Advising the 5,000; so where are the loaves and fishes?

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The mass market of people retiring over the next few years  no default means to spend their money and no access to suitably priced advice. That is the conclusion of the FCA consultation on Retirement Outcomes that has just closed.

I have talked about the need to innovate new risk-sharing product. I am now looking at advice.

The FCA’s view as stated in the document is

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I have written to the FCA , suggesting that this is analysis ignores the impact of its own agencies, the Money Advice Service, Pension Wise and the Pensions Advisory Service.

£75m has been spent on the vanity project that is Pension Wise since it started up in 2015. Despite all the advertising , it has delivered relatively little compared to TPAS on which only £11m has been spent.

Anyone who has been live to the issues surrounding Retirement Outcomes will be aware of the tireless work of Michelle Cracknell, TPAS’ CEO and her team.  It is extraordinary that the FCA do not recognise that – despite the failure of Pension Wise, TPAS continue to enjoy the support and respect of everyone who uses them.

TPAS is the great unsung hero of the Pension Freedoms and has done more to help ordinary people than any other Government agency.five thousand 2

Learning from TPAS.

TPAS does not do fancy modellers and does not offer robo-advice. Instead it offers people the chance to talk on the phone or on a web-chat to real people who have experience with pensions and could properly be called pension experts. I have had many chances to talk with TPAS who never seem too busy to help.

I have been to their offices in Victoria (London) several times. The place is always busy with real work – that is helping real people with real problems. While we have seen various regulators and other Government Agencies agonise about metaphysical problems such as “financial empowerment”, TPAS has got its head down and made a real difference.

What we know is that if the DWP want to put money behind a project, they can do. NEST is now projecting to borrow £1.2bn in DWP loans at a subsidised rate of interest. NEST is ensuring that auto-enrolment is happening and I do not quibble at it being funded in this way.

But I do not see why TPAS should be ignored for the success story that it is, starved of development funds and faced with the existential threat of being merged into the  Single Financial Guidance Body.

This Body, due for creation in 2018 is being set up to help the 5m employers that NEST, in its submission to the FCA, claim have no help.

It seems bizarre that NEST should be dismissing , prior to its inception, the very body that could be its salvation but maybe it knows something we don’t, that the Single Financial Guidance Body does not feature in Government plans or that it is going to be so inter, that it will be as ineffective as Pension Wise.

If the Single Financial Body really is so inconsequential to NEST and the FCA, then we really are in trouble. The complexity of the retirement decision making demanded of ordinary people at retirement is such that I doubt we will ever see a robo-adviser that can properly explain things.

Financial modelling is all very well but it is not going to be high on the list of things to do for most people approaching retirement. The FCA may dream of metaphysical concepts of financial empowerment but there is no evidence anywhere in the world of the kind of financial literacy they are demanding of UK citizens.

Learning from Cridland

As well as ignoring TPAS, the FCA are ignoring the advice of John Cridland, who the DWP commissioned to advise on the state retirement age earlier this year.

In Cridland’s report, there is the following recommendation

To support the gradual transition to retirement a Mid-Life MoT will provide workers with holistic advice to prepare for the transition

The transition being the shift from a reliance on work as the primary source of income to a reliance on pension income.

Just why are the FCA not picking up on this? Why are they ignoring both the great work of TPAS and the recommendation of its own adviser? Why is it so desperate to see market solutions to what is essentially a societal problem?

Another example of silo-based thinking in Government?

When I was at the FCA’s Retirement Outcomes workshop, I noticed the DWP and tPR were represented, I tried to solicit their views on these and other matters, they could not be drawn. The meeting was dominated by the major insurers and SIPP players who ignored any comments of mine relating to risk-sharing, the potential of the Single Financial Guidance Body and the proven track record of TPAS.

None of the above fits conveniently into the vision of financial empowerment shared conveniently by advisers, regulators and providers.

So we have the Pension Regulator and the FCA, the DWP and the Treasury, pursuing parallel solutions to the same problem, with NEST seemingly making a bid to take on not just the job of helping us all save but helping us to spend.

If NEST is not promoting the work of TPAS and its successor, I will. The article that appeared in the FT on Friday has NEST promoting its capacity to solve the advisory issues of the 5000 without mentioning the guidance in the system nor the recommendations of the Cridland report. It would seem that NEST is a silo all of its own, one that is sucking money out of the system with scant regard for anything but itself.

I am very angry that this is the case. It is now over four years since these pension freedoms were announced and three years since they came into place. Government is belatedly waking up to the problem but showing no sign of working towards a joined up solution.five thousand


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Advising the 5,000; so where are the loaves and fishes?

  1. John Mather says:

    Maybe the PFS could direct the education objective better if given the funding wasted to date. As a result advice from qualified people would replace discredited “guidance”

  2. As you know Henry, I share your frustrations and anger at the Industry’s continued refusal to create a solution to the “advice gap”. I choose the word “refusal” carefully because that is what it is. There are no regulatory or operational reasons why providers and/or advisory businesses cannot deliver a proposition that would provide financial advice to all members of the public regardless of age or wealth.

    There are only commercial reasons and to suggest otherwise is wildly disingenuous.

    The lobbying for the FCA to introduce a new category terms “guidance” is essentially the Industry saying, “we want to manage their money but we don’t want to have to take on any risk of providing them with advice – do something about it and give us a safe harbour.” That is why we are seeing so many non-advised solutions coming on board apparently to satisfy customer demand because people don’t want advice.

    I have no idea how these surveys are carried out and the questions framed but the idea of people with little wealth and experience choosing to turn down the offer of advice so that they can make their own decisions is fanciful. Rather they do not want to pay the fees that are quoted now for that advice. That is a very different question.

    I cannot think of one scenario where I, as the lay person, would turn down advice from an expert so that I could make my own decisions based on the content of a few website pages regardless of how shiny they were or beautiful they looked in an App. It is as ridiculous as it is irresponsible to think that.

    In fact the subject of retirement option is so complex that the Industry deems it necessary to create an advanced examination on the subject for those advisers who are active in this area to take. Yet somehow we seem to think a large swathe of the public, many of whom are being faced, in the example of D transfers, with sums far greater than possibly their entire asset base, can make these decisions on their own.

    The problem is that we are too used to feasting on rich pickings of fat margins and too chastened by past experiences of mis-selling to want anything different.

    How many firms who say that it is unviable to deliver a service to the mass-market have actually tried to build one? Is it not that to deliver this service, addressing the very real concerns about the level of fees, would mean they would have to make less money than the status-quo and therefore why bother?

    When me and Duncan started the concept of evestor almost two years ago we only had two clear objectives:

    Widen the availability of financial advice to everyone regardless of age and wealth
    Lower the cost of financial advice to make it affordable for everyone

    In the 3 months we have been launched we have achieved that with a client base that ranges from 18 to 81 and investments from £5 per month to over £100,000.

    We have provided through the system over 1,000 recommendations of which over 70% were not to invest either because of debt levels, lack of rainy day funds or no capacity for loss. The incremental cost of those recommendations in negligible beyond the R&D of the build itself and the maintenance. Arguments contingent charging are predicated on being unable to manage conflicts of interest and also ignore totally how else those with more modest means should receive advice.

    Our access to humans via webchat or through qualified adviser virtual meetings have made a massive difference in the customer experience as it provides customers with a level of comfort and validation to make those decisions. As your article notes there are some areas of finance that are very difficult to articulate completely to the lay person via digital-only medium. Our hybrid approach deals with this.

    We have concentrated on accumulation only at the moment but will be launching a decumulation service very shortly including DB transfers which we will be bringing in within the same pricing model as our standard model e.g. no initial fee and a total ongoing cost of less than 50bps. We can do this because we have very efficient systems and realistic expectation on long-term profitability.

    There are no doubts in my mind that the 5,000 can be fed but first we have to want to feed them.

  3. I’m not going to disagree with anything that you or Anthony said above.

    I will however point out the slight contradiction in your criticism of “Another example of silo-based thinking in Government?” I’d say that you are also guilty of this in your focus on pensions.

    What people are interested in is not ‘pensions’ but money. Whether that comes from pensions, drawdown, annuities, earnings or benefits is not the issue. What matters is the overall bottom line. In order for them to understand that, the need is for a holistic assessment of the way those things fit together and affect each other. I’m forced to the view that people in the financial servcices industry don’t believe me when I say that it’s really very likely that giving people money from their pension may result in them gaining nothing, when the effect on their benefits is taken into account. The alternative is that they do believe me but think it doesn’t matter, as long as someone is making a profit.

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