The simple idea of merging the functions of The Pension Advisory Service, Money Advice Service and Pensions Wise under a single “Guidance” banner makes a lot of sense. It acknowledges that the current situation is working too well and supposes that a reorganised super-service could do a lot better.
Earlier this year, the DWP released its Christian Ronaldo, Charles Counsell from auto-enrolment duties to take over at the Money Advice Service.
Charles is an organiser, someone who gets things done very well, he has done a great job (and got a gong) for fixing auto-enrolment, now he looks set to do the same with guidance.
Charles’ masculine virtues as a fixer are complimented by TPAS’ Michelle Cracknell, who has transformed TPAS on next to no budget through a different intelligence. If Counsell is Ronaldo, she is the instinctively brilliant Messi!
In many ways this should compliment Counsell’s , the fear is there may only be one space at the top.
How and who the re-organisation of guidance is achieved, we will find out over the next twelve months, but I am comfortable that with Counsell and Cracknell at the helm, this will happen and that we will see a new simple service that the public will use.
How will it be used?
The current approach is reactive. Guidance is given to people at the point when retirement becomes real, when they have to start taking decisions on accumulated savings and pension rights.
At the Great Pension Transfer Debate, Cracknell told the audience her vision was that good savings practice needed to be instilled in the young and that they could educate their parents. It’s an interesting thought and one I have never heard articulated in that way.
Actually, by the time you get to Pensions Wise, you are either financially self-sufficient, in which case you turn to the Government for validation, or you are needing to be told what to do. MAS, TPAS, CAB and Pensions Wise cannot tell you what to do, they can only sign-post you to someone who can. The “someone who can” generally needs paying for carrying the responsibility of delivering a definitive course of action.
The new service, if it is to work is going to have confidence in the advisory process and financial advisers are going to have confidence in the new service.
In my opinion, there is a lack of confidence either way which is what Counsell and Cracknell are going to have to fix.
Guidance and Advice
I am a firm believer in getting people to understand the difference between the two. Guidance is about empowering people to take a decision for themselves and advice is about taking the decision for them. You should not pay for guidance, it is free, it is on the internet, the Government can stick some people on phones and web-chat but they are really only improving on the web-based service.
Advice is something different, it is as different as sitting with a priest in a confessional compared to listening to a sermon.
If we see no value in advice , it is either because we are self-sufficient or because we have no trust in the “confessional” process of financial planning or of its sister “wealth management”.
I think a critical function of a guidance service is to establish in the minds of those using it whether they see value in advice, and if they do, how and where to get it.
The Retail Distribution Review cleansed the advisory process by reducing advisor numbers and focussing minds on financial planning rather than the sale of financial products. We now have less advisors who are better qualified to give advice.
What we have is progress. What we don’t have is a public that is educated to look after itself. The talks on behaviour, most notably from Michelle Cracknell and Greg Davies pointed to our instinctive bias’ towards lazy decisions.
A current example is a survey by AJ Bell, published yesterday. It shows that 50 per cent of advisers conducting DB transfers are getting clients to pay for them by paying a percentage of the transfer value. This means advisers only receive payment if the transfer goes ahead (into their “wealth solution).
This is a case (IMO) of the RDR taking one step forward , and (half) the advisory community taking two steps back. The argument for this kind of product driven advice is made on this blog by one of its major proponents.
IMO the arguments for contingent charging are “recidivist”. -advocating the habitual and repeated relapse into bad habits! Behaviourists will point out that water tends to flow downhill, or as Tideway point out “the earth is not flat”.
Progress through leadership
The DB transfer debate we had on Tuesday showed me that there is a genuine wish among a large group of IFAs not to be recidivist. There was little or no appetite in the room to go back to a pre-RDR state of play.
There was considerable support for the triage or segmentation of Pensions Wise customers between those who needed support but could take their own decisions (guidance) and those who needed to outsource decision making (taking advice).
I would call the group who assembled at the DB debate, thought leaders. They were looking for a way to conduct transfer advice safely and to ensure that everyone got enough guidance to feel comfortable in their own skin.
Of course the conference could not deliver such reassurance, it showed that there are large numbers of people who will go to the Government for guidance, find they need advice and end up taking decisions based on the inherent bias’ of the adviser’s charging system.
But there were sufficient numbers of advisers in the room to give me confidence that progress has been made and we will not slide back into pre-RDR days.
In which case, I hope that those who lead the guidance will feel more confidence in those giving the advice. As to whether this works the other way round, I have more concern. Advisers cannot expect the new guidance to be a “lead-generation service” unless they are prepared to offer advice to all. That means finding ways of offering a simple recommendation at an affordable price (less than £500).
But if the new service can feel that there are advisers who can provide bulk advice to the parts of the market that FAMR is addressing (e.g. the middle market), then guidance and advice can work together to provide something very valuable.
That can only happen if IFAs show considerable leadership and decide between themselves not to relapse into bad habits but to pursue the tough road to professionalism.
Time for IFAs and those delivering guidance to work together.
Now it is time for senior IFAs to show that leadership, that is the best chance we have to make the new guidance service work. Michelle Cracknell and Charles Counsell have a tremendous opportunity to work with IFAs, I hope they will take it.