Robert Reid is a very professional IFA and someone I like a lot. He represents IFAs and stands up for their interests in Money Marketing. His latest article argues that “cheap advice” especially cheap advice on pension transfers, is wrong.
Those firms offering bargain-basement services cannot be delivering a report that is all that comprehensive
In case you are wondering what “cheap” looks like – it’s £500- £1,000. Robert charges more
On average, we charge between £2,500 and £3,000 for the advice
I know of one case where a friend paid £10.000 for a recommendation to transfer his pension from a DB plan to a personal pension. My friend’s an actuary, he knew the answer, he just had to have the certificate from a Regulated Adviser.
So why these huge fees for a simple go/no-go recommendation?
The answer lies with the Professional Indemnity Insurers who stand behind the advice and are charging premiums based on the risk to them. A £1,000,000 CETV may be ten times more risky than a £100,000 CETV. Which is the justification for charging the fee as a percentage of the amount transferred.
There is something wrong here. There is a breakdown of trust between parties, between the insurers, the advisers and the financial ombudsman who presides over claims.
Robert is right to criticise loss-leading advisers who are effectively working on a no-win no fee basis, banking on making their money from funds under advice. This is no way to carry on and I am with him all the way if that is what is going on with cheap advisers.
But what if an adviser created a process that was neither labour intensive or risky? The basis of robo-advice, is that if the robot’s algorithm is fool-proof , all that can go wrong is the mismanagement of data in or out.
If i was an insurer, my biggest worry in a process-driven recommendation like a transfer value recommendation, would be the amount of human intervention that might get into the way of the robot.
As with transfer advice, so with actuarial advice.
Actuarial firms like mine, have understood for some time, that much of what we do is simply a process that can be defined and coded for a computer to do. The cost of the program tend to zero and the risk of the algorithm going wrong is considerably lower than the risk of a series of manual calculations.
Robert sounds – to me – very much like some of the actuaries i knew ten years ago , who did not embrace the new technologies and are now retired actuaries.
The FCA’s project innovate, with its sandpit – allows advisers to test ideas such as robo-transfer recommendations , with the regulator. If the FCA are comfortable with a robo-process, I suspect so will the insurer.
My advice to Robert (and to those who are commenting on his post) is to start thinking seriously about automating their pension transfer process. For the costs of financial advice tend to zero , when you get in bed with a robot.
You can read Robert’s article in Money Marketing here;