I was glad to see Ruston Smith sticking his neck out in the pages of REBA. as Chair of the Tesco Pension Fund, Ruston has always been prepared to go the extra mile and say the things his peers shy away from. Here is his central point
Employers and their pension fund trustees spend lots of money to get the right advice on how their members’ pension should be invested, managed and administered when they are saving – but, in many cases, leave those members to fend for themselves when it’s time for them to choose how to invest and manage that money throughout their retirement.
REBA is a mag for those in HR who want to get people to work smarter; for me that means working so that I don’t have to work for ever and any boss who’s helping me “exit” myself so I can do what I did yesterday, is a good boss.
So how does Ruston Smith reckon people like me can get out of the office and onto the golf course?
Smith argues for the provision of financial advice to employees at the point when they need it . To use the vernacular of this blog, that’s when they’re sailing the Strait of Hormuz.
A number of employers have considered appointing a trusted IFA firm or a panel for their employees to use so everyone can be confident that the advice and charges feel reasonable. As you’d expect, employers and trustees spend time checking out the IFA firm before they appoint them to make sure that it’s the right firm for their employees and members.
This all seems pretty straightforward, but procuring Independent Financial Advice hasn’t been as simple for Smith as buying in fund management or pensions administration.
When employees need more direct advice, finding a good IFA firm that provides advice they can really trust and is explained in everyday language is much more difficult. The British Steel employees found just out how difficult it was to their cost.
The comparison between the choices we make and those of the BSPS members in their Time to Choose is interesting. I was part of the procurement process for member support services and my proposal to the British Steel Pension Trustees was turned down in favour of a guidance help-line.
My proposal, made three months before Time to Choose started was to provide trusted IFAs on the ground in Port Talbot and Scunthorpe. I remember conversations with the Trustee’s advisers where it became clear that neither Trustees or Advisers expected any great rush to the transfer door. Our proposals were rejected in favour of a guidance hotline run by LEBC.
As Chair of the Tesco Trustees, Ruston is taking a quite different view
The problem is that, like the British Steel employees, the vast majority have to find their own Independent Financial Advisor. Websites, like unbiased.co.uk, can help you find IFA firms that have been approved to give financial advice by the FCA – but that doesn’t guarantee that they will be great IFA firms or ones that are right for a particular workforce.
We should remember the testimony of one BSPS member at the Work and Pensions hearing on BSPS mis-selling. He consulted the Government’s own IFA finder service – then run by the Money Advice Service- it pointed him to Darren Reynolds of Active Wealth Management. MAS unwittingly generated leads for Reynolds just as Clive Howells did – with Celtic’s sausage dinners.
Ruston’s point is that two years after “Time to Choose”, most employees still don’t have a good way to choose their retirement option. To use Jo Cumbo’s felicitous phrase they “have a pension pot not a retirement plan”.
“Trustees that do this in a properly governed way are probably less exposed than those who do nothing at all.”
What employers can do
Over the summer, Ruston came to one of AgeWage’s workshops on this subject and presented a solution for employers with the deep pockets to pay for financial advice. It is rehearsed in the REBA article.
But one reason employers and trustees have been held back from doing the right thing for their people, is the risk that the firm they appoint doesn’t deliver and provide the service that was expected – with their people getting poor outcomes and the employer and trustee ending up with a possible litigation risk.
Smith’s solution addresses this risk
When an employer and/or a trustee board appoints an IFA firm or panel for their people to use, the employer or trustee can pay an annual fee for an independent organisation (such as an auditing firm) to carry out ongoing due diligence on the IFA firm they’ve appointed. They would then produce a quarterly report on the IFA’s performance. This could apply regardless of whether the advice is paid for by the employer or by the members themselves.
This proposition of independent ongoing due diligence has been developed based on learnings from the industry and, through a form of internal audit and sample checking, would include:
the financial position
changes in the FCA approval or structure of the firm
fines and reportings
changes in the people or culture
appropriateness of the advice – including the overall charges and structure of charges
clarity of the advice.
Improving the IFA world
No doubt there will be many IFAs who won’t think their world needs changing. I have reported recently on complacency among IFAs who think that they can sell “peace of mind” without being accountable for outcomes.
In a podcast shortly to be broadcast by New Model Adviser I noted that the highest trust pilot score achieved by any firm helping with retirement options is from Retirement Line – an annuity broker which doesn’t provide regulated advice. The much maligned SJP are right up there but the people who get the highest trust ratings are the scammers, who’s customer service is so excellent that their customers hand over money without demur – against all rational logic.
IFA’s suffer from a trust deficit and until they are generally trusted, they will not get the general acceptance that has made SJP a household name. Smith knows this and understands the capacity large employers have to help the best IFAs raise their game by improving their business models and driving out the likes of Active Wealth Management.
As more employers and trustees adopt this approach, building confidence in employees and members to get good advice at a reasonable price, it will mean ‘natural selection’ will lead to the promotion and growth of genuinely good IFA firms and hopefully the end of scammers and poorly run firms.
Employers taking retirement seriously
Ruston is surely right. The risk of people being pirated in the Strait of Hormuz is substantial, the cost of providing professional help at the point of crisis is small relative to the cost of helping people build up their retirement pots.
The prioritisation of good quality IFAs to do this work is right, especially for the deep-pocketed employers who have budgets – Tesco being one of these.
But for smaller employers we will need to see more innovation. There aren’t enough deep-pocketed employers or good quality IFAs to go round and the MAS, unbiased and vouched for databases aren’t aimed at ordinary workers with small pots.
In the next couple of weeks, the Money and Pension Service is due to publish its strategic plan and I hope that that plan will have a big section on helping people retire from work with the help of workplace advice and guidance.
Meanwhile, firms such as mine, will continue to research and build digital solutions to compliment and promote financial advice – of the type that Ruston Smith takes seriously.