Me and the Minister (“where’s the camera?”)
I have in my hand a little A5 leaflet from the Pensions Advisory Service , entitled Advice and Guidance ; Recognising the difference. I will try to get an electronic link to it but for now you’ll have to take my word for it that it’s key points are
- People use the terms of “advice” even when they understand that they are receiving guidance as “guidance” is not a familiar word used by people.
- People do understand that “guidance” does not provide a definitive course of action and report a high level of satisfaction with guidance
- There is little to be achieved in redefining the terms especially as customers understand then a guider says “we cannot tell you what to do”.
- Over 34 years, The Pensions Advisory Service has not had any issues with customers claiming that it had given advice showing that customers do understand the difference.
- The scope of guidance that is delivered by an independent & impartial organisation can take people up to the “decide and buy” moment,
- There are issues with access and trust in regulated financial advice
Reading this – it is quite obvious that the public see financial advice and guidance as exactly the same thing – and a good thing. The public see the selling of financial products disguised as advice or guidance as a bad thing and as mutton dressed as lamb.
Organisations that have no product to sell , such as TPAS, MAS and the yet to be created Single Financial Guidance Body, will be the better trusted for it.
Mutton dressed as lamb
I have in my other hand, an article in Financial Adviser containing a question from Mr Hill of Hargreaves Lansdown to the Pensions Minister.
“We see a number of employers now care a lot more about the financial welfare of their employees.
“With the introduction of the Lifetime Isa we now see companies thinking beyond auto-enrolment and thinking about that option as well.
“As things get ever more complicated, you mention guidance and not advice.
“With the Financial Advice Market Review there was a lot of talk about guidance rather than advice.
“We for one would love to help a lot more people engage with their savings but the regulatory environment is very much geared towards advice. It doesn’t allow us to have that sort of conversation.
“What role do you think the Department for Work & Pensions can play in engaging with that debate so when people ask us questions we can really, really help?”
I have a great deal of sympathy with Guy Opperman for being flummoxed by this question. He batted it away with some tosh about further consultations and the get out of jail card.
“At the moment it is probably best to describe that it is a guidance body rather than specific advice.”
But let’s look at this question for what it is, an attempt by Hargreaves Lansdown to get the Pensions Minister to sanction selling of an HL product (lifetime ISA) to employees – as an alternative to workplace pensions, under the guise of “financial guidance”.
What HL want to do in the workplace – and what most financial educationalists do – is to provide a veneer of guidance and then flog you a financial product. Typically this is a SIPP into which you can tip all your pension savings but it could be all kinds of stuff that pays the financial educationalist an annuity income stream through some kind of profit share from the member’s pot or premiums.
This is not advice or guidance – it is selling. It is financial mutton dressed up as financial lamb, precisely what the RDR was designed to get rid of and precisely what vertical integration allows. The longer that firms such as Hargreaves Lansdown sell advice, guidance and education and deliver wealth management products, the public will rightly be confused.
As far as I can see, Guy Opperman is a man of the people, for he knows nothing – and knowing nothing – doesn’t trust HL one inch.
Traumatised advisers
I had the great pleasure of being on the golf course yesterday , with my colleagues from First Actuarial and some of our clients, it was indeed the First Actuarial golf day. I will not let the opportunity go by to praise myself for winning the tournament with 37 Stapleford points.
Me and Mr Jones (where’s the camera?)
Going home on the train, I discovered 71 tweets on my timeline moaning about yesterday’s article which praised Paul Lewis for rubbishing the artificial distinction between guidance and advice in exactly the terms of the TPAS leaflet (see above).
Of course Paul, who is rather more experienced than our Pensions Minister (and would make a good Pensions Minister), was rather more incisive in his comments. He knows very well that “advice” is a word that has been purloined by financial advisers to provide them with a commodity that they can sell. Not only can advisers charge for providing a definitive course of action but they can scream at anyone who dares to advise people about money. It’s very “get off my land!”
The arguments were of the “would you trust heart surgery to a hospital porter” variety , with the implication that anyone wanting to know their financial options were in imminent danger of a pecuniary heart attack. Sorry guys- this doesn’t wash. The great unwashed – of whom I am one – want simple and easy advice on what I can do with my money , what the tax implications of those decisions are and what the costs of using advisers, fund managers and other financial intermediaries are likely to be.
Once we have this sort of information , we can “decide and buy”. The precise decision on what we buy may well involve Hargreaves Lansdown, we may want some of the information from Hargreaves Lansdown, but I suspect most of us are sensible enough not to put our heads into the lion’s mouth until we are quite sure the lion is a tame and benevolent lion. Asking a lion if he or she is benevolent may solicit a positive response, but that trust is not always to be trusted.
It’s not advice v guidance that bothers us, it’s advice v selling
It’s a lot simpler to someone outside the advice/guidance loop than to the likes of Chris Hill of HL.
Until the sale of advice stops being cross-subsidised by the sale of vertically integrated product, financial advice/guidance/education will remain sullied. Those organisations who charge for guidance are really giving advice and vice-versa, as long as no product is involved, it really doesn’t matter what we call the service.
But whether we are charging or not charging for advice/guidance/education and being compensated by the revenues from the products we recommend, we are not advising, we are selling. That is why Chris Hill is wrong and Paul Lewis is right and why The Pensions Advisory Service should be handing Guy Opperman a copy of “Advice and Guidance; recognising the difference”. It is a very subtle piece of work.
We support TPAS and what it is doing
I always used to read these blogs and hear the voice of Henry Blofeld in my head.
I thought I was getting over it, slowly getting towards the point where it was all coming through instead in the sort of plummy BBC accent that you get on the shipping forecast.
And then I see that photo of you in your golf gear. I’m right back to Henry Blofeld again.
Keep up the good work Henry.
I would greatly love to be considered with just a tiny bit of affection the nation accords Blowers! Thanks Steve! I appreciate your comments and it’s great you are still reading!!!
‘Until the sale of advice stops being cross-subsidised by the sale of vertically integrated product, financial advice/guidance/education will remain sullied.’
Is it really as simple as cross subsidy? If you charge for a holistic financial plan and then make some implementable recommendations, all for a fee that is not dependent on the decision to implement, it isn’t subsidised but there may be a second source of economic value, potentially even greater, from ongoing advice or management of the implementable plan. The second may bias the first but that’s a different and arguably much more important issue.
It sounds like you hope, Henry, that customers will want to pay whatever it costs for pure advice, customised (so technically not guidance) but without a specific recommendation at the end of it (so not selling). There’s not much evidence they do. And they are not necessarily wrong.
Other than sometimes recognising the value of pure financial planning, perhaps at key life stages, most people want help making an implementable decision for a particular problem and that means a product (or a service – same thing for bias). (This btw means it has to be regulated advice, although the EU’s contribution is to make any advice that is generic, but also made personal, regulated advice). In the course of that regulated advice process, clients will also be able to understand better what the nature of the problem is and what sort of logic applies to solving it. That’s quite important for owning the eventual decision and living with it. But they would not pay for that alone, as it would not help with the implementable bit.
At heart this is a problem for firms of demonstrating both the efficiency and cost savings of vertical integration (an easy sell) and the integrity or ‘indifference’ of the process that joints the bits up (a harder sell). The industry has always used personal chemistry of the advisers/salesmen as a way of avoiding proof of integrity, exploiting the public’s weakness for dependant relationships (i.e. too much trust, not too little).
Ironically, robotic processes may stand a better chance of demonstrating the agent’s indifference than interaction with a human agent. The process needs to be designed so the client gradually exhibits its ‘true’ utility and that then drives the logic of the progression to a decision – in fact utility is constantly being refined by the route taken (probably iterative) to get to the decision (as they are required to make a specific trade off, for example). The process leads robotically where it leads, including not buying a product, or not transferring a pension, or keeping existing agency arrangements but modifying the mandate. In these outcomes, the agent managing or hosting that process loses the sale but stands to benefit far more if that is what demonstrates that they are worthy of trust – always assuming the public values this. In fact, the main target of disruptive models is precisely that misplaced dependency, to try to replace it with a desire for pure integrity of decision making unsullied by agency interests.
The problem of finding a balance between the cost advantages of integration and the risk of agency bias is one that evidently also affects institutional consultants.