survey is that 90% of us are in the same boat, we save all our working lives and live off our savings when we stop. 90% of us don’t want it to be much more difficult than that. We want to know what to do  and do it.

So my message to Paul (who I know and like) is to stop menacing us with the need for advice and spend time instead building us products that can help us spend our workplace savings.

If we focus on the simple truths in this blog we will stop worrying that 90% of us aren’t worrying about retirement and get on with building the conditions to justify their lack of concern!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to Financial advice, master or menace?

  1. Brian Gannon says:

    oh dear Henry what a biased ignorant blog. you really are disingenuous. financial advice is needed because people do not save enough and do not understand this. it is not because they are stupid or incapable of understanding it. it is because they never think of it. they do not plan. the 2% figure is not the cost of advice is it? it is the total cream off from advice fund managers providers and all intermediaries. it is sometimes more than 2% in fact if we look at the total. however I fear you are jaundiced by your own past. not everyone worked for the allied Dunbar and Eagle stars of the world like you did. not everyone flogged whatever they could to earn bonus like you did. Yes when you are an adviser you try to earn a profitable living. obviously. but planning is about showing people how the future will pan out if they carry on spending without saving. it is then about exploring the alternative paths which can normally only be afforded by spending less. and people are not planning for their retirement with auto enrolment. don’t be silly. 8% is nowhere enough to generate the £4000 extra per year the lower and average wage earner needs. sadly advice is far more expensive than it needs to be because of past unscrupulous practices and sales techniques leading to frankly appalling regulation with ignorant regulators leading the way fighting battles that do not need to be fought. products do indeed need regulating and your transparency efforts have my full support. but maybe we should meet for a beer and have a good old fashioned argument about what advice does and the benefits it has? you seem very jaundiced about it. it might do you good to open your mind to alternatives.

    • Phil Castle says:

      My thoughts too, Henry must have really got out of the wrong side of the bed today.
      Knocking the few advisers remaining isn’t going to be a problem however as we’ve had to grow pretty thick skins if we’re still doing this job after more than 20 years!
      I won’t take it personally Henry… I’ll just tell you you’re wrong.
      Like Brian Gannon, I never worked for allied Dunbar, I grew up in branch banking when it was about service, not sales and ironically I went in to what was thought of as sales (financial advice) as the banks became more sales target driven, but I didn’t change, my employers did and hence I left bancassurance in 1998.
      Focus on the service and advice, that is what our clients value… products are just a means to an end and are not always even needed depending upon what the client is wanting and needing to achieve.

  2. Phil Castle says:

    Sorry Henry… for once I disagree with you. I also think you’ve gone a bit over the top. People do need advice and guidance at the right time.
    I used to advise on group pensions (from 1998 until about 2007) and we arranged many, all bar those in 1998 were single charged either stakeholder or stakeholder friendly plans with the same AMC as stakeholder (or lower) and I provided assistance within the charging structure of the plans.
    many of the staff only needed (and could afford) guidance which was costed within the maximum stakeholder charge.
    I said throughout the noughties that all that was needed was entry by default (auto enrolment it is now called), NOT NEST, NOW and a very low AMC when even stakeholder had an 8-12 year break even point for the provider.
    The GPP consumer was never my client, they were members and the employer was my client.
    Gradually as fund value has got to a sufficient size and the employee nears retirement they have engaged us as their advisers, usually at around 50-55 to help them start planning as disposable income starts to be released as children leave home and mortgages reduce as a proportion of regular outgoings, THAT is where we as investment and pension planners and advisers CAN make a difference to our clients.
    I trained as a vehicle mechanic in the Army, so I can repair my own car (I don’t), I retrained as a Metalsmith in the Army, so I can weld (badly) I can blacksmith (badly), but I don’t. I retrained as a class one Armourer, so I can repaid most small arms if I have the parts (and better eye sight than I have now), but I don’t even LIKE guns. I’ve had basic medical training of course too, but I don’t like the site of blood, so whilst I will do emergency first aid, I don’t want to do anything else.
    Most of my clients COULD do their own planning and do their own research, but like me with my other skills they get someone who is doing it day in day out to research and advise for them and they then make the decision based on the advice either to act or ignore.

  3. Phil Castle says:

    The products already exist and what you need to focus on with the providers of those products where a consumer ahs been auto enrolled is on the ownership of those clients not being with the provider and their tame adviser/agent, but with the consumer themselves who should be allowed to give on-line access to their own agent/adviser to support them with their investment and planning decisions.
    As an example, before I got fed up with group business and the providers games, we were operating a group pension scheme for an expanding airline, we had 100 staff in the scheme with a matching 5% EE and ER contribution, new entrants coming on board, seminars taking place for new entrants on a regular basis, another 300 staff lined up to enter over the coming months as they reached eligibility criteria and they got bought out by another airline, new HTR manager had a shoddy scheme in place for the existing airline and ran with both schemes for a while and then disappointed us as advisers. 90% of the staff reappointed my firm as their individual agents, but the provider could not (and still does not) have systems which allow the consumer to appoint their own agent on a GPP. Basically they want to control distribution by controlling who interacts with the consumer and group schemes and auto enrolment is perfect for them to exert their control.
    If you want to fight for the consumer Henry, put pressure on the providers to allow the consumer to appoint their own agent and give their own agent on-lien access to their pensions and not just the providers tame agent.
    The Retail distribution review separated provider from adviser which was one really good thing about it, but it didn’t with auto enrolled consumers, the providers control distribution once a member enters, hence why the providers are so interested in catching consumers before they get to an adviser so they can sell their overpriced tatt.

  4. Mark Meldon says:

    Hmmm.. not all IFA’s are driven by greed, Henry, not all! I’m not quite clear about your stance here as it is possible to own a “proper” SIPP for not very much money – I know that my clients with such “wrappers” pay very acceptable fees. Well, at least I think so! For the “typical” £300,000 pot, the annual “cost of ownership” will be around 0.48%. That includes the SIPP administrators fee, my “service charge”, custodian fee, and fund charges, assuming a mixture of index funds and investment trusts. The thing is that, aside from the fund fees, the charges are the same whatever the fund size – the more you have the less they take.

    Admittedly, it’s much harder with smaller funds, but there are good contracts from the likes of Royal London where the fees are vastly less than 2.5%.

    I know mud sticks, but its unfair of you to cast your net quite so widely without considering what decent IFAs (and that’s most of us, I believe) are actually doing on the ground.


  5. Henry’s remarks with respect to today’s markets are spot on.
    “..The concept of a regular annual health check from a financial adviser is simply not something that most people in Generation X are considering.”
    I’ve got five kids and they can’t afford to live let alone save.
    “…Most people in their thirties and forties are too busy bringing up families, finding a way to pay their household bills, find mortgage finance or struggle with renting – to find discretionary money to spend on pensions.”
    Most of the people in their 30’s and 40’s that I know are in this boat.
    “…We only have 22,000 advisers because there are only a very small number of us with financial situations complicated enough to merit financial advice. The concept of mass-market financial advice is dead – if it ever lived.”
    When interest rates were galloping and everyone was into portfolio maximization everyone wanted a mass market solution. Those times ended and before 2008.


    • Phil Castle says:

      Those bits of what Henry wrote I could agree with, but as Mark points out, not all of us are operating on such high margins so the rest of the mud slinging is a bit unfair.
      We try and structure what we do for clients so before advice, the cost of platform and fund is within the 1% world (as it was supposed to be from stakeholder onwards)…. no onging advice, that’s it. If the fund is larger, or the individual is nearing retirement or in retirement in drawdown, then ongoing advice is often needed and whilst we could invoice the consumer directly, we instead agree a % of fee under management as it means we spend little or not time working out how much to charge and nearly all of our time advising and intermediating which is what we are supposed to do. For that, we as a firm actually charge a flat monthly fee to all clients (less than £20 pm) plus 0.5% per annum, not the 1% world which will push many RIYs above the 2% mark as nearly all of ours inclusive come out at under 1.5% per annum inclusive of ongoing advice.
      Yes a group scheme can be well below even 1%, but that doesn’t’;t include the advice and time we spend with clients and if they don’t want to take advice, that is their choice, we don’t force them.
      All the GPPs we established in the noughties had a 1% max amc, invariably with a large fund rebate reducing the amc to 0.75% when the fund exceeded 50K which I think was pretty fair of the providers we used bearing in mind breakeven point for them was invariably 8-12 years and before they even got there the govt started the auto enrolment ball rolling!

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