The way it’s supposed to be
No demand?
We learn today that advisers are not demanding providers rebate them portions of their client’s funds to pay for their pension related services.
This is really odd; as pension funds are tax-advantaged and investors are missing out on tax-advantaged advice.
If I was offered a 40 or even a 45% discount on my advisory bill, I would take it.
But I am not the kind of person this tax-break was targeted at. It was targeted at the “advice-unwashed” deserted by advisers when commission dried up with the RDR.
And there is no “demand” among advisers, to spend time with these people, tax-incentivised as that offer might be. That is because the £500 limit on the amount that can be raided from pension funds is not enough to cover the compliance on the advice, let alone the advice itself.
We might well ask , how high the limit would need to be , before it would pay advisers to market this tax-break. I suspect the grim reality is that there is too little supply and too much demand.
The demand is for the kind of insights dished out by Martin and Paul Lewis which lead to a definitive course of action –
do this, do that – now off you go and don’t come back and bother me unless you get really stuck
the sort of advice you’d get from a teacher or a driving instructor or a dentist (sorry oral hygienist). In financial advisory terms, this advice is targeted at immediate personal solvency.
The way it is
No supply
This is of course not the kind of advice you will get if you visit a financial adviser. Instead you will be asked impossible questions about your attitude to risk and a lot of help with your wealth (and how you can pass it on).
Advisers aren’t too interested in those who are not wealthy and why should they be. Frankly there is not much more that you can tell these people other than be wise about how you spend, careful about how you save and mindful of others.
Not only are advisers not demanding advice of the kind the Government wants, but they have no intention of supplying it.
No advice
We do of course have a Pensions Advisory Service, which paradoxically does not give advice. It cannot tell people what to do but passes those who wants advice on to financial advisers.
If there is no demand for tax-advantaged advice, we can only assume that the referrals to financial advisers are not being fulfilled.
Having recently seen a price-list for pension leads, I was surprised to find that the most prized leads are for people wanting out of Defined Benefit Schemes with transfer values below £30,000.
Why is there such demand to advise these “pension poor”? The obvious answer is this, that whereas £30,000 doesn’t buy much pension, it buys a lot of “advice”, more specifically the kind of advice that leads to penury for the client and Aston Martins for the adviser.
Wonder why?
We should not be surprised by this state of affairs. There has never been a properly formed advisory market for the advice-unwashed. I suspect there never will be (if we are to take the kind of advice offered by IFAs).
Trying to push square pegs into round holes is not going to make this change!
We need simple non-advised default options for people at retirement. The State Pension is one such example- inflexible – rules based and offering a high degree of certainty.
Drawdown is at the other extreme of that spectrum, and yet it is being billed as the mass-market solution for those fed up with annuities.
We should not be surprised that there is no demand for IFA advice, nor that there is no supply for that advice (at a £500 price). The compliance cost of IFA advice is too high and the quality of the advisers too high. Financial advice is a minority sport for the wealthy and the aspirant-wealthy.
There is an answer, regular readers of this blog know the answer, but the Government, the advisers and it would seem the fund managers, do not want to hear it!
The way it has to be
Not quite with you on this one Henry.
There are actually quite a lot of us who WOULD happily help someone for £500, the problem is that is not what we keep of it and it doesn’t cover either the risk or the work.
£500 for the work and advice would be round about right (pre RDR we were already fee based and we had a minimum fee of £600 for annuity based advice/work offset against any commission paid by the insurer and £2k for drawdown)
It IS doable at around about £500, but not for someone who has had to get a level 4 or 6 qualification when for a lot of the work a level 3 would have sufficed, but then the FSA were warned that this would be the result.
P.S. I don’t have an Aston Martin, I have a Renault Zoe (electric) and a Renault Twizy (2 seater bit of a laugh electric buggy) which i drove to work in today.
The cost of advice on DB transfers under about £50k, let alone £30k would outweigh the benefit to the consumer, hence why (and I don’t have permissions for DB transfers), we don’t even pass anything under about £80k to someone who does have permissions.
Henry I do think the derogatory remarks about advisers is going too far
“It was targeted at the “advice-unwashed” deserted by advisers when commission dried up with the RDR”
Perhaps concentration on solutions would be a better use of your undoubted talents
Oh come on John! I am not being derogatory to advisers.Ty are doing what they should do- maximising profit potential by top slicing the wealthy. If IFAs want to run a pro-bono service for the advised unwashed – well and good. But I don’t think they should. We need solutions – CDC style decumulation organised by NEST and others – we shouldn’t carry on selling tax incentivised advice to a customer base that doesn’t want if and IFAs who don’t need it!
Phil, the easiest way to make money out of DB transfers is to do them non-advised and steal. It’s what all the best scammers do – and I’m not talking about you or John or any other IFA!!!
Well done for bringing this up – the industry I am afraid has not taken this up because they cant see how they could make it work on £500.00 – There is a demand for advice but advisers are only interested with people with pots over 50k. Soon however this will change.